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Federal Election Commission.
Final rules.
In accordance with the Federal Civil Penalties Inflation Adjustment Act of 1990, as amended, the Federal Election Commission is adopting final rules to apply inflation adjustments to certain civil monetary penalties under the Federal Election Campaign Act of 1971, as amended, the Presidential Election Campaign Fund Act, and the Presidential Primary Matching Payment Account Act. The civil penalties being adjusted are for a knowing and willful violation of the prohibition against making a contribution in the name of another; and certain late filed or non-filed reports under the Commission's administrative fines program. The adjusted civil monetary penalties are calculated according to a statutory formula and will be effective for violations occurring after the effective date of these rules. Further information is provided in the supplementary information that follows.
These penalty adjustments are effective on July 24, 2013.
Mr. Robert M. Knop, Assistant General Counsel, or Ms. Cheryl A.F. Hemsley, or Ms. Jessica Selinkoff, Attorneys, 999 E Street NW., Washington, DC 20463, (202) 694–1650 or (800) 424–9530.
The Federal Civil Penalties Inflation Adjustment Act of 1990, as amended (“Inflation Adjustment Act”),
The Inflation Adjustment Act requires the Commission to adjust the civil penalties under its jurisdiction by using a cost-of-living adjustment (“COLA”) formula. The application of this COLA does not involve any Commission discretion or policy judgments. Thus, the Commission finds that the “good cause” exception to the notice and comment requirement of the Administrative Procedure Act applies to these rules because notice and comment are unnecessary. 5 U.S.C. 553(b)(B), (d)(3).
For the same reasons, these rules do not need to be submitted to the Speaker of the House of Representatives or the President of the Senate under the Congressional Review Act, 5 U.S.C. 801
Under the Inflation Adjustment Act, the Commission must adjust civil penalties by a COLA defined as the percentage by which the U.S. Department of Labor's Consumer Price Index for all urban consumers (“CPI”) for June of the year preceding the adjustment exceeds the CPI for June of the year in which each civil penalty was last set or adjusted.
The Commission has previously applied the Inflation Adjustment Act formulas to its civil penalties in 1997, 2002, 2005, and 2009.
FECA establishes civil penalties for violations of FECA or the other statutes within the Commission's jurisdiction.
These final rules adjust only one statutory civil penalty: the $50,000 civil penalty established by 2 U.S.C. 437g(a)(5)(B), which is currently at the 2009 level of $60,000. 11 CFR 111.24(a)(2)(ii).
Using the same Inflation Adjustment Act formulas, the Commission has also reviewed the other civil penalties in 11 CFR 111.24. None of those other civil penalties will change this year because of the rounding rules.
FECA permits the Commission to assess civil penalties for violations of the reporting requirements of 2 U.S.C. 434(a) in accordance with schedules of penalties established and published by the Commission. 2 U.S.C. 437g(a)(4)(C)(i). The penalty schedule in 11 CFR 111.43(a) applies to reports that are not election sensitive, and the schedule in 11 CFR 111.43(b) applies to reports that are election sensitive.
The schedules in 11 CFR 111.43 were set in 2003 when the Commission re-promulgated its Administrative Fines program, which implements 2 U.S.C. 437g(a)(4)(C).
For purposes of the current adjustments, the Commission multiplies each civil penalty that was raised in 2009 by a COLA of 0.064. For those civil penalties set in 2003 and unchanged in 2009, the Commission multiplies each civil penalty by a COLA of 0.249.
The $6,050 civil penalty in 11 CFR 111.43(c) was adjusted in 2009,
The penalty in 11 CFR 111.44 was last adjusted in 2005,
The provisions of the Regulatory Flexibility Act are not applicable to this final rule because the Commission was not required to publish a notice of proposed rulemaking or to seek public comment under 5 U.S.C. 553 or any other laws. 5 U.S.C. 603(a), 604(a). Therefore, no regulatory flexibility analysis is required.
Administrative practice and procedures, Elections, Law enforcement, Penalties.
For the reasons set out in the preamble, the Federal Election Commission amends subchapter A of chapter I of title 11 of the
2 U.S.C. 432(i), 437g, 437d(a), 438(a)(8); 28 U.S.C. 2461 nt.
(a) * * *
(2) * * *
(ii) Notwithstanding paragraph (a)(2)(i) of this section, in the case of a
(a) The civil money penalty for all reports that are filed late or not filed, except election sensitive reports and pre-election reports under 11 CFR 104.5, shall be calculated in accordance with the following schedule of penalties:
(b) The civil money penalty for election sensitive reports that are filed late or not filed shall be calculated in accordance with the following schedule of penalties:
On behalf of the Commission.
Federal Aviation Administration (FAA), Department of Transportation (DOT).
Final rule; request for comments.
We are adopting a new airworthiness directive (AD) for Eurocopter Model AS350B, AS350BA, AS350B1, AS350B2, AS350B3, AS350C, AS350D, and AS350D1 helicopters with a single hydraulic system and a certain hydraulic pump drive installed. This AD requires inspecting the hydraulic pump drive pulley bearing (pulley bearing) for leaks, rust, overheating, and condition. This AD is prompted by six reports of hydraulic pump drive belt failure caused by seizure of the pulley bearing. These actions are intended to prevent hydraulic pump drive belt failure, loss of hydraulic servo assistance, and subsequent loss of control of the helicopter.
This AD becomes effective August 8, 2013.
We must receive comments on this AD by September 23, 2013.
You may send comments by any of the following methods:
•
•
•
•
You may examine the AD docket on the Internet at
For service information identified in this AD, contact American Eurocopter Corporation, 2701 N. Forum Drive, Grand Prairie, TX 75052; telephone (972) 641–0000 or (800) 232–0323; fax (972) 641–3775; or at
Matt Wilbanks, Aviation Safety Engineer, Regulations and Policy Group, Rotorcraft Directorate, FAA, 2601 Meacham Blvd., Fort Worth, Texas 76137; telephone (817) 222–5110; email
This AD is a final rule that involves requirements affecting flight safety, and we did not provide you with notice and an opportunity to provide your comments prior to it becoming effective. However, we invite you to participate in this rulemaking by submitting written comments, data, or views. We also invite comments relating to the economic, environmental, energy, or federalism impacts that resulted from adopting this AD. The most helpful comments reference a specific portion of the AD, explain the reason for any recommended change, and include supporting data. To ensure the docket does not contain duplicate comments, commenters should send only one copy of written comments, or if comments are filed electronically, commenters should submit them only one time. We will file in the docket all comments that we receive, as well as a report summarizing each substantive public contact with FAA personnel concerning this rulemaking during the comment period. We will consider all the comments we receive and may conduct additional rulemaking based on those comments.
The European Aviation Safety Agency (EASA), which is the Technical Agent for the Member States of the European Union, has issued EASA Emergency AD No. 2013–0044–E, dated February 27,
These helicopters have been approved by the aviation authority of France and are approved for operation in the United States. Pursuant to our bilateral agreement with France, EASA, its technical representative, has notified us of the unsafe condition described in the EASA AD. We are issuing this AD because we evaluated all information provided by EASA and determined the unsafe condition exists and is likely to exist or develop on other helicopters of these same type designs.
Eurocopter issued AS350 Emergency Alert Service Bulletin No. 05.00.72, Revision 1, dated June 11, 2013 (EASB 05.00.72), for Model AS350B, AS350BA, AS350B1, AS350B2, AS350B3, ASAS350D, and for non-FAA type-certificated Models AS350L1 and AS350BB helicopters. EASB 05.00.72 describes procedures for inspecting the pulley bearing for leaking grease, condition of the lip seals, rust on the lip seals, evidence of overheating revealed by brown discoloring of the bearing, and for the condition of the sealing flanges. EASB 05.00.72 also describes procedures for rotating the bearing manually to determine if there are any friction points, brinelling, or noises from the bearing. EASB 05.00.72 requires these inspections within 10 hours time-in-service (TIS) for installed bearings with 165 or more hours TIS since installation. For bearings with less than 165 hours TIS since installation, EASB 05.00.72 requires inspecting the bearing upon reaching 165 hours TIS.
This AD requires, for hydraulic pump drives with 165 or more hours TIS since installation, within 10 hours TIS and thereafter at intervals not exceeding 25 hours TIS, decoupling the pulley and inspecting the pulley bearing for leaking grease, a crack or tear in the lip seals, a run of rust on the lip seals, indication of overheating shown by brown coloring on the inner ring of the bearing, any distortion, impact, wear, a tear, a crack, or loss of grease on the sealing flanges, or for a friction point, brinelling, or noise from the bearing. If any of these conditions exist, this AD requires replacing the hydraulic pump drive assembly before further flight. If the hydraulic pump drive assembly is replaced, the repetitive inspection requirements of this AD still apply.
We consider this AD to be an interim action. Eurocopter is still investigating the cause of this condition. If a final action is later identified, we might consider additional rulemaking.
We estimate that this AD will affect 36 helicopters of U.S. Registry. We estimate that operators may incur the following costs in order to comply with this AD.
At an average labor rate of $85 per hour, inspecting the bearing pulley would require about 1.5 work-hours, for a cost per helicopter of $128, and a total cost to U.S. operators of $4,608, per inspection cycle.
If required, replacing the hydraulic pump drive assembly would require about 1.5 work-hours, and required parts would cost about $8,543, for a total cost per helicopter of $8,671.
According to Eurocopter's service information, some of the costs of this AD may be covered under warranty, thereby reducing the cost impact on affected individuals. We do not control warranty coverage by Eurocopter. Accordingly, we have included all costs in our cost estimate.
Providing an opportunity for public comments prior to adopting these AD requirements would delay implementing the safety actions needed to correct this known unsafe condition. Therefore, we find that the risk to the flying public justifies waiving notice and comment prior to the adoption of this rule because the required corrective actions must be accomplished within 10 hours TIS, a very short time period based on the average flight-hour utilization rate of these helicopters in the helicopter emergency medical service and air tour industries.
Since an unsafe condition exists that requires the immediate adoption of this AD, we determined that notice and opportunity for public comment before issuing this AD are impracticable and that good cause exists for making this amendment effective in less than 30 days.
Title 49 of the United States Code specifies the FAA's authority to issue rules on aviation safety. Subtitle I, section 106, describes the authority of the FAA Administrator. “Subtitle VII: Aviation Programs,” describes in more detail the scope of the Agency's authority.
We are issuing this rulemaking under the authority described in “Subtitle VII, Part A, Subpart III, Section 44701: General requirements.” Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this rulemaking action.
We determined that this AD will not have federalism implications under Executive Order 13132. This AD will not have a substantial direct effect on the States, on the relationship between the national Government and the States, or on the distribution of power and responsibilities among the various levels of government.
For the reasons discussed, I certify that this AD:
1. Is not a “significant regulatory action” under Executive Order 12866;
2. Is not a “significant rule” under DOT Regulatory Policies and Procedures (44 FR 11034, February 26, 1979);
3. Will not affect intrastate aviation in Alaska to the extent that it justifies making a regulatory distinction; and
4. Will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.
We prepared an economic evaluation of the estimated costs to comply with this AD and placed it in the AD docket.
Air transportation, Aircraft, Aviation safety, Incorporation by reference, Safety.
Accordingly, under the authority delegated to me by the Administrator, the FAA amends 14 CFR part 39 as follows:
49 U.S.C. 106(g), 40113, 44701.
This AD applies to Eurocopter Model AS350B, AS350BA, AS350B1, AS350B2, AS350B3, AS350C, AS350D and AS350D1 helicopters with a single hydraulic system and with a hydraulic pump drive installed in accordance with modification 079566 that has 165 or more hours time-in-service (TIS) since installation, certificated in any category.
This AD defines the unsafe condition as seizure of the hydraulic pump drive pulley bearing. This condition could result in hydraulic pump drive belt failure, loss of hydraulic servo assistance, and subsequent loss of control of the helicopter.
We must receive comments on this AD by September 23, 2013.
This AD becomes effective August 8, 2013.
You are responsible for performing each action required by this AD within the specified compliance time.
Within 10 hours TIS, and thereafter at intervals not exceeding 25 hours TIS:
(1) Uncouple the pulley from the hydraulic pump.
(2) Using a mirror and a light, inspect the hydraulic pump drive pulley bearing (pulley bearing) for leaking grease from each lip seal of the four greasing orifices (lip seal) due to wear, a crack or tear in a lip seal, a run of rust on a lip seal, indication of overheating shown by brown coloring on the inner ring of the bearing, and for any distortion, impact, wear, a tear, a crack, or loss of grease on each sealing flange.
(3) Manually rotate the pulley bearing through several full turns and inspect for a friction point, brinelling, or a noise from the bearing.
(4) If there is any leaking grease from a lip seal, a crack or tear in a lip seal, a run of rust on a lip seal, indication of overheating shown by brown coloring on the inner ring of the bearing, or distortion, impact, wear, a tear, a crack, or loss of grease on a sealing flange, or a friction point, brinelling, or noise from the bearing, before further flight, replace the hydraulic pump drive assembly.
(1) The Manager, Safety Management Group, FAA, may approve AMOCs for this AD. Send your proposal to: Matt Wilbanks, Aviation Safety Engineer, Regulations and Policy Group, Rotorcraft Directorate, FAA, 2601 Meacham Blvd., Fort Worth, Texas 76137; telephone (817) 222–5110; email
(2) For operations conducted under a 14 CFR part 119 operating certificate or under 14 CFR part 91, subpart K, we suggest that you notify your principal inspector, or lacking a principal inspector, the manager of the local flight standards district office or certificate holding district office, before operating any aircraft complying with this AD through an AMOC.
(1) Eurocopter AS350 Emergency Alert Service Bulletin No. 05.00.72, Revision 1, dated June 11, 2013, which is not incorporated by reference, contains additional information about the subject of this AD. For service information identified in this AD, contact American Eurocopter Corporation, 2701 N. Forum Drive, Grand Prairie, TX 75052; telephone (972) 641–0000 or (800) 232–0323; fax (972) 641–3775; or at
(2) The subject of this AD is addressed in European Aviation Safety Agency (EASA) Emergency AD No. 2013–0044–E, dated February 27, 2013. You may view the EASA AD in the AD docket on the Internet at
Joint Aircraft Service Component (JASC) Code: 2913: Hydraulic Pump, Main.
Federal Energy Regulatory Commission.
Final rule.
The Federal Energy Regulatory Commission (Commission) is modifying Page 700 of FERC Form No. 6 (Form 6) to facilitate the calculation of an oil pipeline's actual return on equity for preliminary screening purposes. The Commission will expand the information provided regarding Rate Base (line 5), Rate of Return (line 6), Return on Rate Base (line 7), and Income Tax Allowance (line 8).
1. The Federal Energy Regulatory Commission (Commission) is issuing this Final Rule to modify the reporting requirements on Page 700, Annual Cost of Service Based Analysis Schedule, of FERC Form No. 6, Annual Report of Oil Pipeline Companies (Form 6), to facilitate the calculation of an oil pipeline's actual rate of return on equity based upon Page 700 data for preliminary screening purposes. The modifications to Page 700 include requiring additional information regarding rate base, rate of return, return on rate base, and income taxes.
2. The Commission is responsible for regulating the rates, terms and conditions that oil pipelines charge for transportation under the Interstate Commerce Act (ICA).
3. To assist the Commission in the administration of its jurisdictional responsibilities, the ICA authorizes the Commission to prescribe annual or other periodic reports.
4. Page 700 of Form 6 provides a simplified presentation of an oil pipeline's jurisdictional cost-of-service. Page 700 serves as a preliminary screening tool to evaluate oil pipeline rates.
5. On September 20, 2012, consistent with its obligation to ensure oil pipeline rates are just and reasonable, the Commission issued a Notice of Proposed Rulemaking (NOPR) proposing to modify the reporting requirements on Page 700 of Form 6 to allow shippers and interested entities to more easily calculate an oil pipeline's actual rate of return on equity for
6. The Association of Oil Pipelines (AOPL),
7. The majority of commenters support the NOPR. In contrast, the Association of Oil Pipelines (AOPL) believes the proposed modifications are unnecessary. We address AOPL's arguments below.
8. As discussed below, the Commission adopts, with minor modifications to the labeling of the additional lines on Page 700, the NOPR's proposal to enhance the information provided on Page 700 related to rate base, rate of return, return on rate base, and income tax allowance.
9. The NOPR observed that “[c]omponents of an oil pipeline's rate base are governed by the trended original cost methodology adopted in Opinion No. 154–B.”
10. AOPL requests clarification as to proposed line 5a. AOPL seeks clarification that line 5a is intended to reflect the respondent's depreciated original cost rate base, consistent with the methodology contained in Opinion No. 154–B,
11. The Commission adopts the NOPR proposal to enhance the rate base information provided on Page 700 by adding lines 5a, 5b, and 5c to Page 700 to provide the three subparts of the TOC rate base. The new line 5 series will reflect the following additions as proposed in the NOPR: (1) Rate Base—Depreciated Original Cost (line 5a); (2) Rate Base—Unamortized Starting Rate Base Write-up (line 5b); and (3) Rate Base—Accumulated Net Deferred Earnings (line 5c). The sum of lines 5a, 5b, and 5c comprise the oil pipeline's TOC rate base, which is currently reported on line 5 and which will now move to line 5d and be entitled Total Rate Base—Trended Original Cost—(line 5a + line 5b + line 5c). As requested by AOPL, the Commission affirms new line 5a is intended to reflect the respondent's depreciated original cost rate base consistent with Opinion No. 154–B and it will be titled to reflect such intent. The depreciated original cost rate base will be added to the other two subparts, which will comprise the oil pipeline's total TOC rate base.
12. The NOPR proposed to require oil pipelines to report the cost of equity, cost of debt, and the capital structure supporting the overall weighted cost of capital currently reported as Rate of Return on line 6, Page 700. Specifically, the NOPR proposed to include additional information related to debt and equity capital structure ratios, i.e. (1) Rate of Return—Adjusted Capital Structure Ratio for Long Term Debt (proposed line 6a), (2) Rate of Return—Adjusted Capital Structure Ratio for Proprietary Capital (proposed line 6b).
13. AOPL seeks clarification as to proposed lines 6b and 6d. AOPL notes that the term Proprietary Capital is not defined and does not appear in any Commission regulations governing oil pipelines.
14. In contrast, A4A and the NPGA submitted comments agreeing that the proposed information is necessary to
15. The Commission adopts the NOPR proposal to enhance the rate of return information on Page 700 by adding to line 6 of Page 700, as modified below. The NOPR's use of the term Proprietary Capital was not meant to create a new ratemaking concept. The Commission borrowed the term Proprietary Capital from the listing of balance sheet chart of accounts in the Uniform System of Accounts (USofA) for the natural gas and electric industries.
16. To be consistent with the language of the USofA for the oil pipeline industry, the Commission will change the term Proprietary Capital in the line 6 series to Stockholder's Equity. The Commission also grants AOPL's clarification that the adjusted equity capital ratio should be calculated in a manner consistent with the Commission's prior findings in Opinion No. 351–A. Likewise, the Commission notes that AOPL is correct that line 6d is intended to provide the allowed real return on equity referenced in the Commission's Return on Equity Policy Statement.
17. The Commission adopts the NOPR proposal to enhance the rate of return information on Page 700 by adding data to line 6 of Page 700. The new line 6 series will reflect a wording change as clarified above and will include additional information related to debt and equity capital structure ratios in the following manner: (1) Rate of Return—Adjusted Capital Structure Ratio for Long Term Debt (line 6a), (2) Rate of Return—Adjusted Capital Structure Ratio for Stockholder's Equity (line 6b). The Commission further adds information related to the cost of debt and the cost of equity, specifically: (1) Rate of Return—Cost of Long Term Debt Capital (line 6c), (2) Rate of Return—Real Cost of Stockholder's Equity (line 6d). This additional information forms the basis for the Rate of Return—Weighted Average Cost of Capital (the sum of the product line 6a and line 6c added to the product of line 6b and 6d), which is now reported as Rate of Return on line 6 on Page 700 and which the Commission proposes to move to line 6e, and label Rate of Return—Weighted Average Cost of Capital—(line 6a × line 6c + line 6b × line 6d).
18. The Commission denies A4A's and NPGA's request to change the 14.25 percent figure in Appendix B. The inputs contained in Appendix B were solely used for illustrative purposes and should not be viewed as having any precedential value.
19. The NOPR proposed to require oil pipelines to report additional information related to the Return on Rate Base in line 7.
20. A4A and NPGA request that instructions to Page 700 recognize that the Return on Rate Base—Debt Component (line 7a) will equal the product of the Trended Original Cost Rate Base (proposed line 5d) and the weighted average cost of debt (itself the product of proposed lines 6a and 6c), while the Return on Rate Base—Equity Component (line 7b) will equal the product of the Trended Original Cost Rate Base (proposed line 5d) and the weighted average cost of equity (product of proposed lines 6b and 6d).
21. The Commission adopts the NOPR proposal and grants the requested clarifications. The Commission will change the proposed wording for lines 7a and 7b to include a parenthetical formula as described by A4A and NPGA. The title for the new line 7a will read “Return on Rate Base—Debt Component—(line 5d × line 6a × line 6c).” The title for new line 7b will read “Return on Rate Base—Equity Component—(line 5d × line 6b × line 6d).”
22. The NOPR proposed to modify Page 700 to include the Composite Tax Rate used to determine the Income Tax Allowance.
23. The NOPR surmised “[t]he Composite Tax Rate Percentage will create a better understanding of the differential between an oil pipeline's Total Interstate Operating Revenues (line 10) and the oil pipeline's Total Cost of Service (line 9).”
24. Several entities filed comments. AOPL requests the Commission clarify what is represented by the Composite Tax Rate to be included in proposed line 8a (combined federal and state tax rate or something different). ConocoPhillips requests the Commission clarify how the income tax allowance reported on line 8 of the illustrative Page 700 provided as Appendix B to the NOPR was calculated.
25. A4A and NPGA request that the Commission provide guidance in its order that will ensure oil pipelines include a reasonably calculated income tax allowance on Page 700. A4A and NPGA note that the Commission may want to consider requiring the oil pipeline to report the income taxes associated with the collection of equity allowance for funds used during construction (AFUDC) depreciation as a separate row to allow parties to be able to more easily gauge the reasonableness of the Income Tax Allowance calculation, or alternatively, shippers can use 50 percent of the Adjusted Capital Structure ratio for Proprietary Capital (row 6b) as an imperfect proxy for the equity portion or share of the AFUDC depreciation reported in Line 3. A4A and NPGA also request that the Commission clarify how comparable rate of return comparisons should be performed.
26. The Commission adopts the NOPR's proposal with AOPL's requested clarification. The Commission clarifies that what is represented by the Composite Tax Rate to be included in line 8a is the combined federal and state tax rate as adjusted consistent with Commission policy. The Commission simply seeks the tax rate that represents the amount of additional taxes the oil pipeline would be required to pay if it earned its exact weighted average cost of capital as reported on line 6e and it collected an additional dollar of revenue.
27. As to ConocoPhillips' request to show how the income tax allowance depicted on line 8 of the illustrative Page 700 provided in Appendix B was calculated, the Commission declines to do so. As ConocoPhillips' acknowledges, Appendix B was included merely for illustrative purposes and is not precedential.
28. Lastly, the Commission declines to require oil pipelines to report on a separate row the income taxes associated with the collection of equity AFUDC depreciation. There has been no showing the separate identification of this subcomponent of the total income tax allowance will enhance the usefulness of Page 700 in the preliminary screening process. Review of an oil pipeline's calculation of an income tax allowance is done in a ratemaking proceeding, and the additional data provided by the Final Rule is sufficient for a shipper or interested entity to use Page 700 as a preliminary screening tool.
29. The NOPR proposed modifications to Page 700 that will provide information that may be used to calculate an oil pipeline's actual rate of return on equity. The NOPR detailed that, for Page 700 purposes, the actual rate of return on equity is determined by dividing (a) the actual return on equity by (b) the equity portion of Trended Original Cost Rate Base reported on line 5d. The NOPR further pointed out for Page 700 purposes, the actual return on equity is the sum of three components that can be derived using the proposed modifications to Page 700: (a) the return on equity embedded in an oil pipeline's Page 700 Total Cost of Service (line 7b); (b) the difference, adjusted for taxes, between an oil pipeline's Total Interstate Operating Revenues (line 10) and an oil pipeline's Total Cost of Service (line 9);
30. Once the actual return on equity has been derived, the NOPR suggested that for Page 700 purposes, it may be divided by the equity portion of TOC rate base. Finally, the NOPR stated the equity portion of the TOC rate base consists of the TOC rate base (proposed line 5d) multiplied by the equity component of capital structure (proposed line 6b).
31. AOPL requests that the Commission clarify that the methodology set forth in the NOPR for calculating the actual rate of return on equity will have no precedential effect, and that the proposed calculation is not intended to demonstrate whether oil pipeline rates are just and reasonable on the merits within the meaning of the ICA. AOPL points out, “the Commission has consistently emphasized the original, limited purpose of Page 700” in that Page 700 is only a “preliminary screening tool and is not to be used to demonstrate the justness and reasonableness of oil pipeline rates.”
32. AOPL argues Form 6 includes historic accounting data that (1) does not contain the forward-looking adjustments made during ratemaking; (2) may include non-recurring items that should be excluded for ratemaking purposes; and (3) might not properly reflect the allocation of overhead costs from parent to affiliated companies.
33. AOPL further states it is concerned that the ratemaking formula discussed in the NOPR does not reflect Commission precedent and established ratemaking principles for oil pipelines.
34. AOPL asserts that the additional information is not necessary or
35. Mr. Gooch states that the NOPR's calculation of the actual return on equity allows for an income tax allowance prior to the calculation of a profit, to which Mr. Gooch strongly objects. Mr. Gooch states that consumers would essentially be paying the income taxes that might be incurred on unlawful and prohibited revenues, violating the ICA.
36. The Commission will adopt the NOPR's use of a calculation of an actual rate of return on equity. As the NOPR reasoned, the actual rate of return on equity is particularly useful information when using Page 700 as a preliminary screen to evaluate whether additional proceedings may be necessary to challenge rates consistent with the Commission's mandate under the ICA.
37. The proposed formula for calculating the actual return on equity in the NOPR does not have precedential effect for ratemaking purposes nor does it demonstrate alone whether a pipeline's rates are just and reasonable. Consistent with the historic purpose of Page 700 as a preliminary screening tool, the Commission affirms the NOPR's method for calculating the actual rate of return on equity is for preliminary screening purposes only. The proposal does not establish a formula for setting oil pipeline rates in a particular rate case.
38. Accordingly, the calculation of the actual rate of return formula on Page 700 does not change the Commission's ratemaking policies. The Commission agrees with AOPL that Opinion No. 351 outlined how the total return on equity should be calculated for the purpose of setting oil pipeline rates.
39. The Commission rejects Mr. Gooch's contention that the NOPR's calculation of the actual return on equity inappropriately adjusts for income taxes. The difference between an oil pipeline's Total Interstate Operating Revenues (line 10) and an oil pipeline's Total Cost of Service (line 9) may be subject to income taxes. Any portion of this differential attributable to income taxes is an expense and is not part of the return to the oil pipeline's owners. Thus, the NOPR correctly removed the portion attributable to income taxes from the calculation of the oil pipeline's actual return on equity.
40. In discussing the NOPR's estimate of an actual return on equity, AOPL states that Page 700 may not properly reflect the allocation of overhead costs from parent and affiliated companies.
41. Commenters raised a number of additional issues. Mr. Gooch advocates compelling oil pipelines to report excess profits in footnotes to Page 700. Mr. Gooch also advocates that the oil pipelines be required to state, under oath, that all of their rates are just and reasonable under the Commission's definition.
42. All the commenters except AOPL advocate for companies that file Form 6 for multiple oil pipeline systems to file separate Page 700s for each segment, service, or rate schedule.
43. Parties also raised issues not involving Form 6. For example, Mr. Gooch raises issues related to alleged over-recoveries by certain oil pipelines.
44. In its reply comments, AOPL objects that many of the comments are beyond the scope of the NOPR. AOPL adds that many of the proposed revisions have been raised in other proceedings such as (1) proposals to segregate Form 6 and Page 700 data by oil pipeline system and (2) proposals to require oil pipelines to file their Page 700 workpapers with Form 6, and the Commission has rejected them.
45. In this Final Rule, the Commission modifies Page 700 to require entities to provide additional information regarding rate base, rate of return, return on rate base, and income tax allowance on Page 700. These revisions provide increased transparency and information to assist the Commission and the public in calculating an oil pipeline's return on equity for preliminary screening purposes. Given the limited nature of the NOPR, the Commission is not adopting additional changes to Form 6, such as the segregation of data or changing Commission policy to make available oil pipeline cost-of-service workpapers. Other issues, such as the Commission's indexing policies, may be addressed as they arise in actual proceedings.
46. As discussed herein, the proposed modifications will facilitate the calculation of the actual rate of return on equity based upon Page 700 data. The actual rate of return on equity is particularly useful information when using Page 700 to conduct a preliminary evaluation of an oil pipeline's rates. The additional information proposed to be reported will impose almost no additional burden on oil pipelines because oil pipelines already must develop cost of service supporting the information reported on Page 700.
47. The changes to Form 6 are to be effective for reporting in the 2013 Form 6. The 2013 Form 6 must be filed on or before April 18, 2014.
48. In the NOPR, in accordance with the Paperwork Reduction Act and the requirements of the Office of Management and Budget (OMB), the Commission solicited comment on the Commission's need for this information, whether the information will have practical utility, the accuracy of provided burden estimates, ways to enhance the quality, utility, and clarity of the information to be collected, and any suggested methods for minimizing the respondent's burden, including the use of automated information techniques.
49. The Commission estimated the additional average annual Public Reporting cost imposed on oil pipelines providing interstate services related to this Final Rule to be $3,037.
50. No entity directly commented on the Commission's initial burden estimates that were included in the NOPR.
51. The Commission has reviewed the burdens imposed by this Final Rule. The Commission did not impose any additional filing requirements as proposed by various commenters to require the oil pipelines to file additional information beyond that included in the NOPR. The additional lines included in the NOPR and Final Rule are needed steps to calculate information already reported in the Form 6. Therefore, there is no additional Public Reporting Burden associated with the Final Rule. The Commission's estimate of the Public Reporting Burden imposed on oil pipelines by this Final Rule is the same as shown in the NOPR and copied in the table below.
Interested persons may obtain information on the reporting requirements by contacting: Federal Energy Regulatory Commission, 888 First Street NE., Washington, DC 20426 [Attention: Ellen Brown, Office of the Executive Director, email:
52. The Commission is required to prepare an Environmental Assessment or an Environmental Impact Statement for any action that may have a significant adverse effect on the human environment. The actions taken here fall within categorical exclusions in the Commission's regulations for information gathering, analysis, and dissemination.
53. The Regulatory Flexibility Act of 1980 (RFA) generally requires agencies to prepare certain statements, descriptions, and analyses of proposed rules that will have a significant economic impact on a substantial number of small business entities.
54. The Commission does not believe that this Final Rule will have an adverse impact on small entities, nor will it impose upon them any significant costs of compliance. The Commission identified 29 small entities as respondents to the requirements in the Final Rule.
55. In addition to publishing the full text of this document in the
56. From FERC's Home Page on the Internet, this information is available on eLibrary. The full text of this document is available on eLibrary in PDF and Microsoft Word format for viewing, printing, and/or downloading. To access this document in eLibrary, type the docket number excluding the last three digits of this document in the docket number field.
57. User assistance is available for eLibrary and the FERC's Web site during normal business hours from FERC Online Support at (202) 502–6652 (toll free at 1–866–208–3676) or email at
58. In the NOPR the Commission proposed that the changes to Form 6 to be effective for reporting in the 2013 FERC Form No. 6. The 2013 Form 6 must be filed on or before April 18, 2014.
59. The Commission has determined, with the concurrence of the Administrator of the Office of Information and Regulatory Affairs of OMB that this rule is not a major rule as defined in section 351 of the Small Business Regulatory Enforcement Fairness Act of 1996.
By the Commission.
Appendix A will not be published in the
Line 5a is added to read as follows:
Line 5b is added to read as follows:
Line 5c is added to read as follows:
Line 5d is added to read as follows:
Line 6a is added to read as follows:
Line 6b is added to read as follows:
Line 6c is added to read as follows:
Line 6d is added to read as follows:
Line 6e is added to read as follows:
Line 7 is edited to read as follows:
Line 7a is added to read as follows:
Line 7b is added to read as follows:
Line 7c is added to read as follows:
Line 8a is added to read as follows:
Appendix B will not be published in the
Food and Drug Administration, HHS.
Final rule.
The Food and Drug Administration (FDA) is amending the animal drug regulations to reflect a change of sponsor for two approved new animal drug applications (NADAs) from Alstoe, Ltd., Animal Health, to Sogeval S.A., and a change of sponsor for an NADA from Nexcyon Pharmaceuticals, Inc. to Elanco Animal Health, A Division of Eli Lilly & Co.
This rule is effective July 24, 2013.
Steven D. Vaughn, Center for Veterinary Medicine (HFV–100), Food and Drug Administration, 7520 Standish Pl., Rockville, MD 20855, 240–276–8300, email:
Alstoe, Ltd., Animal Health, Pera Innovation Park, Nottingham Rd., Melton Mowbray, Leicestershire, England LE13 0PB has informed FDA that it has transferred ownership of, and all rights and interest in, NADA 099–667 for IMPOSIL (iron dextran complex) Injection and NADA 110–399 for GLEPTOSIL (gleptoferron) Injection to Sogeval S.A., 200 Avenue de Mayenne, 53000 Laval, France. Nexcyon Pharmaceuticals, Inc., 644 W. Washington Ave., Madison, WI 53703 has informed FDA that it has transferred ownership of, and all rights and interest in, NADA 141–337 for RECUVYRA (fentanyl) Transdermal Solution to Elanco Animal Health, A Division of Eli Lilly & Co., Lilly Corporate Center,
Following these changes of sponsorship, Alstoe, Ltd., Animal Health, and Nexcyon Pharmaceuticals, Inc., are no longer sponsors of approved NADAs. Accordingly, FDA is amending 21 CFR 510.600 to remove the entries for these firms.
In addition, Sogeval S.A. is now a sponsor of approved NADAs. Accordingly, FDA is amending 21 CFR 510.600 to add entries for this firm.
This rule does not meet the definition of “rule” in 5 U.S.C. 804(3)(A) because it is a rule of “particular applicability.” Therefore, it is not subject to the congressional review requirements in 5 U.S.C. 801–808.
Administrative practice and procedure, Animal drugs, Labeling, Reporting and recordkeeping requirements.
Animal drugs.
Therefore, under the Federal Food, Drug, and Cosmetic Act and under authority delegated to the Commissioner of Food and Drugs and redelegated to the Center for Veterinary Medicine, 21 CFR parts 510, 522, and 524 are amended as follows:
21 U.S.C. 321, 331, 351, 352, 353, 360b, 371, 379e.
(c) * * *
(1) * * *
(2) * * *
21 U.S.C. 360b.
21 U.S.C. 360b.
Coast Guard, DHS.
Temporary final rule.
The Coast Guard is temporarily changing the enforcement date of a safety zone for one recurring fireworks display in the Fifth Coast Guard District. This regulation applies to only one recurring fireworks event held in the Metedeconk River in Brick Township, NJ. The fireworks display is normally held on the first Thursday in September, but this year it will be held on July 25th. The safety zone is necessary to provide for the safety of life on navigable waters during the event. This action is intended to restrict vessel traffic in a portion of Delaware River near Philadelphia, Pennsylvania, during the event.
This rule is effective from 6:30 p.m. on July 25, 2013 through September 5, 2013. Within the Coast Guard Sector Delaware Bay-COTP Zone portion of the table in 33 CFR 165.506, an entry 19 for the Metedeconk River, Brick Township, NJ Safety Zone will be added from 6:30 p.m. until 10 p.m. on July 25, 2013, and existing entry 9 will be suspended on September 5, 2013.
Documents mentioned in this preamble are part of docket [USCG–2013–0636]. To view documents mentioned in this preamble as being available in the docket, go to
If you have questions on this rule, call or email Lieutenant Veronica Smith, U.S. Coast Guard Sector Delaware Bay, Chief of Waterways Management Division; telephone (215) 271–4851, email
DHS Department of Homeland Security
FR Federal Register
NPRM Notice of Proposed Rulemaking
The Coast Guard is issuing this temporary final rule without prior notice and opportunity to comment pursuant to authority under section 4(a) of the Administrative Procedure Act (APA) (5 U.S.C. 553(b)). This provision authorizes an agency to issue a rule without prior notice and opportunity to comment when the agency for good cause finds that those procedures are “impracticable, unnecessary, or contrary to the public interest.” Under 5 U.S.C. 553(b)(B), the Coast Guard finds that good cause exists for not publishing a notice of proposed rulemaking (NPRM) with respect to this rule because it is impracticable. Publishing an NPRM is impracticable given that the necessary information for this event were not received by the Coast Guard with insufficient time remaining to issue an NPRM. Immediate action is necessary to provide for the safety of life and property in the navigable water. Delaying this rule to wait for a notice and comment period to run would inhibit the Coast Guard's ability to protect the public from the hazards associated with this maritime fireworks display.
Under 5 U.S.C. 553(d)(3), the Coast Guard finds that good cause exists for making this rule effective less than 30 days after publication in the
Recurring fireworks displays are frequently held on or adjacent to the navigable waters within the boundary of the Fifth Coast Guard District. For a description of the geographical area of each Coast Guard Sector—Captain of the Port (COTP) Zone, please see 33 CFR 3.25.
The regulation listing annual fireworks displays within the Fifth Coast Guard District and safety zones locations is 33 CFR 165.506. The Table to § 165.506 identifies fireworks displays by COTP zone, with the COTP Delaware Bay zone listed in section “(a)” of the Table.
Township of Brick sponsors an annual fireworks display held on the first Thursday in September over the waters of the Metedeconk River, Brick Township, New Jersey. The Table to § 165.506, at section (a) event number “9”, describes the enforcement date and regulated location for this fireworks event.
In the Table, this fireworks display occurs annually on the first Thursday in September. However, this year, the fireworks event will be held on July 25, 2013.
A fleet of spectator vessels are anticipated to gather nearby to view the fireworks display. Due to the need for vessel control during the fireworks display, vessel traffic will be temporarily restricted to provide for the safety of participants, spectators and transiting vessels. Under provisions of 33 CFR 165.506, during the enforcement period, vessels may not enter the regulated area unless they receive permission from the Coast Guard Patrol Commander.
The Coast Guard will temporarily suspend the regulation listed in Table to § 165.506, section (a) event Number “9”, and insert this temporary regulation at Table to § 165.506, at section (a.) as event Number “19”, in order to reflect that the safety zone will be effective and enforced from 6:30 p.m. until 10 p.m. on July 25, 2013. This change is needed to accommodate the sponsor's event plan. No other portion of the Table to § 165.506 or other provisions in § 165.506 shall be affected by this regulation.
The regulated area of this safety zone includes all the waters of the Metedeconk River within a 300 yard radius of the fireworks launch platform in approximate position latitude 40°03′24″ N, longitude 074°06′42″ W, near the shoreline at Brick Township, NJ.
This safety zone will restrict general navigation in the regulated area during the fireworks event. Except for persons or vessels authorized by the Coast Guard Patrol Commander, no person or vessel may enter or remain in the regulated area during the effective period. The regulated area is needed to control vessel traffic during the event for the safety of participants and transiting vessels.
In addition to notice in the
We developed this rule after considering numerous statutes and executive orders related to rulemaking. Below we summarize our analyses based on these statutes or executive orders.
This rule is not a significant regulatory action under section 3(f) of Executive Order 12866, Regulatory Planning and Review, as supplemented by Executive Order 13563, Improving Regulation and Regulatory Review, and does not require an assessment of potential costs and benefits under section 6(a)(3) of Executive Order 12866 or under section 1 of Executive Order 13563. The Office of Management and Budget has not reviewed it under those Orders.
This rule prevents traffic from transiting a portion of the Metedeconk River, in Brick Township, New Jersey during the specified event, the effect of this regulation will not be significant due to the limited duration that the regulated area will be in effect and the extensive advance notifications that will be made to the maritime community via marine information broadcasts, local radio stations and area newspapers so that mariners can adjust their plans accordingly. Additionally, this rulemaking changes the enforcement date for the Metedeconk River, Brick Township, New Jersey fireworks demonstration for July 25, 2013 only and does not change the permanent enforcement period that has been published in 33 CFR 165.506, Table to § 165.506 at section (a), event Number “9”. In some cases vessel traffic may be able to transit the regulated area when the Coast Guard Patrol Commander deems it is safe to do so.
The Regulatory Flexibility Act of 1980 (RFA), 5 U.S.C. 601–612, as amended, requires federal agencies to consider the potential impact of regulations on small entities during rulemaking. The term “small entities” comprises small businesses, not-for-profit organizations that are independently owned and operated and are not dominant in their fields, and governmental jurisdictions with populations of less than 50,000. The Coast Guard certifies under 5 U.S.C. 605(b) that this rule will not have a significant economic impact on a substantial number of small entities.
This rule would affect the following entities, some of which might be small entities: The owners or operators of vessels intending to transit or anchor in the Metedeconk River, in Brick Township, New Jersey, where fireworks events are being held. This regulation will not have a significant impact on a substantial number of small entities because it will be enforced only during the fireworks display event that has been permitted by the Coast Guard Captain of the Port. The Captain of the Port will ensure that small entities are able to operate in the regulated area when it is safe to do so. In some cases, vessels will be able to safely transit around the regulated area at various times, and, with the permission of the Patrol Commander, vessels may transit through the regulated area. Before the enforcement period, the Coast Guard will issue maritime advisories so mariners can adjust their plans accordingly.
Under section 213(a) of the Small Business Regulatory Enforcement Fairness Act of 1996 (Pub. L. 104–121), we want to assist small entities in understanding this rule. If the rule would affect your small business, organization, or governmental jurisdiction and you have questions concerning its provisions or options for compliance, please contact the person listed in the
Small businesses may send comments on the actions of Federal employees who enforce, or otherwise determine compliance with, Federal regulations to the Small Business and Agriculture Regulatory Enforcement Ombudsman and the Regional Small Business Regulatory Fairness Boards. The Ombudsman evaluates these actions annually and rates each agency's responsiveness to small business. If you wish to comment on actions by employees of the Coast Guard, call 1–888–REG–FAIR (1–888–734–3247). The Coast Guard will not retaliate against small entities that question or complain about this rule or any policy or action of the Coast Guard.
This rule will not call for a new collection of information under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501–3520).
A rule has implications for federalism under Executive Order 13132, Federalism, if it has a substantial direct effect on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government. We have analyzed this rule under that Order and determined that this rule does not have implications for federalism.
The Coast Guard respects the First Amendment rights of protesters. Protesters are asked to contact the person listed in the
The Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1531–1538) requires Federal agencies to assess the effects of their discretionary regulatory actions. In particular, the Act addresses actions that may result in the expenditure by a State, local, or tribal government, in the aggregate, or by the private sector of $100,000,000 (adjusted for inflation) or more in any one year. Though this rule will not result in such an expenditure, we do discuss the effects of this rule elsewhere in this preamble.
This rule will not cause a taking of private property or otherwise have taking implications under Executive Order 12630, Governmental Actions and Interference with Constitutionally Protected Property Rights.
This rule meets applicable standards in sections 3(a) and 3(b)(2) of Executive Order 12988, Civil Justice Reform, to minimize litigation, eliminate ambiguity, and reduce burden.
We have analyzed this rule under Executive Order 13045, Protection of Children from Environmental Health Risks and Safety Risks. This rule is not an economically significant rule and does not create an environmental risk to health or risk to safety that may disproportionately affect children.
This rule does not have tribal implications under Executive Order 13175, Consultation and Coordination with Indian Tribal Governments, because it does not have a substantial direct effect on one or more Indian tribes, on the relationship between the Federal Government and Indian tribes, or on the distribution of power and responsibilities between the Federal Government and Indian tribes.
This action is not a “significant energy action” under Executive Order 13211, Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use.
This rule does not use technical standards. Therefore, we did not consider the use of voluntary consensus standards.
We have analyzed this rule under Department of Homeland Security Management Directive 023–01 and Commandant Instruction M16475.lD, which guide the Coast Guard in complying with the National Environmental Policy Act of 1969 (NEPA)(42 U.S.C. 4321–4370f), and have determined that this action is one of a category of actions that do not individually or cumulatively have a significant effect on the human environment. This rule involves the establishment of a safety zone. This rule is categorically excluded from further review under paragraph 34(g) of Figure 2–1 of the Commandant Instruction. An environmental analysis checklist supporting this determination and a Categorical Exclusion Determination are available in the docket where indicated under
Harbors, Marine safety, Navigation (water), Reporting and recordkeeping requirements, Security measures, Waterways.
For the reasons discussed in the preamble, the Coast Guard amends 33 CFR part 165 as follows:
33 U.S.C. 1231; 46 U.S.C. Chapter 701, 3306, 3703; 50 U.S.C. 191, 195; 33 CFR 1.05–1, 6.04–1, 6.04–6, 160.5; Pub. L. 107–295, 116 Stat. 2064; Department of Homeland Security Delegation No. 0170.1.
Coast Guard, DHS.
Temporary final rule.
The Coast Guard is establishing a temporary safety zone on Lake Michigan near Lake Forest, IL. This safety zone is intended to restrict vessels from a portion of Lake Michigan due to a joint operations exercise involving the Department of Defense and the Department of Homeland Security. This temporary safety zone is necessary to protect the surrounding public and vessels from the hazards associated with the exercise.
This rule is effective from 12 p.m. until 11:59 p.m. on July 25, 2013.
Documents mentioned in this preamble are part of docket USCG–2013–0611. To view documents mentioned in this preamble as being available in the docket, go to
If you have questions on this temporary rule, contact or email MST1 Joseph McCollum, U.S. Coast Guard Sector Lake Michigan, at 414–747–7148 or
The Coast Guard is issuing this temporary final rule without prior notice and opportunity to comment pursuant to authority under section 4(a) of the Administrative Procedure Act (APA) (5 U.S.C. 553(b)). This provision authorizes an agency to issue a rule without prior notice and opportunity to comment when the agency for good cause finds that those procedures are “impracticable, unnecessary, or contrary to the public interest.” Under 5 U.S.C. 553(b)(B), the Coast Guard finds that good cause exists for not publishing an NPRM with respect to this rule because doing so would be impracticable. The final details for this event were not known to the Coast Guard until there was insufficient time remaining before the event to publish an NPRM. Thus, delaying the effective date of this rule to wait for a comment period to run would be impracticable because it would inhibit the Coast Guard's ability to protect persons and vessels from the hazards associated with a joint DHS/DOD exercise, which are discussed further below.
Under 5 U.S.C. 553(d)(3), The Coast Guard finds that good cause exists for making this temporary rule effective less than 30 days after publication in the
The legal basis for the rule is the Coast Guard's authority to establish regulated navigation areas and limited access areas: 33 U.S.C. 1231; 46 U.S.C. Chapter 701, 3306, 3703; 50 U.S.C. 191, 195; 33 CFR 1.05–1, 6.04–1, 6.04–6, 160.5; Public Law 107–295, 116 Stat. 2064; Department of Homeland Security Delegation No. 0170.1.
On July 25, 2013, personnel and vessels from the Coast Guard and the Department of Defense will participate in a joint exercise involving parachuting personnel over the waters of Lake Michigan, approximately 9.5 nautical miles east of Lake Forest, IL. Coast Guard and DOD vessels are expected to maneuver over a 2 nautical mile section of Lake Michigan in an effort to recover and otherwise aid the personnel in parachutes. The Captain of the Port, Lake Michigan, has determined that parachuting personnel, and the military vessels maneuvering to aid in their recovery, presents a significant risk to public safety and property. Such hazards include collisions among transiting civilian and military vessels, and collisions among parachuting personnel and transiting watercraft.
With the aforementioned hazards in mind, the Captain of the Port, Lake Michigan, has determined that this temporary safety zone is necessary to ensure the safety of persons and vessels during the exercise. This zone will be effective and enforced from 12 p.m. until 11:59 p.m. on July 25, 2013. This zone will encompass all waters of Lake Michigan within a 2 Nautical Mile radius of an approximate position at 42°15′01″ N, 87°36′0″ W (NAD 83).
Entry into, transiting, or anchoring within the safety zone is prohibited unless authorized by the Captain of the
We developed this rule after considering numerous statutes and executive orders related to rulemaking. Below we summarize our analyses based on these statutes and executive orders.
This rule is not a significant regulatory action under section 3(f) of Executive Order 12866, Regulatory Planning and Review, as supplemented by Executive Order 13563, Improving Regulation and Regulatory Review, and does not require an assessment of potential costs and benefits under section 6(a)(3) of Executive Order 12866 or under section 1 of Executive Order 13563. The Office of Management and Budget has not reviewed it under those Orders. It is not “significant” under the regulatory policies and procedures of the Department of Homeland Security.
We conclude that this rule is not a significant regulatory action because we anticipate that it will have minimal impact on the economy, will not interfere with other agencies, will not adversely alter the budget of any grant or loan recipients, and will not raise any novel legal or policy issues. The safety zone created by this rule will be in an offshore location and enforced for only one day in July. Under certain conditions, moreover, vessels may still transit through the safety zone when permitted by the Captain of the Port.
Under the Regulatory Flexibility Act (5 U.S.C. 601–612), we have considered the impact of this temporary rule on small entities. The Coast Guard certifies under 5 U.S.C. 605(b) that this rule will not have a significant economic impact on a substantial number of small entities. This rule will affect the following entities, some of which might be small entities: The owners or operators of vessels intending to transit or anchor in a portion of Lake Michigan near Lake Forest, IL on July 25, 2013.
This safety zone will not have a significant economic impact on a substantial number of small entities for the reasons cited in the
Under section 213(a) of the Small Business Regulatory Enforcement Fairness Act of 1996 (Pub. L. 104–121), we want to assist small entities in understanding this rule. If the rule would affect your small business, organization, or governmental jurisdiction and you have questions concerning its provisions or options for compliance, please contact the person listed in the
Small businesses may send comments on the actions of Federal employees who enforce, or otherwise determine compliance with, Federal regulations to the Small Business and Agriculture Regulatory Enforcement Ombudsman and the Regional Small Business Regulatory Fairness Boards. The Ombudsman evaluates these actions annually and rates each agency's responsiveness to small business. If you wish to comment on actions by employees of the Coast Guard, call 1–888–REG–FAIR (1–888–734–3247). The Coast Guard will not retaliate against small entities that question or complain about this rule or any policy or action of the Coast Guard.
This rule will not call for a new collection of information under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501–3520).
A rule has implications for federalism under Executive Order 13132, Federalism, if it has a substantial direct effect on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government. We have analyzed this rule under that Order and determined that this rule does not have implications for federalism.
The Coast Guard respects the First Amendment rights of protesters. Protesters are asked to contact the person listed in the
The Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1531–1538) requires Federal agencies to assess the effects of their discretionary regulatory actions. In particular, the Act addresses actions that may result in the expenditure by a State, local, or tribal government, in the aggregate, or by the private sector of $100,000,000 (adjusted for inflation) or more in any one year. Though this rule will not result in such an expenditure, we do discuss the effects of this rule elsewhere in this preamble.
This rule will not cause a taking of private property or otherwise have taking implications under Executive Order 12630, Governmental Actions and Interference with Constitutionally Protected Property Rights.
This rule meets applicable standards in sections 3(a) and 3(b)(2) of Executive Order 12988, Civil Justice Reform, to minimize litigation, eliminate ambiguity, and reduce burden.
We have analyzed this rule under Executive Order 13045, Protection of Children from Environmental Health Risks and Safety Risks. This rule is not an economically significant rule and does not create an environmental risk to health or risk to safety that may disproportionately affect children.
This rule does not have tribal implications under Executive Order 13175, Consultation and Coordination with Indian Tribal Governments, because it does not have a substantial direct effect on one or more Indian tribes, on the relationship between the Federal Government and Indian tribes, or on the distribution of power and responsibilities between the Federal Government and Indian tribes.
This action is not a “significant energy action” under Executive Order 13211, Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use.
This rule does not use technical standards. Therefore, we did not consider the use of voluntary consensus standards.
We have analyzed this rule under Department of Homeland Security Management Directive 023–01 and Commandant Instruction M16475.lD, which guide the Coast Guard in complying with the National Environmental Policy Act of 1969 (NEPA) (42 U.S.C. 4321–4370f), and have determined that this action is one
Harbors, Marine safety, Navigation (water), Reporting and record keeping requirements, Security measures, Waterways.
For the reasons discussed in the preamble, the Coast Guard amends 33 CFR part 165 as follows:
33 U.S.C. 1231; 46 U.S.C. Chapters 701, 3306, 3703; 50 U.S.C. 191, 195; 33 CFR 1.05–1, 6.04–1, 6.04–6, and 160.5; Pub. L. 107–295, 116 Stat. 2064; Department of Homeland Security Delegation No. 0170.1.
(a)
(b)
(c)
(2) This safety zone is closed to all vessel traffic, except as may be permitted by the Captain of the Port, Lake Michigan or his designated on-scene representative.
(3) The “on-scene representative” of the Captain of the Port, Lake Michigan is any Coast Guard commissioned, warrant or petty officer who has been designated by the Captain of the Port, Lake Michigan to act on his behalf.
(4) Vessel operators desiring to enter or operate within the safety zone shall contact the Captain of the Port, Lake Michigan or his on-scene representative to obtain permission to do so. The Captain of the Port, Lake Michigan or his on-scene representative may be contacted via VHF Channel 16. Vessel operators given permission to enter or operate in the safety zone must comply with all directions given to them by the Captain of the Port, Lake Michigan, or his on-scene representative.
Postal Service
Final rule.
The Postal Service is revising the rules concerning authorization to manufacture and distribute postage evidencing systems to reflect that the Office of Postage Technology Management is now known as Payment Technology and has a new mailing address.
Marlo Kay Ivey, Business Programs Specialist, Payment Technology, United States Postal Service, at 202–268–7613.
The United States Postal Service® (USPS®) has undergone a redesign. In that process, the Office of Postage Technology Management (PTM) was renamed Payment Technology (PT) and is now under the direction of the office of the Vice President of Mail Entry and Payment Technology, within the purview of the Chief Information Officer. In addition, since the relocation of its physical office, Payment Technology has a new mailing address.
Administrative practice and procedure.
Accordingly, for the reasons stated in the preamble, the Postal Service amends 39 CFR part 501 as follows:
5 U.S.C. 552(a); 39 U.S.C. 101, 401, 403, 404, 410, 2601, 2605, Inspector General Act of 1978, as amended (Pub. L. 95–452, as amended); 5 U.S.C. App. 3.
(g) The Postal Service office responsible for administration of this part is the Office of Payment Technology (PT) or successor organization. All submissions to the Postal Service required or invited by this part are to be made to this office in person or via mail to 475 L'Enfant Plaza SW., Room 3500, Washington DC 20260–0004.
(c) * * *
(1) Upon determination by the Postal Service that a provider is in violation of provisions of this part, or that its Postal Evidencing System poses an unreasonable risk to postal revenue, PT, acting on behalf of the Postal Service, shall issue a written notice of proposed suspension citing the specific conditions or deficiencies for which suspension of authorization to manufacture and/or distribute a specific Postage Evidencing System or class of Postage Evidencing Systems may be imposed. Except in cases of willful violation, the provider shall be given an opportunity to correct deficiencies and achieve compliance with all requirements within a time limit corresponding to the potential risk to postal revenue.
(2) In cases of willful violation, or if the Postal Service determines that the provider has failed to correct cited deficiencies within the specified time limit, PT shall issue a written notice of suspension setting forth the facts and reasons for the decision to suspend, and the effective date if a written defense is not presented as provided in paragraph (d) of this section.
(3) The notice shall also advise the provider of its right to file a response under paragraph (d) of this section. If a written response is not presented in a timely manner the suspension may go into effect. The suspension shall remain in effect for ninety (90) calendar days unless revoked or modified by PT.
(e) After receipt and consideration of the defense, PT shall advise the provider of its decision, and the facts
(a) A Postage Evidencing System submitted to the Postal Service for approval must meet the requirements of the Intelligent Mail Indicia Performance Criteria published by PT. Copies of the current Performance Criteria may be requested via mail to the address in § 501.2(g).
(a) To receive Postal Service approval, each Postage Evidencing System must be submitted by the provider and evaluated by the Postal Service in accordance with the Postage Evidencing Product Submission Procedures published by PT. Copies of the current Performance Criteria may be requested via mail to the address in § 501.2(g). These procedures apply to all proposed Postage Evidencing Systems regardless of whether the provider is currently authorized by the Postal Service to distribute Postage Evidencing Systems. All testing required by the Postal Service will be an expense of the provider.
(a) An authorized provider must receive prior written approval from the manager, PT, of any and all changes made to a previously approved Postage Evidencing System. The notification must include a summary of all changes made and the provider's assessment as to the impact of those changes on the security of the Postage Evidencing System and postage funds. Upon receipt of the notification, PT will review the summary of changes and make a decision regarding the need for the following:
(1) Additional documentation.
(2) Level of test and evaluation required.
(3) Necessity for evaluation by a laboratory accredited by the National Institutes of Standards and Technology (NIST) under the National Voluntary Laboratory Accreditation Program (NVLAP).
(b) Upon receipt and review of additional documentation and/or test results, PT will issue a written acknowledgement and/or approval of the change to the provider.
(d) After receipt and consideration of the defense, the Postal Service shall advise the provider of the decision, and the facts and reasons for it; the decision shall be effective upon receipt unless it provides otherwise. The decision shall also advise the provider that it may, within thirty (30) calendar days of receiving written notice, appeal that determination to the Chief Information Officer of the Postal Service, who shall issue a written decision upon the appeal, which will constitute the final Postal Service decision.
Environmental Protection Agency (EPA).
Withdrawal of direct final rule.
Due to the receipt of an adverse comment, EPA is withdrawing the May 29, 2013, direct final rule to approve Georgia's October 21, 2009, state implementation plan (SIP) submission to address the reasonable further progress (RFP) plan requirements for the Atlanta, Georgia 1997 8-hour ozone national ambient air quality standards (NAAQS) nonattainment area. EPA is considering this comment and will address the comment in a subsequent action. EPA will not institute a second comment period on this action.
The direct final rule published at 78 FR 32135 on May 29, 2013, is withdrawn as of July 24, 2013.
Sara Waterson, Air Planning Branch, U.S. Environmental Protection Agency Region 4, 61 Forsyth Street SW., Atlanta, Georgia 30303–8960. Phone number: (404) 562–9061; Email:
On May 29, 2013 (78 FR 32135), EPA published a direct final rulemaking to approve Georgia's October 21, 2009, SIP submission to address the RFP plan requirements for the Atlanta, Georgia 1997 8-hour ozone NAAQS nonattainment area. In the direct final rule, EPA stated that if adverse comments were received by June 28, 2013, the rule would be withdrawn and not take effect. On June 28, 2013, EPA received a comment. EPA interprets this comment as adverse and, therefore, EPA is withdrawing a portion of the direct final rule. EPA will address the comment in a subsequent final action based upon the proposed rulemaking action, also published on May 29, 2013 (78 FR 32222). EPA will not institute a second comment period on this action.
Environmental protection, Air pollution control, Incorporation by reference, Intergovernmental relations, Ozone, Reporting and recordkeeping requirements, and Volatile organic compounds.
Environmental Protection Agency (EPA).
Final rule.
This regulation establishes tolerances for residues of imazosulfuron in or on the melon subgroup 9A and the tuberous and corm subgroup 1C. Interregional Research Project Number 4 (IR–4) requested these tolerances under the Federal Food, Drug, and Cosmetic Act (FFDCA).
This regulation is effective July 24, 2013. Objections and requests for hearings must be received on or before September 23, 2013, and must be filed in accordance with the instructions provided in 40 CFR part 178 (see also Unit I.C. of the
The docket for this action, identified by docket identification (ID) number EPA–HQ–OPP–2012–0419, is available at
Lois Rossi, Registration Division (7505P), Office of Pesticide Programs, Environmental Protection Agency, 1200 Pennsylvania Ave. NW., Washington, DC 20460–0001; telephone number: (703) 305–7090; email address:
You may be potentially affected by this action if you are an agricultural producer, food manufacturer, or pesticide manufacturer. The following list of North American Industrial Classification System (NAICS) codes is not intended to be exhaustive, but rather provides a guide to help readers determine whether this document applies to them. Potentially affected entities may include:
• Crop production (NAICS code 111).
• Animal production (NAICS code 112).
• Food manufacturing (NAICS code 311).
• Pesticide manufacturing (NAICS code 32532).
You may access a frequently updated electronic version of EPA's tolerance regulations at 40 CFR part 180 through the Government Printing Office's e-CFR site at
Under FFDCA section 408(g), 21 U.S.C. 346a, any person may file an objection to any aspect of this regulation and may also request a hearing on those objections. You must file your objection or request a hearing on this regulation in accordance with the instructions provided in 40 CFR part 178. To ensure proper receipt by EPA, you must identify docket ID number EPA–HQ–OPP–2012–0419 in the subject line on the first page of your submission. All objections and requests for a hearing must be in writing, and must be received by the Hearing Clerk on or before September 23, 2013. Addresses for mail and hand delivery of objections and hearing requests are provided in 40 CFR 178.25(b).
In addition to filing an objection or hearing request with the Hearing Clerk as described in 40 CFR part 178, please submit a copy of the filing (excluding any Confidential Business Information (CBI)) for inclusion in the public docket. Information not marked confidential pursuant to 40 CFR part 2 may be disclosed publicly by EPA without prior notice. Submit the non-CBI copy of your objection or hearing request, identified by docket ID number EPA–HQ–OPP–2012–0419, by one of the following methods:
•
•
•
Additional instructions on commenting or visiting the docket, along with more information about dockets generally, is available at
In the
Based upon review of the data supporting the petition, EPA has modified the commodity definitions to be consistent with Agency policy. The reason for these changes is explained in Unit IV.C.
Section 408(b)(2)(A)(i) of FFDCA allows EPA to establish a tolerance (the legal limit for a pesticide chemical residue in or on a food) only if EPA determines that the tolerance is “safe.” Section 408(b)(2)(A)(ii) of FFDCA defines “safe” to mean that “there is a reasonable certainty that no harm will result from aggregate exposure to the pesticide chemical residue, including all anticipated dietary exposures and all other exposures for which there is reliable information.” This includes exposure through drinking water and in residential settings, but does not include occupational exposure. Section 408(b)(2)(C) of FFDCA requires EPA to give special consideration to exposure of infants and children to the pesticide chemical residue in establishing a tolerance and to “ensure that there is a
Consistent with FFDCA section 408(b)(2)(D), and the factors specified in FFDCA section 408(b)(2)(D), EPA has reviewed the available scientific data and other relevant information in support of this action. EPA has sufficient data to assess the hazards of and to make a determination on aggregate exposure for imazosulfuron including exposure resulting from the tolerances established by this action. EPA's assessment of exposures and risks associated with imazosulfuron follows.
EPA has evaluated the available toxicity data and considered its validity, completeness, and reliability as well as the relationship of the results of the studies to human risk. EPA has also considered available information concerning the variability of the sensitivities of major identifiable subgroups of consumers, including infants and children.
The toxicology data for imazosulfuron suggest that this herbicide possesses relatively low toxicity. Many of the effects of single or repeated dosing were observed near or beyond the respective limit doses.
The primary target organ of imazosulfuron in repeated-dose studies was the liver in all species tested. Mild to moderate thyroid effects were apparent only in the chronic toxicity study in dogs. Dramatic eye effects (retinal degeneration, lens vascularization, cataracts and corneal scarring) were observed in rats fed >1,000 mg/kg/day beginning at 3 months in the chronic toxicity/carcinogenicity study. Ocular effects (increased incidence of eye opacity, corneal edema, inflammation and neovascularization) were also observed in the high-dose males (4,577 mg/kg/day) in the 90-day feeding toxicity study in rats. Decreased body weight and body weight gain compared to control were frequent findings throughout the toxicology database for imazosulfuron.
Clinical signs (decreased motor activity, abnormal gait, upward curvature of the spine and piloerection) were observed in males at the limit dose of the acute neurotoxicity study; however, these effects can be attributed to generalized toxicity and were resolved by day 2 of the study. No neurotoxic effects were observed during the subchronic screening battery or noted as clinical signs in any other repeated-dose study.
No developmental effects were observed at the highest dose tested (HDT) (125 mg/kg/day) in the rabbit developmental toxicity study. No developmental or reproductive toxicity was observed in the 1-generation rat study. Decreased pup viability was observed in the rat 2-generation reproduction study at a dose approaching the limit dose (LOAEL = 892 mg/kg/day) in both the F1 and F2 offspring generations. Mortality was also observed in the parental generation at this dose. No increased qualitative or quantitative offspring susceptibility was apparent in any of the submitted studies for imazosulfuron.
There was no evidence of carcinogenicity in rats and mice up to the limit dose at 24 and 18 months, respectively. Imazosulfuron was determined to be non-mutagenic in bacteria and negative in an
Specific information on the studies received and the nature of the adverse effects caused by imazosulfuron as well as the no-observed-adverse-effect-level (NOAEL) and the lowest-observed-adverse-effect-level (LOAEL) from the toxicity studies can be found at
Once a pesticide's toxicological profile is determined, EPA identifies toxicological points of departure (POD) and levels of concern to use in evaluating the risk posed by human exposure to the pesticide. For hazards that have a threshold below which there is no appreciable risk, the toxicological POD is used as the basis for derivation of reference values for risk assessment. PODs are developed based on a careful analysis of the doses in each toxicological study to determine the dose at which no adverse effects are observed (the NOAEL) and the lowest dose at which adverse effects of concern are identified (the LOAEL). Uncertainty/safety factors are used in conjunction with the POD to calculate a safe exposure level—generally referred to as a population-adjusted dose (PAD) or a reference dose (RfD)—and a safe margin of exposure (MOE). For non-threshold risks, the Agency assumes that any amount of exposure will lead to some degree of risk. Thus, the Agency estimates risk in terms of the probability of an occurrence of the adverse effect expected in a lifetime. For more information on the general principles EPA uses in risk characterization and a complete description of the risk assessment process, see
A summary of the toxicological endpoints for imazosulfuron used for human risk assessment is discussed in Unit III.B. of the final rule published in the
1.
i.
Such effects were identified for imazosulfuron. In estimating acute dietary exposure, EPA used food consumption information from the U.S. Department of Agriculture (USDA) 2003–2008 National Health and Nutrition Examination Survey, What We Eat in America (NHANES/WWEIA). As to residue levels in food, EPA assumed 100 percent crop treated (PCT) and tolerance-level residues for all registered and proposed uses.
ii.
iii.
iv.
2.
Based on the Tier 1 Rice Model and Screening Concentration in Ground Water (SCI–GROW) models, the estimated drinking water concentrations (EDWCs) of imazosulfuron for acute exposures are estimated to be 278.9 parts per billion (ppb) for surface water and 4.8 ppb for ground water and for chronic exposures are estimated to be 278.9 ppb for surface water and 4.8 ppb for ground water.
Modeled estimates of drinking water concentrations were directly entered into the dietary exposure model. For the acute dietary risk assessment, the water concentration value of 278.9 ppb was used to assess the contribution to drinking water. For the chronic dietary risk assessment, the water concentration of value 278.9 ppb was used to assess the contribution to drinking water.
3.
Residential handlers may receive short-term dermal and inhalation exposure to imazosulfuron when mixing, loading, and applying the pesticide on home lawns. Since a dermal endpoint of concern was not identified for imazosulfuron, only short-term inhalation exposure of residential handlers was assessed.
Post-application inhalation exposure is not expected due to the nature of pesticide applications to residential lawns. Based on climate effects (such as rain) and post-application activities (such as lawn mowing), inhalation exposure to imazosulfuron is expected to be negligible. Furthermore, imazosulfuron has low acute inhalation toxicity, low vapor pressure (<3.5 × 10
Further information regarding EPA standard assumptions and generic inputs for residential exposures may be found at
4.
EPA has not found imazosulfuron to share a common mechanism of toxicity with any other substances, and imazosulfuron does not appear to produce a toxic metabolite produced by other substances. For the purposes of this tolerance action, therefore, EPA has assumed that imazosulfuron does not have a common mechanism of toxicity with other substances. For information regarding EPA's efforts to determine which chemicals have a common mechanism of toxicity and to evaluate the cumulative effects of such chemicals, see EPA's Web site at
1.
2.
3.
i. The toxicity database for imazosulfuron is complete.
ii. There is no indication that imazosulfuron is a neurotoxic chemical based on clinical observations of neurotoxicity during the conduct of developmental or chronic studies. No adverse neurobehavioral signs were observed at doses approaching the limit dose in any of the short-term studies (subchronic oral, 21-day dermal). No neurotoxic effects were observed during the subchronic neurotoxicity screen in which adverse effects of decreased body weight, body weight gain and food efficiency were observed at 575 mg/kg/day (LOAEL). The acute neurotoxicity screen (ACN) yielded a LOAEL at the limit dose for clinical signs, abnormal gait, decreased activity, piloerection and upward curvature of the spine and decreased motor activity in males, all of which were resolved by day 2. No treatment-related effects were observed in Functional Observational Battery (FOB) parameters, gross and neurohistopathology, motor activity or brain morphometrics of the ACN. The weight of evidence demonstrates that imazosulfuron is not a neurotoxic compound because the clinical findings in the ACN study occurred only at the limit dose and may be attributed to generalized toxicity. A developmental neurotoxicity study is not required at this time.
iii. As discussed in Unit III.D.2., there is no concern for increased susceptibility to offspring following pre- and postnatal exposure to rats or
iv. There are no residual uncertainties identified in the exposure databases.
EPA determines whether acute and chronic dietary pesticide exposures are safe by comparing aggregate exposure estimates to the acute PAD (aPAD) and chronic PAD (cPAD). For linear cancer risks, EPA calculates the lifetime probability of acquiring cancer given the estimated aggregate exposure. Short-, intermediate-, and chronic-term risks are evaluated by comparing the estimated aggregate food, water, and residential exposure to the appropriate PODs to ensure that an adequate MOE exists.
1.
2.
3.
Imazosulfuron is currently registered for uses that could result in short-term residential exposure, and the Agency has determined that it is appropriate to aggregate chronic exposure through food and water with short-term residential exposures to imazosulfuron.
Using the exposure assumptions described in this unit for short-term exposures, EPA has concluded the combined short-term food, water, and residential exposures result in aggregate MOEs of 33,000 for adults and 8,700 for children. Because EPA's level of concern for imazosulfuron is a MOE of 100 or below, these MOEs are not of concern.
4.
An intermediate-term adverse effect was identified; however, imazosulfuron is not registered for any use patterns that would result in intermediate-term residential exposure. Because there is no intermediate-term residential exposure and chronic dietary exposure has already been assessed under the appropriately protective cPAD (which is at least as protective as the POD used to assess intermediate-term risk), no further assessment of intermediate-term risk is necessary, and EPA relies on the chronic dietary risk assessment for evaluating intermediate-term risk for imazosulfuron.
5.
6.
Adequate enforcement methodology (high performance liquid chromatography method with tandem mass spectroscopy detection (LC/MS/MS)) is available to enforce the tolerance expression.
The method may be requested from: Chief, Analytical Chemistry Branch, Environmental Science Center, 701 Mapes Rd., Ft. Meade, MD 20755–5350; telephone number: (410) 305–2905; email address:
In making its tolerance decisions, EPA seeks to harmonize U.S. tolerances with international standards whenever possible, consistent with U.S. food safety standards and agricultural practices. EPA considers the international maximum residue limits (MRLs) established by the Codex Alimentarius Commission (Codex), as required by FFDCA section 408(b)(4). The Codex Alimentarius is a joint United Nations Food and Agriculture Organization/World Health Organization food standards program, and it is recognized as an international food safety standards-setting organization in trade agreements to which the United States is a party. EPA may establish a tolerance that is different from a Codex MRL; however, FFDCA section 408(b)(4) requires that EPA explain the reasons for departing from the Codex level.
The Codex has not established any MRLs for imazosulfuron.
The proposed commodity definitions are being modified from “Melon crop subgroup 9A” to “Melon subgroup 9A” and “Tuberous and corm vegetables crop subgroup 1C” to “Vegetable, tuberous and corm, subgroup 1C” to be in line with Agency terminology.
Therefore, tolerances are established for residues of imazosulfuron, (2-chloro-
This final rule establishes tolerances under FFDCA section 408(d) in response to a petition submitted to the Agency. The Office of Management and Budget (OMB) has exempted these types of actions from review under Executive Order 12866, entitled “Regulatory Planning and Review” (58 FR 51735, October 4, 1993). Because this final rule has been exempted from review under Executive Order 12866, this final rule is not subject to Executive Order 13211, entitled “Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use” (66 FR 28355, May 22, 2001) or Executive Order 13045, entitled “Protection of Children from Environmental Health Risks and Safety Risks” (62 FR 19885, April 23, 1997). This final rule does not contain any information collections subject to OMB approval under the Paperwork Reduction Act (PRA) (44 U.S.C. 3501
Since tolerances and exemptions that are established on the basis of a petition under FFDCA section 408(d), such as the tolerance in this final rule, do not require the issuance of a proposed rule, the requirements of the Regulatory Flexibility Act (RFA) (5 U.S.C. 601
This final rule directly regulates growers, food processors, food handlers, and food retailers, not States or tribes, nor does this action alter the relationships or distribution of power and responsibilities established by Congress in the preemption provisions of FFDCA section 408(n)(4). As such, the Agency has determined that this action will not have a substantial direct effect on States or tribal governments, on the relationship between the national government and the States or tribal governments, or on the distribution of power and responsibilities among the various levels of government or between the Federal Government and Indian tribes. Thus, the Agency has determined that Executive Order 13132, entitled “Federalism” (64 FR 43255, August 10, 1999) and Executive Order 13175, entitled “Consultation and Coordination with Indian Tribal Governments” (65 FR 67249, November 9, 2000) do not apply to this final rule. In addition, this final rule does not impose any enforceable duty or contain any unfunded mandate as described under Title II of the Unfunded Mandates Reform Act of 1995 (UMRA) (2 U.S.C. 1501
This action does not involve any technical standards that would require Agency consideration of voluntary consensus standards pursuant to section 12(d) of the National Technology Transfer and Advancement Act of 1995 (NTTAA) (15 U.S.C. 272 note).
Pursuant to the Congressional Review Act (5 U.S.C. 801
Environmental protection, Administrative practice and procedure, Agricultural commodities, Pesticides and pests, Reporting and recordkeeping requirements.
Therefore, 40 CFR chapter I is amended as follows:
21 U.S.C. 321(q), 346a and 371.
(a) * * *
Environmental Protection Agency (EPA).
Final rule.
This regulation establishes tolerances for residues of mancozeb in or on walnuts and tangerines. United Phosphorus requested the tolerance for walnuts and Dow AgroSciences requested the tolerance for tangerines under the Federal Food, Drug, and Cosmetic Act (FFDCA).
This regulation is effective July 24, 2013. Objections and requests for hearings must be received on or before September 23, 2013, and must be filed in accordance with the instructions provided in 40 CFR part 178 (see also Unit I.C. of the
The docket for this action, identified by docket identification (ID) number EPA–HQ–OPP–2012–0628, is available at
Lois Rossi, Registration Division (7505P), Office of Pesticide Programs, Environmental Protection Agency, 1200 Pennsylvania Ave. NW., Washington, DC 20460–0001; telephone number: (703) 305–7090; email address:
You may be potentially affected by this action if you are an agricultural producer, food manufacturer, or pesticide manufacturer. The following list of North American Industrial Classification System (NAICS) codes is not intended to be exhaustive, but rather provides a guide to help readers determine whether this document applies to them. Potentially affected entities may include:
• Crop production (NAICS code 111).
• Animal production (NAICS code 112).
• Food manufacturing (NAICS code 311).
• Pesticide manufacturing (NAICS code 32532).
You may access a frequently updated electronic version of EPA's tolerance regulations at 40 CFR part 180 through the Government Printing Office's eCFR site at
Under FFDCA section 408(g), 21 U.S.C. 346a, any person may file an objection to any aspect of this regulation and may also request a hearing on those objections. You must file your objection or request a hearing on this regulation in accordance with the instructions provided in 40 CFR part 178. To ensure proper receipt by EPA, you must identify docket ID number EPA–HQ–
In addition to filing an objection or hearing request with the Hearing Clerk as described in 40 CFR part 178, please submit a copy of the filing (excluding any Confidential Business Information (CBI)) for inclusion in the public docket. Information not marked confidential pursuant to 40 CFR part 2 may be disclosed publicly by EPA without prior notice. Submit the non-CBI copy of your objection or hearing request, identified by docket ID number EPA–HQ–OPP–2012–0628, by one of the following methods:
•
•
•
In the
In the
Based upon review of the data supporting the petition, EPA has modified the level at which the tolerance is being established for walnut. The reason for this change is explained in Unit IV.C.
Section 408(b)(2)(A)(i) of FFDCA allows EPA to establish a tolerance (the legal limit for a pesticide chemical residue in or on a food) only if EPA determines that the tolerance is “safe.” Section 408(b)(2)(A)(ii) of FFDCA defines “safe” to mean that “there is a reasonable certainty that no harm will result from aggregate exposure to the pesticide chemical residue, including all anticipated dietary exposures and all other exposures for which there is reliable information.” This includes exposure through drinking water and in residential settings, but does not include occupational exposure. Section 408(b)(2)(C) of FFDCA requires EPA to give special consideration to exposure of infants and children to the pesticide chemical residue in establishing a tolerance and to “ensure that there is a reasonable certainty that no harm will result to infants and children from aggregate exposure to the pesticide chemical residue. . . .”
Consistent with FFDCA section 408(b)(2)(D), and the factors specified in FFDCA section 408(b)(2)(D), EPA has reviewed the available scientific data and other relevant information in support of this action. EPA has sufficient data to assess the hazards of and to make a determination on aggregate exposure for mancozeb including exposure resulting from the tolerances established by this action.
Mancozeb is a member of the ethylene bisdithiocarbamate (EBDC) group of fungicides that also includes the related active ingredient metiram, the only other registered EBDC. A third EBDC, maneb, is no longer registered for use. Mancozeb and metiram are metabolized to ethylenethiourea (ETU) in the body and both degrade to ETU in the environment. Therefore, EPA has considered the aggregate or combined risks from food, water and non-occupational exposure resulting from mancozeb alone and ETU from all sources (i.e., the other EBDC fungicides) for this action. EPA's assessment of exposures and risks associated with mancozeb and ETU follows.
EPA has evaluated the available toxicity data and considered its validity, completeness, and reliability as well as the relationship of the results of the studies to human risk. EPA has also considered available information concerning the variability of the sensitivities of major identifiable subgroups of consumers, including infants and children. In addition to evaluating mancozeb, EPA also evaluated the risks of ETU, a contaminant, metabolite and degradation product of mancozeb and the other EBDC group of fungicides, which includes the related active ingredient metiram.
1.
In a subchronic study in the rat, neuropathology was seen microscopically (injury to peripheral nerves) with associated clinical signs (abnormal gait and limited use of rear legs) and loss of muscle mass. Decreased motor activity occurred in the acute neurotoxicity study. In the developmental neurotoxicity study, there was no maternal toxicity and pup effects were limited to decreased body weight. Other toxicity included increases in bilateral retinopathy in the chronic rat study. Elevated cholesterol and a mild, regenerative, anemia occurred in subchronic and chronic dog studies.
Mancozeb is rapidly absorbed and eliminated in the urine. In oral rat metabolism studies with radiolabeled mancozeb and other EBDCs, an average 7.5%
Thyroid follicular cell adenomas and carcinomas were increased in high-dose males and females in the combined rat toxicity/carcinogenicity study with mancozeb. Doses in a mouse study were too low to assess carcinogenicity, and there were no treatment-related changes in tumor rates. Historically, mancozeb's potential for carcinogenicity has been based on its metabolite ETU, which is classified as a probable human carcinogen. However, since ETU is known to be the chemical causing the thyroid tumors observed, the cancer assessment has been done only for ETU rather than the parent compound.
Developmental defects in the rat developmental toxicity study included hydrocephaly, skeletal system defects, and other gross defects which occurred at a dose causing maternal mortality and did not indicate increased susceptibility of offspring. Abortions occurred in the rabbit developmental toxicity study at the high dose which also caused maternal mortality, and there was no indication of enhanced susceptibility of offspring in the rabbit. There was no evidence of reproductive toxicity in the 2-generation reproduction study in rats. There was evidence of sensitivity in the developmental neurotoxicity study with mancozeb with decreased pup body weight observed in the absence of maternal toxicity; the selected endpoints are protective for these pup effects.
An immunotoxicity study has been reviewed and mancozeb did not show any immunotoxicity potential.
2.
Developmental defects in the rat developmental study were similar to those seen with mancozeb, and included hydrocephaly and related lesions, skeletal system defects, and other gross defects. These defects showed increased susceptibility to fetuses because they occurred at a dose which only caused decreased maternal food consumption and body weight gain.
An immunotoxicity study on ETU did not show any immunotoxicity potential.
Specific information on the studies received and the nature of the adverse effects caused by mancozeb as well as the no-observed-adverse-effect-level (NOAEL) and the lowest-observed-adverse-effect-level (LOAEL) from the toxicity studies can be found at
Additionally, specific information on the studies received and the nature of the toxic effects caused by ETU as well as the NOAEL and the LOAEL from the toxicity studies can be found at
Once a pesticide's toxicological profile is determined, EPA identifies toxicological points of departure (POD) and levels of concern to use in evaluating the risk posed by human exposure to the pesticide. For hazards that have a threshold below which there is no appreciable risk, the toxicological POD is used as the basis for derivation of reference values for risk assessment. PODs are developed based on a careful analysis of the doses in each toxicological study to determine the dose at which no adverse effects are observed (the NOAEL) and the lowest dose at which adverse effects of concern are identified (the LOAEL). Uncertainty/safety factors are used in conjunction with the POD to calculate a safe exposure level—generally referred to as a population-adjusted dose (PAD) or a reference dose (RfD)—and a safe margin of exposure (MOE). For non-threshold risks, the Agency assumes that any amount of exposure will lead to some degree of risk. Thus, the Agency estimates risk in terms of the probability of an occurrence of the adverse effect expected in a lifetime. For more information on the general principles EPA uses in risk characterization and a complete description of the risk assessment process, see
A summary of the toxicological endpoints for mancozeb and ETU used for human risk assessment is shown in Tables 1 and 2 of this unit.
1.
i.
a.
b.
ii.
a.
b.
iii.
The cancer risks were aggregated using the food and drinking water doses for the general population and the food, water and recreational doses for home gardeners (considered protective of other residential scenarios). The average daily dose was used for food and water exposures and the lifetime average daily dose was used for the recreational exposures. The aggregate doses were multiplied times the potency factor for ETU, 0.0601 (mg/kg/day)
Mancozeb degrades and/or metabolizes to ETU which causes thyroid tumors; therefore, EPA has historically attributed mancozeb's carcinogenicity to the formation of ETU, which is classified as a probable human carcinogen. The Agency has used the cancer potency factor (Q
iv.
Section 408(b)(2)(F) of FFDCA states that the Agency may use data on the actual percent of food treated for assessing chronic dietary risk only if:
• Condition a: The data used are reliable and provide a valid basis to show what percentage of the food derived from such crop is likely to contain the pesticide residue.
• Condition b: The exposure estimate does not underestimate exposure for any significant subpopulation group.
• Condition c: Data are available on pesticide use and food consumption in a particular area, the exposure estimate does not understate exposure for the population in such area.
For mancozeb and ETU derived from mancozeb, the following maximum PCT
For mancozeb and ETU derived from mancozeb, the following average PCT estimates were used in the chronic and cancer dietary risk assessments for the following crops: Apples: 40%; asparagus: 15%; barley: 1%; cantaloupes: 5%; carrots: 1%; celery: 1%; cherries: 1%; corn: 1%; cranberries: 20%; cucumbers: 25%; grapes: 10%; oats: 1%; onions: 60%; peanuts: 2.5%; pears: 40%; potatoes: 55%; pumpkins: 10%; rice: 1%; spinach: 1%; squash: 20%; sugar beets: 1%; sweet corn: 5%; tomatoes: 25%; watermelons: 40%; and wheat: 1%. A percent import value of 99% was used for banana.
As a further refinement, the commodity having the highest PCT results with livestock feed uses had these values applied to meat and milk (potato; 65% CT maximum for acute and 55% CT average for chronic).
For ETU derived from metiram, the following maximum PCT estimates were used in the acute dietary risk assessment: apples: 15%; potatoes: 10%. A 31% imported commodity in domestic consumption was used for wine grapes.
For ETU derived from metiram, the following average PCT estimates were used in the chronic and cancer dietary risk assessment: Apples: 10%; potatoes: 5%. A 31% imported commodity in domestic consumption was used for wine grapes.
In most cases, EPA uses available data from United States Department of Agriculture/National Agricultural Statistics Service (USDA/NASS), proprietary market surveys, and the National Pesticide Use Database for the chemical/crop combination for the most recent 6–7 years. EPA uses an average PCT for chronic dietary risk analysis. The average PCT figure for each existing use is derived by combining available public and private market survey data for that use, averaging across all observations, and rounding to the nearest 5%, except for those situations in which the average PCT is less than one. In those cases, 1% is used as the average PCT and 2.5% is used as the maximum PCT. EPA uses a maximum PCT for acute dietary risk analysis. The maximum PCT figure is the highest observed maximum value reported within the recent 6 years of available public and private market survey data for the existing use and rounded up to the nearest multiple of 5%.
Also, for the acute risk assessment for mancozeb and ETU derived from mancozeb, the Agency estimated PCT for the following uses for mancozeb, which were recently approved in 2011: Almond, 25%; broccoli, 6%; cabbage, 47%; cabbage, Chinese, 47%; head lettuce 75%; leaf lettuce 66%; pepper, bell, 48%; pepper, non-bell, 48%. For the chronic risk assessment for mancozeb and ETU derived from mancozeb, the Agency estimated PCT as follows: Almond, 18%; broccoli, 5%; cabbage, 42%; cabbage, Chinese, 42%; head lettuce 67%; leaf lettuce 62%; pepper, bell, 44%; pepper, non-bell, 44%. Since metiram is not registered for use on these crops, all potential ETU exposure on these crops will result from use of mancozeb.
EPA developed these refined PCT values based on a detailed chemical-specific analysis. EPA has considered all available relevant information and concludes that it is unlikely that the PCT values for these uses will be exceeded during the next 5 years. Further discussion of how these PCT values were derived can be found at
For mancozeb and ETU derived from mancozeb, a maximum PCT projected estimate of 50% for walnuts and a maximum percent import consumption value of 35% for tangerines were used in the acute dietary risk assessment. An average PCT estimate of 40% for walnuts as well as an average percent imported commodity in domestic consumption value of 29% for tangerines were used in the chronic and cancer dietary risk assessments.
The walnut information is an amalgamation of the USDA/NASS and private pesticide market research data. The PCT values for walnuts are derived from survey data reported in 2006, 2010, and 2011. Only the state of California is represented in the survey data as 99% of the walnuts grown in the United States are grown in that state. The percent of imported fresh mandarin oranges in domestic consumption was calculated with data for the reporting period of 2008–2013 obtained from the Foreign Agricultural Service (FAS) USDA/Office of Global Analysis (FAS, 2013).
The Agency believes that the three conditions discussed in Unit III.C.1.iv. have been met. With respect to Condition a, PCT estimates are derived from Federal and private market survey data, which are reliable and have a valid basis. The Agency is reasonably certain that the percentage of the food treated is not likely to be an underestimation. As to Conditions b and c, regional consumption information and consumption information for significant subpopulations is taken into account through EPA's computer-based model for evaluating the exposure of significant subpopulations including several regional groups. Use of this consumption information in EPA's risk assessment process ensures that EPA's exposure estimate does not understate exposure for any significant subpopulation group and allows the Agency to be reasonably certain that no regional population is exposed to residue levels higher than those estimated by the Agency. Other than the data available through national food consumption surveys, EPA does not have available reliable information on the regional consumption of food to which mancozeb may be applied in a particular area.
2.
ii.
Based on the PRZM/EXAMS and monitoring studies, the EDWCs of ETU acute and chronic exposures are estimated to be 25.2 parts per billion (ppb), and 0.1 ppb, respectively for surface water. The EDWC for acute and chronic exposure is estimated to be 0.21 ppb for ground water.
Estimates of drinking water concentrations were directly entered into the dietary exposure model. For acute dietary risk assessment, the water concentration value of 25.2 ppb was used to assess the contribution to drinking water. For chronic dietary risk assessment of ETU, the water concentration of value 0.21 ppb was used to assess the contribution to drinking water. For cancer dietary risk assessment of ETU, the water concentration of value 0.21 ppb was used to assess the contribution to drinking water.
3.
1.
The exposure scenario that was evaluated for mancozeb was the residential handler home garden use which considers residential handler exposures (inhalation) to adult applicators combined with average food exposures. Dermal exposure was not evaluated because no effects were observed in a mancozeb 28-day dermal toxicity study.
For post-application, dermal exposure to home gardeners (adults and youth) harvesting vegetables from treated gardens and golfers (adults and youth) contacting mancozeb-treated turf after application is possible. However, as no dermal hazard was identified for mancozeb, a quantitative dermal post-application assessment (non-cancer/short-term and cancer) for the dermal exposure to home gardeners and golfers (adults and youth) was only performed for its metabolite, ETU.
The previous mancozeb risk assessment had evaluated the short/intermediate-term exposure of toddlers to treated turf from the sod farm use. In the most recent risk assessment, the Agency considered post-application exposure resulting from this scenario to be negligible for the following reasons: (1) Mancozeb has a post-harvest interval (PHI) of 5 days for sod; (2) it is unlikely that sod treated with mancozeb would be installed more than once per year; (3) transplanted sod requires constant and significant watering which will result in decreased mancozeb residues on the transplanted sod; and (4) it is unlikely that adults or children will spend any significant amount of time on recently transplanted sod until it is rooted which typically occurs around 2 weeks after transplanting. Therefore, dermal and incidental oral post-application scenarios were not quantitatively assessed for the sod farm use of mancozeb. There are no post-application exposure risks of concern anticipated from the use of mancozeb on sod farms.
ii.
The scenario that was evaluated for ETU was the residential home garden use, which considered handler garden exposures (inhalation and dermal) plus average daily food and drinking water exposure for adults and post-application garden exposures (dermal) plus average daily food and drinking water exposure for females 13–49 years old and youths.
The previous risk assessment also considered treated turf (sod farm) post-application exposures to toddlers (incidental oral and dermal). This more recent risk assessment did not evaluate the sod farm use for the reasons outlined above in the mancozeb non-dietary exposure section.
The previous risk assessment also calculated risks for adult and youth golfers from golfing on treated turf. The more recent assessment concluded that for residential post-application, the gardening scenarios represent the most conservative exposure estimates and are used in the aggregate assessment. The gardening scenarios result in higher estimated exposure than the golfing scenarios and are therefore protective of any golfer risk.
Further information regarding EPA standard assumptions and generic inputs for residential exposures may be found at
4.
As previously mentioned, the risk estimates summarized in this document are those that result only from the use of mancozeb, and ETU derived from mancozeb and metiram, the other registered EBDC chemical, both of which are dithiocarbamates. For the purposes of this action, EPA has concluded that mancozeb does not share a common mechanism of toxicity with other substances. The Agency reached this conclusion after a thorough internal review and external peer review of the data on a potential common mechanism of toxicity.
EPA concluded that the available evidence does not support grouping the dithiocarbamates based on a common toxic effect (neuropathology) occurring by a common mechanism of toxicity (related to metabolism to carbon disulfide). After a thorough internal and external peer review of the existing data bearing on a common mechanism of toxicity, EPA concluded that the available evidence shows that neuropathology cannot be linked with carbon disulfide formation. For more information, please see the December 19, 2001 memo, “The Determination of Whether Dithiocarbamate Pesticides Share a Common Mechanism of Toxicity” on the internet at
1.
2.
ii.
3.
i. The toxicology database for mancozeb is complete, except that it lacks adequate data on the developing thyroid. Brain development is very sensitive to perturbations in thyroid hormones and it is possible that the developmental thyroid study (being conducted with ETU) could result in lower NOAELs for women of childbearing age (i.e., fetuses) and for children less than 6 years old. Results from the developmental thyroid study will not affect endpoints for children over 6 years of age (for whom the thyroid system is more developed) or adults as thyroid data for those populations are already available. Therefore, the FQPA safety factor is reduced to 1X for these populations.
ii. There was some evidence of neurotoxicity for mancozeb as seen in the acute and subchronic neurotoxicity studies; however, no neurotoxicity occurred in the DNT. Additionally, there are clear NOAELs identified for the effects observed in the toxicity studies. The doses and endpoints selected for risk assessment are protective of all neurotoxicological effects observed in the database.
iii. As noted above in Unit III.D.2., there was some evidence of increased susceptibility of rat pups to mancozeb exposure. Aside from the uncertainty resulting from the lack of adequate thyroid data (for which EPA is retaining the 10X FQPA safety factor), there are clear NOAELs for the offspring effects, and regulatory doses were selected to be protective of these effects.
iv. There are no residual uncertainties identified in the exposure databases. The acute, chronic, and cancer dietary exposure assessments were refined and used PCT estimates and monitoring residue values for several commodities, including some major contributors to the dietary risk such as milk and corn commodities. Monitoring or modeling data were used to derive estimated drinking water concentrations. The drinking water concentrations that were derived from monitoring data reflect the highest value found in a community well monitoring program. The drinking water concentrations from modeling used conservative, health-protective, high-end estimates and are unlikely to be exceeded. The residential exposure assessment used residential SOPs, which are based on conservative high-end assumptions such as maximum application rates and day 0 exposures. Given the overall conservative nature of the exposure assumptions, the aggregate (food, water, and residential) exposure and risk estimates presented in this assessment are not expected to underestimate actual exposure and risk expected based on the current and proposed use patterns.
4.
i. The toxicology database for ETU is missing a developmental thyroid study, a reproduction study, and a developmental neurotoxicity (DNT) study. These data gaps are being addressed by an ongoing extended one-generation reproductive toxicity study. Because the developing brain is very sensitive to perturbations in thyroid hormones, it is possible that these studies could result in lower NOAELs for women of childbearing age (i.e., fetuses) and for children less than 6 years old; however, results from the developmental thyroid study will not affect points of departure for children greater than 6 years of age, who have a thyroid system similar to adults, adult females greater than 49 years of age (assumed to be beyond typical child-bearing age), or adult males since thyroid data for those populations are already available. Additionally, endpoints from the other segments of the extended one-generation study will not affect these latter populations, and the FQPA safety factor is being reduced to 1X for these populations.
ii. Although the ETU studies were inadequate in evaluating signs of neurotoxicity, there was no evidence of neurotoxicity seen in any study in the database. In any event, the Agency has determined that the selected endpoints would be protective of potential neurotoxicity. The basis for this is that the principal toxic effects occur in the thyroid; thyroid effects provide the most sensitive endpoint, which the Agency is regulating on. Although the extended 1-gen study being performed on ETU is evaluating the potential for effects on the developing brain, the Agency does not believe that a 10X FQPA safety factor is necessary to protect children 6 years old or older because: (1) The weight-of-evidence of the available data indicates that thyroid effects are the most sensitive effect of this chemical; (2) the Agency is regulating on the more sensitive thyroid effect; and (3) the Agency is retaining a 10X FQPA safety factor for the population most likely affected by the thyroid effects.
iii. As noted in Unit III.D.2., there is evidence of increased quantitative and qualitative susceptibility following increased
iv. There are no residual uncertainties identified in the EBDC's (mancozeb or metiram) exposure databases for ETU assessment. The acute, chronic, and cancer dietary exposure assessments were refined and used PCT estimates and monitoring residue values for several commodities including some major contributors to the dietary risk such as milk and corn commodities. Monitoring or modeling data were used to derive estimated drinking water concentrations. The drinking water concentrations that were derived from monitoring data reflect the highest value found in a community well monitoring program. The drinking water concentrations from modeling used conservative, health-protective, high-end estimates and are unlikely to be exceeded. The residential exposure assessment used residential SOPs, which are based on conservative high-end assumptions such as maximum application rates and day 0 exposures. Given the overall conservative nature of the exposure assumptions, the aggregate (food, water, and residential) exposure and risk estimates presented in this assessment are not expected to underestimate actual exposure and risk expected based on the current and proposed use patterns.
EPA determines whether acute and chronic dietary pesticide exposures are safe by comparing aggregate exposure estimates to the acute PAD (aPAD) and chronic PAD (cPAD). For linear cancer risks, EPA calculates the lifetime probability of acquiring cancer given the estimated aggregate exposure. Short-, intermediate-, and chronic-term risks are evaluated by comparing the estimated aggregate food, water, and residential exposure to the appropriate PODs to ensure that an adequate MOE exists.
3.
4.
5.
Mancozeb is currently registered for uses that could result in short-term residential exposure and the Agency has determined that it is appropriate to aggregate chronic exposure through food with short-term residential exposures to mancozeb. The scenario that was evaluated for mancozeb was the residential handler home garden use. The aggregate short-term home garden MOEs for adult males and females greater than 49 years old is 99,000 and the MOE for adult females 13–49 years old is 94,000. Because for mancozeb EPA is concerned only with MOEs that are below 30 (adult males and females greater than 49 years old) and 300 (adult females 13–49 years old), these MOEs do not raise a risk concern.
6.
Mancozeb is currently registered for uses that could result in short-term residential exposure to ETU. There are no residential uses for metiram. The Agency determined that it was appropriate to aggregate chronic exposure through food with short-term residential exposures to ETU. The ETU short-term handler home garden aggregate MOE for adult females 13–49 years old is 27,000 and for adult males (and females older than 49 years old) is 42,000. The ETU short-term post-application home garden aggregate MOE for adult females 13–49 years old is 2,600 and for youths 11–16 years old is 3,100. Because for ETU EPA is concerned only with MOEs that are below 1,000 (adult females 13–49 years old) and 100 (adult males, females >49 years old and youth 11–16 years old), these MOEs do not raise a risk concern.
7.
An intermediate-term adverse effect was identified; however, mancozeb is not registered for any use patterns that would result in intermediate-term residential exposure. Intermediate-term risk is assessed based on intermediate-term residential exposure plus chronic dietary exposure. Because there is no intermediate-term residential exposure and chronic dietary exposure has already been assessed under the appropriately protective cPAD (which is at least as protective as the POD used to assess intermediate-term risk), no further assessment of intermediate-term risk is necessary, and EPA relies on the chronic dietary risk assessment for evaluating intermediate-term risk for mancozeb.
8.
The cancer aggregate risk estimates (home garden handler and post-application scenarios) for the U.S.
EPA generally considers cancer risks (expressed as the probability of an increased cancer case) in the range of 1 in 1 million (or 1 × 10
9.
Adequate methods are available for the enforcement of tolerances for the plant commodities which are the subject of this request. The Pesticide Analytical Method (PAM) Vol. II lists Methods I, II, III, IV, and A for the determination of dithiocarbamate residues in/on plant commodities. The Keppel colorimetric method (Method III) is the preferred method for tolerance enforcement. The Keppel method determines EBDCs as a group by degradation to CS
The method may be requested from: Chief, Analytical Chemistry Branch, Environmental Science Center, 701 Mapes Rd., Ft. Meade, MD 20755–5350; telephone number: (410) 305–2905; email address:
In making its tolerance decisions, EPA seeks to harmonize U.S. tolerances with international standards whenever possible, consistent with U.S. food safety standards and agricultural practices. EPA considers the international maximum residue limits (MRLs) established by the Codex Alimentarius Commission (Codex), as required by FFDCA section 408(b)(4). The Codex Alimentarius is a joint United Nations Food and Agriculture Organization/World Health Organization food standards program, and it is recognized as an international food safety standards-setting organization in trade agreements to which the United States is a party. EPA may establish a tolerance that is different from a Codex MRL; however, FFDCA section 408(b)(4) requires that EPA explain the reasons for departing from the Codex level.
There is no Codex MRL established for mancozeb on walnuts.
There is a MRL of 10 ppm established by Codex for the use of EBDC compounds on mandarins which is consistent with the 10 ppm tolerance on tangerine being established by this document.
Based on the evaluation of the residue data, the Agency is modified the tolerance for walnuts from the proposed level of 0.75 ppm to 0.70 ppm. EPA revised the tolerance levels based on analysis of the residue field trial data using the Organization for Economic Cooperation and Development (OECD) tolerance calculation procedures.
Therefore, tolerances are established for residues of mancozeb, in or on walnut at 0.70 ppm and tangerine at 10 ppm.
This final rule establishes tolerances under FFDCA section 408(d) in response to a petition submitted to the Agency. The Office of Management and Budget (OMB) has exempted these types of actions from review under Executive Order 12866, entitled “Regulatory Planning and Review” (58 FR 51735, October 4, 1993). Because this final rule has been exempted from review under Executive Order 12866, this final rule is not subject to Executive Order 13211, entitled “Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use” (66 FR 28355, May 22, 2001) or Executive Order 13045, entitled “Protection of Children from Environmental Health Risks and Safety Risks” (62 FR 19885, April 23, 1997). This final rule does not contain any information collections subject to OMB approval under the Paperwork Reduction Act (PRA) (44 U.S.C. 3501
Since tolerances and exemptions that are established on the basis of a petition under FFDCA section 408(d), such as the tolerance in this final rule, do not require the issuance of a proposed rule, the requirements of the Regulatory Flexibility Act (RFA) (5 U.S.C. 601
This final rule directly regulates growers, food processors, food handlers, and food retailers, not States or tribes, nor does this action alter the relationships or distribution of power and responsibilities established by Congress in the preemption provisions of FFDCA section 408(n)(4). As such, the Agency has determined that this action will not have a substantial direct effect on States or tribal governments, on the relationship between the national government and the States or tribal governments, or on the distribution of power and responsibilities among the various levels of government or between the Federal Government and Indian tribes. Thus, the Agency has determined that Executive Order 13132, entitled “Federalism” (64 FR 43255, August 10, 1999) and Executive Order 13175, entitled “Consultation and Coordination with Indian Tribal Governments” (65 FR 67249, November 9, 2000) do not apply to this final rule. In addition, this final rule does not impose any enforceable duty or contain any unfunded mandate as described under Title II of the Unfunded Mandates Reform Act of 1995 (UMRA) (2 U.S.C. 1501
This action does not involve any technical standards that would require Agency consideration of voluntary consensus standards pursuant to section 12(d) of the National Technology
Pursuant to the Congressional Review Act (5 U.S.C. 801
Environmental protection, Administrative practice and procedure, Agricultural commodities, Pesticides and pests, Reporting and recordkeeping requirements.
Therefore, 40 CFR chapter I is amended as follows:
21 U.S.C. 321(q), 346a and 371.
(a) * * *
Environmental Protection Agency.
Direct final rule.
The Environmental Protection Agency (EPA) Region 9 is publishing a direct final Notice of Deletion of the Sola Optical U.S.A., Inc. Superfund Site (Site), located in Petaluma, California, from the National Priorities List (NPL). The NPL, promulgated pursuant to section 105 of the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) of 1980, as amended, is an appendix of the National Oil and Hazardous Substances Pollution Contingency Plan (NCP). This direct final deletion is being published by EPA with the concurrence of the State of California, through the California Regional Water Quality Control Board—San Francisco Bay Region, because EPA has determined that all appropriate response actions under CERCLA have been completed. However, this deletion does not preclude future actions under Superfund.
This direct final deletion is effective September 23, 2013, unless EPA receives adverse comments by August 23, 2013. If adverse comments are received, EPA will publish a timely withdrawal of the direct final deletion in the
Submit your comments, identified by Docket ID no. EPA–HQ–SFUND–1990–0010, by one of the following methods:
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Such deliveries are only accepted during the Docket's normal hours of operation, and special arrangements should be made for deliveries of boxed information.
Instructions: Direct your comments to Docket ID no. EPA–HQ–SFUND–1900–0010. EPA's policy is that all comments received will be included in the public docket without change and may be made available online at
All documents in the docket are listed in the
Dante Rodriguez, Remedial Project Manager, U.S. Environmental Protection Agency, Region 9, SFD–8–2, 75 Hawthorne Street, San Francisco, CA 94105, (415) 972–3166, email:
EPA Region 9 is publishing this direct final Notice of Deletion of the Sola Optical U.S.A., Inc. Superfund site (Site), from the National Priorities List (NPL). The NPL constitutes Appendix B of 40 CFR part 300, which is the Oil and Hazardous Substances Pollution Contingency Plan (NCP), which EPA promulgated pursuant to section 105 of the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) of 1980, as amended. EPA maintains the NPL as the list of sites that appear to present a significant risk to public health, welfare, or the environment. Sites on the NPL may be the subject of remedial actions financed by the Hazardous Substance Superfund (Fund). As described in 300.425(e)(3) of the NCP, sites deleted from the NPL remain eligible for Fund-financed remedial actions if future conditions warrant such actions.
Because EPA considers this action to be noncontroversial and routine, this action will be effective September 23, 2013 unless EPA receives adverse comments by August 23, 2013. Along with this direct final Notice of Deletion, EPA is co-publishing a Notice of Intent to Delete in the “Proposed Rules” section of the
Section II of this document explains the criteria for deleting sites from the NPL. Section III discusses procedures that EPA is using for this action. Section IV discusses the Sola Optical U.S.A., Inc. Superfund Site and demonstrates how it meets the deletion criteria. Section V discusses EPA's action to delete the Site from the NPL unless adverse comments are received during the public comment period.
The NCP establishes the criteria that EPA uses to delete sites from the NPL. In accordance with 40 CFR 300.425(e), sites may be deleted from the NPL where no further response is appropriate. In making such a determination pursuant to 40 CFR 300.425(e), EPA will consider, in consultation with the state, whether any of the following criteria have been met:
i. Responsible parties or other persons have implemented all appropriate response actions required;
ii. all appropriate Fund-financed response under CERCLA has been implemented, and no further response action by responsible parties is appropriate; or
iii. the remedial investigation has shown that the release poses no significant threat to public health or the environment and, therefore, the taking of remedial measures is not appropriate.
The following procedures apply to deletion of the Site:
(1) EPA consulted with the State of California prior to developing this direct final Notice of Deletion and the Notice of Intent to Delete co-published today in the “Proposed Rules” section of the
(2) EPA has provided the state 30 working days for review of this notice and the parallel Notice of Intent to Delete prior to their publication today, and the state, through the California Regional Water Quality Control Board—San Francisco Bay Region, has concurred on the deletion of the Site from the NPL.
(3) Concurrently with the publication of this direct final Notice of Deletion, a notice of the availability of the parallel Notice of Intent to Delete is being published in a major local newspaper, the Petaluma Argus-Courier. The newspaper notice announces the 30-day public comment period concerning the Notice of Intent to Delete the Site from the NPL.
(4) The EPA placed copies of documents supporting the proposed deletion in the deletion docket and made these items available for public inspection and copying at the Site information repositories identified above.
(5) If adverse comments are received within the 30-day public comment period on this deletion action, EPA will publish a timely notice of withdrawal of this direct final Notice of Deletion before its effective date and will prepare a response to comments and continue with the deletion process on the basis of the Notice of Intent to Delete and the comments already received.
Deletion of a site from the NPL does not itself create, alter, or revoke any individual's rights or obligations. Deletion of a site from the NPL does not in any way alter EPA's right to take enforcement actions, as appropriate. The NPL is designed primarily for informational purposes and to assist EPA management. Section 300.425(e)(3) of the NCP states that the deletion of a site from the NPL does not preclude eligibility for future response actions, should future conditions warrant such actions.
The following information provides EPA's rationale for deleting the Site from the NPL:
The Site (CAD981171523) is located at 1500 Cader Lane in the City of Petaluma in Sonoma County, California. The Site's main property contains a manufacturing building and adjoining administration office building. Six underground storage tanks (USTs) were formerly located behind the north corner of the manufacturing facility. The Site building is currently occupied by three companies, which utilize the main facility building. There is a fence located along the eastern Site boundary. Since 2005, an asphalt parking lot and four building pads with the associated below grade infrastructure (i.e., electrical and plumbing) have been constructed on the auxiliary 11 acre lot, adjacent to the main property.
Sola manufactured ophthalmic lenses at the facility from 1978 through 2001. The manufacturing process involved the injection of a catalyzed, thermosetting resin into a cavity between polished glass molds. The mold assembly was then placed in an air oven to cure the resin. The assembly was removed from the oven and subsequently put through a cleaning process before the production was repeated. The six USTs were used to store solvents such as 1,1,1-trichloroethane (1,1,1-TCA), acetone, and methanol.
In May 1982, Sola found low concentrations of volatile organic compound (VOC) contamination in the groundwater beneath the Site, near the six USTs. In 1983, the San Francisco Regional Water Quality Control Board (Regional Board) directed Sola to investigate the contamination, and 1,1-
The tank removal included excavation of gravel backfill materials and three to five feet of native soil from the sides and bottom of the excavation pit. Confirmation sampling identified the presence of three contaminants: acetone, 1,1-DCE, and trans-1,2-dichloroethene. Based on these findings, an additional two feet of soil was excavated from the eastern wall of the former tank area. Further confirmation sampling demonstrated the presence of VOCs, including acetone. No additional excavation was performed.
In July 1986, soil gas samples were collected from 40 locations, ranging from three to five feet bgs, to determine if VOCs were migrating from shallow groundwater and to aid in selection of locations for groundwater monitoring and extraction wells. Chemicals detected in the soil gas included: chloroform, carbon tetrachloride, 1,1-DCA, 1,1-DCE, tetrachloroethene (PCE), and 1,1,1-TCA. Maximum concentrations were found approximately 70 feet downgradient from the location of the former USTs.
In 1987, the Regional Board ordered Sola to construct and operate a groundwater extraction and treatment system (GWTS). Sola conducted the activities, with the treated groundwater being discharged into Adobe Creek, just northwest of the Site, under a permit from the Regional Board. The extraction and treatment system began operating in 1988. Sola also arranged to have the City of Petaluma shut down the nearby municipal water supply well, to avoid interference with the groundwater clean-up efforts and prevent potential use of Site-impacted groundwater.
In 1989, EPA became the lead regulatory agency for remedial activities at the Site. On June 24, 1988, the Site was proposed for NPL Listing (53 Fed.Reg. 23987). On February 21, 1990, EPA added the Site to the National Priorities List of Superfund sites (55 Fed.Reg. 6153). Soon thereafter, EPA issued an administrative order directing Sola to conduct further environmental sampling and to prepare a remedial investigation report and a feasibility study of clean-up options, both of which Sola completed in 1991.
The 35-acre Sola property is zoned for industrial use. Land-use in the surrounding area is industrial, commercial, residential, and undeveloped land. The adjacent property to the west of the Site was previously owned by Stero Company, a manufacturer of dishwashers. There are residential subdivisions to the north and northwest of the Site, approximately 200 feet away. Property east of the Site is used for office space and the Harvest Christian School.
The approximately 11-acre (889,060 square feet) previously undeveloped auxiliary lot in the southwest portion of the Site was purchased by RNM Cader, L.L.C. (RNM) for development in approximately 2001. An asphalt parking lot and four building pads with the associated below grade infrastructure were constructed between 2005 and 2010. The approximately 24-acre main lot of the Sola property, including the buildings, was sold to Kland, L.L.C. in 2002. The buildings include the original manufacturing building, the adjoining administration office building, and a parking lot surrounding the buildings. Three commercial tenants currently occupy the Site building: Petaluma Poultry, Reynolds Packaging, and Scott Laboratories. Petaluma Poultry conducts sales and distribution of poultry; Reynolds Packaging conducts storage and distribution of food packaging materials; and Scott Laboratories conducts manufacturing and finishing of cork for the wine industry.
Twelve chemicals of potential concern were cited in the Record of Decision for the Site in 1991 (1991 ROD): acetone, butanone, 1,1-DCA, 1,2-dichloroethane (1,2-DCA), 1,1-DCE, Freon 113, 4-methyl-2-pentanone, PCE, toluene, 1,1,1-TCA, 1,1,2-trichloroethane (1,1,2-TCA), and trichloroethene (TCE). Contamination was found in the soil (acetone ranging up to 54 milligrams per kilogram (mg/kg) and 1,1-DCE at 0.051 mg/kg), and in the groundwater (primarily 1,1-DCA, 1,1-DCE, 1,1,1-TCA, and Freon-113). The highest contaminant concentration in groundwater was 1,1-DCE (3,300 micrograms per liter [μg/L]), detected in shallow well W–14 located downgradient of the former UST area. The wells on the downgradient edge of the Site indicated that the VOC contamination at the edge of the Sola property was at or below the clean-up standards.
The risk assessment presented in the 1991 ROD indicated an excess lifetime cancer risk based on use of on-site contaminated groundwater for drinking water of 1 × 10
The ecological assessment identified Adobe Creek as the closest surface water body to the Site and as a site of a local project to reintroduce anadromous steelhead trout to the creek. However, water quality samples from groundwater monitoring wells installed between the Sola property and Adobe Creek did not detect any contaminants, indicating that discharge of contaminants to surface water had not occurred. In addition, contaminants detected in groundwater at the Site were below their corresponding federal surface water quality criteria for the protection of aquatic life.
EPA issued the ROD on September 27, 1991. The Remedial Action Objective (RAO) was to restore groundwater to its beneficial use, which is drinking water. The 1991 ROD determined that an expanded GWTS was the most appropriate method for remediating contamination at the Site. The selected site remedy consisted of the following elements:
• Groundwater monitoring to assure capture of contaminated groundwater and to demonstrate restoration of groundwater to cleanup standards throughout the aquifer
• Operation of existing extraction wells (8)
• Construction and operation of two additional shallow extraction wells
• Conversion of monitoring wells LF–13 and LF–17 to deep extraction wells
• Construction and operation of additional piping for the new and converted wells
• On-site treatment and discharge off-site or to the City of Petaluma sewage treatment system.
A ROD Amendment was signed on March 30, 2007, modifying the 1991 ROD but leaving intact its remedial action objective of restoring groundwater to its beneficial use as drinking water. The 2007 ROD Amendment addressed two issues: (1) groundwater clean-up, and (2) Institutional Controls (ICs). The ROD Amendment includes the following elements:
• Monitored Natural Attenuation (MNA) to achieve groundwater clean-up standards
• ICs to protect against inappropriate use of the contaminated groundwater until the clean-up standards are achieved
• Monitoring of both components until clean-up standards are achieved and sustained.
Sola expanded the system in 1992, pursuant to the 1991 ROD and a Unilateral Administrative Order issued by EPA, and continued its operations. EPA signed an “Interim Close-out Report” in 1992 to document completion of the construction and operability of the system. This report served as the Preliminary Close-out Report and as the Remedial Action Report.
The system was expected to restore the shallow groundwater to clean-up standards within 15–20 years. Initially, concentrations of the VOC contamination decreased significantly. By 1997, however, the rate of contaminant reduction had decreased. Groundwater monitoring data at four wells showed that concentrations of two contaminants, 1,1-DCE and 1,1,-DCA, appeared to have stabilized and reached an asymptote at levels above the clean-up standards. Continued monitoring reflected no further reductions in contaminant concentrations. Some areas of the contaminated aquifer had achieved the clean-up standard of 5 parts per billion for 1,1-DCA but not the entire plume. The extraction and treatment system was no longer effectively removing these lower concentrations of contaminants from the groundwater. As a result, Sola shut off the extraction and treatment system and monitored the groundwater.
The concentrations of the two remaining contaminants slowly declined. In 2001, Sola analyzed the data gathered since system shut-down in 1997 and presented its evaluation of MNA, following EPA guidance. Sola's evaluation concluded that extraction and treatment alone would not be capable of achieving the clean-up standard for the remaining areas, but MNA likely would be. EPA indicated it would proceed with amending the 1991 ROD to establish MNA as the new remedy. The extraction and treatment system was decommissioned in 2002.
Sampling results showed concentrations of the two contaminants continuing to decline. In March 2007, EPA signed the ROD Amendment that formally selected MNA and ICs. No additional facilities were constructed for the implementation of the ROD Amendment.
Sola conducted the semi-annual sampling through December 2009, followed by one groundwater monitoring event conducted in 2010, none in 2011, and one in 2012. In 2012, EPA determined that the clean-up standards had been achieved and sustained, as documented in a Remedial Action Report for the MNA remedy, signed on May 11, 2012.
The 2007 ROD Amendment added a requirement that ICs be implemented to protect against inappropriate use of the contaminated groundwater until the clean-up standards are achieved.
The IC that has been implemented at the Site involves the local well permitting department, the County of Sonoma Permit and Resource Management Department (CSPRMD) placing a note within its system, indicating that the parcel is part of a Superfund site and that well permits should not be issued before consulting with the CSPRMD and EPA. If anyone requests a permit for the Sola Site parcel, this note would appear. This control was implemented in October 2011 (Sonoma County, 2011).
Site closure criterion was agreed upon by the Site team in January 2006, in response to recommendations presented in the five-year review report. It was agreed that groundwater monitoring at well W–27 would be continued until it was demonstrated that the cleanup goal for 1,1-DCA (i.e., the California Maximum Contaminant Limit (MCL) of 5 μg/l) and other VOCs had been maintained for four consecutive semiannual sampling events, or a minimum of two years. At that time, 1,1-DCA was the only constituent whose concentration in groundwater remained above the MCL.
The 1,1-DCA concentrations in well W–27 have been below the MCL in three of the last four monitoring events, and have remained below the MCL since June 2010 (greater than two years). In addition, the July 2012 1,1-DCA concentration is the lowest ever detected in this well, indicating the continued attenuation of 1,1-DCA. The 1,1-DCE concentration has also decreased from the June 2010 concentration to below the laboratory reporting limit of 0.5 μg/l.
The decreasing trend of 1,1-DCA concentrations in well W–27 was assessed using both the concentration-versus-time graph and a Mann-Kendall trend analysis.
Based on the two consecutive years of VOC concentrations below their respective MCLs and the decreasing concentration trend, EPA believes the groundwater cleanup standards have been achieved and the Site can be closed-out.
No operation and maintenance (O&M) activities are required at this site. All clean-up goals have been met, consisting of attaining drinking water MCL standards in the groundwater. No further remedial actions or O&M thereof are required. No ICs are required to remain in place.
No further five-year reviews will be conducted, as they are no longer required. No wastes were left in place above an unlimited use, unrestricted exposure level. To date, three five-year reviews have been conducted. These reviews were conducted because contaminant levels in the groundwater exceeded the ROD clean-up standards. The groundwater has since attained all clean-up standards.
The most recent five-year review was completed in September 2010 and contained the following Protectiveness Statement: “The remedy at the Sola Site currently protects human health and the environment because the groundwater contamination has been reduced below drinking water standards (MCLs) in all but a very limited area around one well, no exposure pathways to the remaining contamination exist, and no one is using the groundwater resource. However, in order for the remedy to be protective in the long-term, the following actions need to be taken: The well permitting restriction IC within the CSPRMD Permits Plus system must be properly implemented to ensure the protectiveness of the remedy. Determine whether the restrictive covenant IC is required to protect human health in the short-term, and implement it if so.” As a result, EPA has insured proper implementation of the well permitting restriction IC and has determined that the restrictive covenant IC was not needed because the groundwater clean-up standard had been attained.
Public participation activities have been satisfied as required in CERCLA Section 113(k), 42 U.S.C. 9613(k), and CERCLA section 117, 42 U.S.C. 9617. Community involvement activities were conducted at the site, as required, during major steps of the CERCLA
EPA's community involvement activities associated with this deletion will consist of placing the deletion docket in the local site information repository and placing a public notice (of EPA's intent to delete the site from the NPL) in a local newspaper of general circulation.
The implemented remedy achieves the degree of cleanup specified in the ROD and ROD Amendment for all pathways of exposure. All selected remedial action objectives and clean-up goals are consistent with agency policy and guidance. No further Superfund responses are needed to protect human health and the environment at the Site.
The NCP (40 CFR 300.425(e)) states that a site may be deleted from the NPL when no further response action is appropriate. EPA, in consultation with the State of California, has determined that all required response actions have been implemented, and no further response action by the responsible parties is appropriate.
The EPA, with concurrence of the State of California through the California Regional Water Quality Control Board—San Francisco Bay Region, has determined that all appropriate response actions under CERCLA have been completed. Therefore, EPA is deleting the Site from the NPL.
Because EPA considers this action to be noncontroversial and routine, EPA is taking it without prior publication. This action will be effective September 23, 2013 unless EPA receives adverse comments by August 23, 2013. If adverse comments are received within the 30-day public comment period, EPA will publish a timely withdrawal of this direct final notice of deletion before the effective date of the deletion, and it will not take effect. EPA will prepare a response to comments and continue with the deletion process on the basis of the notice of intent to delete and the comments already received. There will be no additional opportunity to comment.
Environmental protection, Air pollution control, Chemicals, Hazardous waste, Hazardous substances, Intergovernmental relations, Penalties, Reporting and recordkeeping requirements, Superfund, Water pollution control, Water supply.
For the reasons set out in this document, 40 CFR part 300 is amended as follows:
33 U.S.C. 1321(c)(2); 42 U.S.C. 9601–9657; E.O. 12777, 56 FR 54757, 3 CFR, 1991 Comp., p. 351; E.O. 12580, 52 FR 2923; 3 CFR, 1987 Comp., p. 193.
In Title 42 of the Code of Federal Regulations, Parts 1 to 399, revised as of October 1, 2012, on page 932, in the second column, the heading “Subpart P—Secretarial Responsibilities” is corrected to read “Subpart O—Secretarial Responsibilities”.
Surface Transportation Board.
Final rules.
The Surface Transportation Board (Board) changes some of its existing regulations and procedures concerning rate complaint proceedings. The Board previously created two simplified procedures to reduce the time, complexity, and expense of rate cases. The Board now modifies its rules to remove the limitation on relief for one simplified approach, and to raise the relief available under the other simplified approach. The Board also makes technical changes to the full and simplified rate procedures; changes the interest rate that railroads must pay on reparations if they are found to have charged unreasonable rates; and announces future proceedings on options for addressing cross-over traffic and on proposals to address the concerns of small agricultural shippers. The purpose of these actions is to ensure that the Board's simplified and expedited processes for resolving rate disputes are more accessible.
These rules are effective on August 17, 2013.
Information or questions regarding these final rules should reference Docket No. EP 715 and be in writing addressed to: Chief, Section of Administration, Office of Proceedings, Surface Transportation Board, 395 E Street SW., Washington, DC 20423–0001.
Lucille Marvin, The Board's Office of Public Assistance, Governmental Affairs, and Compliance at (202) 245–0238. Assistance for the hearing impaired is available through the Federal Information Relay Service (FIRS) at (800) 877–8339.
The Board modifies some of its existing regulations and procedures regarding rate complaint proceedings and announces two future proceedings. The Board's actions are
Additional information is contained in the Board's decision served on July 18, 2013. To obtain a copy of this decision, visit the Board's Web site at
The Regulatory Flexibility Act of 1980, 5 U.S.C. 601–612, generally requires a description and analysis of new rules that would have a significant economic impact on a substantial number of small entities. In drafting a rule, an agency is required to: (1) Assess the effect that its regulation will have on small entities; (2) analyze effective alternatives that may minimize a regulation's impact; and (3) make the analysis available for public comment. 5 U.S.C. 601–604. The impact must be a direct impact on small entities “whose conduct is circumscribed or mandated” by the rule.
The rule changes adopted here will not have a significant economic impact upon a substantial number of small entities, within the meaning of the Regulatory Flexibility Act.
This action will not significantly affect either the quality of the human environment or the conservation of energy resources.
Administrative practice and procedure.
By the Board, Chairman Elliott, Vice Chairman Begeman, and Commissioner Mulvey.
49 U.S.C. 721.
(a) For purposes of complying with a Board decision in an investigation or complaint proceeding, interest rates to be computed shall be the most recent U.S. Prime Rate as published by The Wall Street Journal. The rate levels will be determined as follows:
(1) For investigation proceedings, the interest rate shall be the U.S. Prime Rate as published by The Wall Street Journal in effect on the date the statement is filed accounting for all amounts received under the new rates.
(2) For complaint proceedings, the interest rate shall be the U.S. Prime Rate as published by The Wall Street Journal in effect on the day when the unlawful charge is paid. The interest rate in complaint proceedings shall be updated whenever The Wall Street Journal publishes a change to its reported U.S. Prime Rate. Updating will continue until the required reparation payments are made.
(b) For investigation proceedings, the reparations period shall begin on the date the investigation is started. For complaint proceedings, the reparations period shall begin on the date the unlawful charge is paid.
(c) For both investigation and complaint proceedings, the annual percentage rate shall be the same as the annual nominal (or stated) rate. Thus, the nominal rate must be factored exponentially to the power representing the portion of the year covered by the interest rate. A simple multiplication of the nominal rate by the portion of the year covered by the interest rate would not be appropriate because it would result in an effective rate in excess of the nominal rate. Under this “exponential” approach, the total cumulative reparations payment (including interest) is calculated by multiplying the interest factor for each period by the principal amount for that period plus any accumulated interest from previous periods. The “interest factor” for each period is 1.0 plus the interest rate for that period to the power representing the portion of the year covered by the interest rate.
National Marine Fisheries Service (NMFS), National Oceanic and Atmospheric Administration (NOAA), Commerce.
Final rule.
NMFS issues this final rule to implement Amendment 28 to the Fishery Management Plan for the Snapper-Grouper Fishery of the South Atlantic Region (FMP), as prepared by the South Atlantic Fishery Management Council (Council), and to set the commercial and recreational ACLs and fishing seasons for red snapper for the 2013 fishing year. Amendment 28 and this final rule establish a process for determining whether limited commercial and recreational fishing seasons for red snapper in or from the South Atlantic exclusive economic zone (EEZ) can occur during a given fishing year, beginning in 2013. Amendment 28 specifies the process and formulas for setting commercial and recreational annual catch limits (ACLs) for red snapper during limited fishing seasons. Amendment 28 and this final rule also establish management measures for red snapper during limited fishing seasons, including eliminating the red snapper minimum size limit, establishing a recreational bag limit, and establishing a commercial trip limit for red snapper. NMFS has determined that limited commercial and recreational fishing seasons can occur in 2013. Therefore, this final rule specifies the commercial and recreational ACLs for 2013, the opening and closing dates of the 2013 recreational fishing season, and the opening date of the 2013 commercial fishing season for South Atlantic red snapper. The purpose of this final rule is to continue rebuilding red snapper to sustainable levels and provide socio-economic benefits to snapper-grouper fishermen and communities that utilize the red snapper resource.
This rule is effective August 23, 2013.
Electronic copies of Amendment 28, which includes an environmental assessment and a regulatory impact review, may be obtained from the Southeast Regional Office Web site at
Rick DeVictor, Southeast Regional Office, telephone: 727–824–5305, or email:
The snapper-grouper fishery of the South Atlantic, which includes red snapper, is managed under the FMP. The FMP was prepared by the Council and is implemented through regulations at 50 CFR part 622 under the authority of the Magnuson-Stevens Fishery Conservation and Management Act (Magnuson-Stevens Act).
On March 12, 2013, NMFS published a notice of availability for Amendment 28 and requested public comment (78 FR 15672). On April 29, 2013, NMFS published a proposed rule for Amendment 28 and requested public comment (78 FR 25047). NMFS approved Amendment 28 on June 11, 2013. The proposed rule and Amendment 28 outline the rationale for the actions contained in this final rule. A summary of the actions implemented by Amendment 28 and this final rule is provided below.
Amendment 28 describes the annual process developed by the Council for determining whether limited commercial and recreational fishing seasons for red snapper can occur and how much red snapper may be harvested. The acceptable biological catch (ABC) is determined through the Council's ABC control rule and the rebuilding projections from the most recent stock assessment. The total removals (estimated landings and dead discards) of red snapper from the previous year are available around March of each year, and NMFS will compare the total removals to the ABC each year using formulas approved by the Council in Amendment 28 to determine whether limited fishing seasons can occur.
Amendment 28 includes formulas for determining the commercial and recreational ACLs on an annual basis. The formulas are based on total removals from prior fishing years and the formulas provide the total ACL for limited fishing seasons. If limited fishing seasons can occur, the ACL will be divided between the commercial and recreational sectors based on the current allocation ratio.
In Amendment 28, the Council decided that if limited fishing seasons can occur, the commercial fishing season should begin on the second Monday in July, and the recreational fishing season, which would consist of weekends only (Fridays, Saturdays, and Sundays) on the second Friday in July. If the fishing seasons do not open exactly on these dates, they would open as close to these dates as possible. The Council also decided that if the projected commercial or recreational fishing season is determined by NMFS to be 3 days or less, then the commercial or recreational fishing season would not open for that fishing year.
If the NMFS Regional Administrator (RA) determines that tropical storm or hurricane conditions exist, or are projected to exist, in the South Atlantic during the commercial or recreational fishing seasons, this rule will allow the RA to modify the opening and closing dates by filing a notification to that effect with the Office of the Federal Register, and announcing via NOAA Weather Radio and Fishery Bulletin any change in the red snapper commercial or recreational fishing seasons.
During limited red snapper fishing seasons, the Council and NMFS have established in-season AMs to prevent the ACLs from being exceeded. The recreational AM is the length of the red snapper recreational fishing season, as determined for a specific fishing year. After the recreational sector closes, the bag and possession limits for red snapper are zero. The commercial AM is that when commercial landings reach or are projected to reach the commercial ACL, NMFS will close the commercial sector for red snapper for the remainder of the fishing year. After the commercial sector closes, sale and purchase of red snapper is prohibited and harvest and possession of red snapper is limited to the bag and possession limits until the recreational fishing season closes. If both the commercial and recreational sectors are closed, it is unlawful to harvest or possess red snapper.
In order to reduce the probability of an overage of the commercial and recreational ACLs during the limited open seasons, Amendment 28 and this rule implement a 75-lb (34-kg) commercial trip limit and a 1-fish per
NMFS used the formulas established in Amendment 28 to determine if harvest of red snapper could occur in 2013. The total removals (landings plus dead discards) for 2012 were compared to the 2012 ABC to determine if the ABC was exceeded and thus whether the ACL for 2013 could be set greater than zero. In 2012, total removals equaled 80,516 fish. Because the 2012 total removals for red snapper are less than the 2012 ABC of 86,000 fish, NMFS has determined that the ACL for 2013 can be set greater than zero and that limited commercial and recreational fishing seasons may be established in 2013.
NMFS has determined that the total ACL for 2013 is 13,325 fish. Based on the current allocation ratio for red snapper (28.07 percent commercial and 71.93 percent recreational), the 2013 commercial ACL is 21,447 lb (9,728 kg), gutted weight, and the 2013 recreational ACL is 9,585 fish.
Based on the 2013 commercial and recreational ACLs and the catch rates from 2012, NMFS has determined the length of the commercial and recreational fishing seasons for 2013. The “2013 South Atlantic Red Snapper Annual Catch Limit and Season Length Projections,” described in SERO–LAPP–2013–04, can be found at
A total of 63 comments were received on Amendment 28 and the proposed rule from individuals, commercial and recreational fishing associations, and two environmental organizations. Many commenters expressed support for red snapper fishing seasons because they have been encountering numerous red snapper while fishing and therefore believe that the red snapper stock is healthy enough to support increased harvest. Some commenters stated that the allowable harvest, bag limits, and trip limits contained in this final rule are too restrictive. Specific comments related to the actions contained in Amendment 28 and the proposed rule, and NMFS' respective responses are summarized below.
A limited season to harvest red snapper and a conservative bag limit are necessary management measures to constrain the harvest to the ACL. A higher bag limit (
Prohibiting the release of red snapper caught within the bag limits was discussed by the Council at its June 2012 meeting. However, the U.S. Coast Guard stated that this requirement would not be enforceable, therefore, the Council decided not to include this requirement in Amendment 28.
In addition, Amendment 28 establishes a process to determine if harvest of red snapper would be allowed each year. As stated in the amendment, the red snapper estimated landings and dead discards that occurred in the previous year would first become available around March of each year. At that time, NMFS would begin the evaluation of red snapper landings and total removals to determine if a season can occur. The goal is to ensure that the most accurate and complete set of landings and total removals are used while also providing as much notice to fishermen as possible to prepare for a limited red snapper fishing season. Season start dates of January through April or June are problematic because the estimated landings and dead discards from the previous year are typically not available until March, and if a limited fishing season can occur, adequate notice of that season needs to be given to fishermen and other members of the public.
In addition to SRHS and MRIP, an intensive sampling program was developed and implemented by all South Atlantic states for the 2012 limited fishing season for red snapper. The goal of the sampling program was to capture fishery-dependent charter and private angler data from the 6-day recreational red snapper season. Numerous survey methods were used within the sampling program to provide estimates of red snapper harvest for private boat and for-hire modes. In Florida and Georgia, these methods included a telephone survey of federally-permitted charter vessel operators to obtain catch and effort information. In South Carolina, logbooks were used to estimate charter vessel landings. In Florida, a boat-level angler intercept survey was used to obtain catch information for directed recreational trips and an inlet-based boat count survey was used to determine directed effort. Monitoring efforts also included a carcass drop-off program and tournament sampling, as well as integrated sampling of the private boat and for-hire modes for biological information and otoliths. The intent of NMFS and the states is to continue this expanded red snapper sampling program to help capture fishery dependent charter and private angler data from future red snapper seasons as they occur.
As outlined in the response to the previous comment, an intensive sampling program was developed and implemented by all the South Atlantic states to capture fishery dependent charter and private angler data from the 2012 6-day recreational red snapper season, and this program will be used in 2013 as well.
On April 17, 2013, NMFS published in the
The Regional Administrator, Southeast Region, NMFS has determined that this final rule is necessary for the conservation and management of South Atlantic red snapper and is consistent with Amendment 28, the FMP, the Magnuson-Stevens Act, and other applicable law.
This final rule has been determined to be not significant for purposes of Executive Order 12866.
The Chief Counsel for Regulation of the Department of Commerce certified to the Chief Counsel for Advocacy of the Small Business Administration during the proposed rule stage that this rule would not have a significant economic impact on a substantial number of small entities. The factual basis for this determination was published in the proposed rule and is not repeated here. No comments were received regarding the certification and NMFS has not received any new information that would affect its determination. As a result, a final regulatory flexibility analysis is not required and none was prepared.
Accountability measure, Annual catch limit, Fisheries, Fishing, Red snapper, South Atlantic.
For the reasons set out in the preamble, 50 CFR part 622 is amended as follows:
16 U.S.C. 1801
(b) * * *
(2)
(b) * * *
(5)
(ii) If the RA determines tropical storm or hurricane conditions exist, or
(iii) If the projected commercial or recreational fishing season is determined by NMFS to be 3 days or less, then the commercial or recreational fishing season will not open for that fishing year.
(b) * * *
(4)
(9)
(a) * * *
(9)
(j) No person may sell or purchase a red snapper harvested from or possessed in the South Atlantic,
(y)
(2)
National Marine Fisheries Service (NMFS), National Oceanic and Atmospheric Administration (NOAA), Commerce.
Temporary rule; closure.
NMFS is prohibiting directed fishing for Pacific ocean perch in the West Yakutat District of the Gulf of Alaska (GOA). This action is necessary to prevent exceeding the 2013 total allowable catch (TAC) of Pacific ocean perch in the West Yakutat District of the GOA.
Effective 1200 hours, Alaska local time (A.l.t.), July 19, 2013, through 2400 hours, A.l.t., December 31, 2013.
Obren Davis, 907–586–7241.
NMFS manages the groundfish fishery in the GOA exclusive economic zone according to the Fishery Management Plan for Groundfish of the Gulf of Alaska (FMP) prepared by the North Pacific Fishery Management Council under authority of the Magnuson-Stevens Fishery Conservation and Management Act. Regulations governing fishing by U.S. vessels in accordance with the FMP appear at subpart H of 50 CFR part 600 and 50 CFR part 679.
The 2013 TAC of Pacific ocean perch in the West Yakutat District of the GOA is 1,641 metric tons (mt) as established by the final 2013 and 2014 harvest specifications for groundfish of the (78 FR 13162, February 26, 2013).
In accordance with § 679.20(d)(1)(i), the Administrator, Alaska Region,
After the effective date of this closure the maximum retainable amounts at § 679.20(e) and (f) apply at any time during a trip.
This action responds to the best available information recently obtained from the fishery. The Acting Assistant Administrator for Fisheries, NOAA (AA), finds good cause to waive the requirement to provide prior notice and opportunity for public comment pursuant to the authority set forth at 5 U.S.C. 553(b)(B) as such requirement is impracticable and contrary to the public interest. This requirement is impracticable and contrary to the public interest as it would prevent NMFS from responding to the most recent fisheries data in a timely fashion and would delay the closure of directed fishing for Pacific ocean perch in the West Yakutat District of the GOA. NMFS was unable to publish a notice providing time for public comment because the most recent, relevant data only became available as of July 18, 2013.
The AA also finds good cause to waive the 30-day delay in the effective date of this action under 5 U.S.C. 553(d)(3). This finding is based upon the reasons provided above for waiver of prior notice and opportunity for public comment.
This action is required by § 679.20 and is exempt from review under Executive Order 12866.
16 U.S.C. 1801
Office of Personnel Management.
Proposed rule.
OPM is issuing proposed regulations that incorporate recent amendments to the Hatch Act, update the contact information for the United States Office of Special Counsel, and update sections to conform to the Act's current provisions.
Written comments must be received on or before September 23, 2013.
Comments may be mailed to Sharon M. McGowan, Acting General Counsel, Room 7355, United States Office of Personnel Management, 1900 E Street NW., Washington, DC 20415.
Jo-Ann Chabot, Office of the General Counsel, United States Office of Personnel Management, (202) 606–1700.
The Hatch Act, codified at 5 U.S.C. 1501–1508, concerns the political activities of State and local employees. Section 1502 previously prohibited from candidacy for elective office certain State and local employees whose principal employment was connected with an activity financed in whole or in part with loans or grants from the United States or a Federal agency. Section 2 of Public Law 112–230 amends 5 U.S.C. 1502 by applying the prohibition against candidacy for elective office only to certain State or local employees whose salaries are paid completely, directly or indirectly, by loans or grants made by the United States or a Federal agency. OPM's proposed revision to 5 CFR 151.151 reflects this change.
Section 3 of Public Law 112–230 amends 5 U.S.C. 1501, 1502, and 1506 by treating employees of the Government of the District of Columbia as State and local employees, rather than as Federal employees. These changes are reflected in the proposed 5 CFR 151.101 and 151.122.
In addition, section 3 of Public Law 112–230 amends 5 U.S.C. 7322 by excluding employees of the Government of the District of Columbia from coverage under 5 U.S.C. 7323–7326, the Hatch Act provisions governing the political activities of Federal employees. Consequently, OPM proposes to remove references to the Government of the District of Columbia or its employees from 5 CFR 733.101, 734.101, 734.102, 734.203, 734.305, and 734.502.
Section 7325 of title 5, U.S.C., authorizes OPM to permit the Federally employed residents of certain localities to participate in some political activities that the Hatch Act otherwise would prohibit when OPM determines that, in view of special or unusual circumstances, it would be in the employees' domestic interest to permit such participation. Section 7325 specifies that these Federal employees must reside in: (1) a municipality or political subdivision in Maryland or Virginia or in the immediate vicinity of the District of Columbia, or (2) a municipality in which the majority of voters are employed by the Government of the United States. Section 3 of Public Law 112–230 amends section 7325 by including the District of Columbia as a third category. Consequently, OPM proposes to amend 5 CFR 733.107(a) to reflect this change in the statute.
Under 5 U.S.C. 7326, the penalty for violating the political activity prohibitions in 5 U.S.C. 7323 and 7324 is removal, unless the Merit Systems Protection Board by a unanimous vote imposes a penalty of not less than a 30-day suspension without pay. Section 3 of Public Law 112–230 amends section 7326 by adding a variety of lesser penalties and abolishing the requirement that the Merit Systems Protection Board must vote unanimously to impose a lesser penalty than removal. OPM proposes to revise 5 CFR 734.102(b) by adding these lesser penalties and removing the requirement for a unanimous vote in cases involving penalties other than removal. OPM also proposes to revise paragraph (a) of section 734.102 to update the contact information for the U.S. Office of Special Counsel, the Federal agency that investigates and prosecutes alleged Hatch Act violations, and provides advice concerning permissible and prohibited political activities.
Under 5 U.S.C. 7323(a), the majority of Federal employees may participate actively in most partisan political activities, except for using their official authority or influence to interfere with, or affect the result of an election; running for public office in a partisan campaign; soliciting, accepting, or receiving political contributions; and, participating in political activities while on duty, on Federal premises, in uniform, or using a Government owned or leased vehicle. Individuals in the positions or agencies identified in section 7323(b)(2) and (3), however, are more restricted and may not participate actively in partisan political activities. OPM regulations at 5 CFR 733.102, 733.105, and 734.401 no longer conform with section 7323(b)(2) and (3) because Congress had enacted various amendments to section 7323(b)(2) and (3). OPM proposes to update sections 733.102, 733.105, and 734.401 to conform to the current provisions in 5 U.S.C. 7323.
I have determined that this is not a major rule as defined under section 1(b) of E.O. 12291, Federal Regulation.
I certify that this regulation will not have a significant economic impact on a substantial number of small entities because the changes will affect only employees of the Federal Government.
Political activity—State or local officers or employees.
Political activity—Federal employees residing in designated localities.
Political activity—Federal employees.
Accordingly, the Office of Personnel Management proposes to amend 5 CFR part 151 as follows:
5 U.S.C. 1302, 1501–1508, as amended, Reorganization Plan No. 2 of 1978, section 102, 92 Stat. 3783, 3 CFR 1978 Comp. p. 323; and E.O. 12107, section 1–102, 3 CFR 1978 Comp. p. 264.
(b) State or local agency means:
(1) The executive branch of a State, municipality, or other political subdivision of a State, or an agency or department thereof; or
(2) The executive branch of the District of Columbia, or an agency or department thereof.
(d) State or local officer or employee means an individual employed by a State or local agency whose principal employment is in connection with an activity which is financed in whole or in part by loans or grants made by the United States or a Federal agency but does not include—
(1) An individual who exercises no functions in connection with that activity.
(2) An individual employed by an educational or research institution, establishment, agency, or system which is supported in whole or in part by –
(i) A State or political subdivision thereof;
(ii) The District of Columbia; or
(iii) A recognized religious, philanthropic, or cultural organization.
(c) Be a candidate for elective office if the salary of the employee is paid completely, directly or indirectly, by loans or grants made by the United States or a Federal agency.
(c) A duly elected head of an executive department of a State, municipality, or the District of Columbia, who is not classified under a merit or civil service system of a State, municipality, or the District of Columbia;
5 U.S.C. 7325.
Any individual (other than the President, the Vice President, or a member of the uniformed services) employed or holding office in—
(1) An Executive agency other than the General Accounting Office;
(2) A position within the competitive service which is not in an Executive agency; or
(3) The United States Postal Service or the Postal Rate Commission.
(1) In a pay status other than paid leave, compensatory time off, credit hours, time off as an incentive award, or excused or authorized absence (including leave without pay); or
(2) Representing any agency or instrumentality of the United States Government in an official capacity.
Employees in the Criminal Division and National Security Division in the Department of Justice (except employees appointed by the President by and with the advice and consent of the Senate) specifically are excluded from coverage under the provisions of this part.
(a) This section applied to employees who reside in designated localities and are employed in the following agencies or positions:
(1) The Federal Election Commission;
(2) The Election Assistance Commission;
(3) The Federal Bureau of Investigation;
(4) The Secret Service;
(5) The Central Intelligence Agency;
(6) The National Security Council;
(7) The National Security Agency;
(8) The Defense Intelligence Agency;
(9) The Merit Systems Protection Board;
(10) The Office of Special Counsel;
(11) The Office of Criminal Investigation of the Internal Revenue Service;
(12) The Office of Investigative Programs of the United States Customs Service;
(13) The Office of Law Enforcement of the Bureau of Alcohol, Tobacco, and Firearms;
(14) The National Geospatial-Intelligence Agency;
(15) The Office of the Director of National Intelligence;
(16) Career Senior Executive Service positions described in 5 U.S.C. 3132(a)(4);
(17) Administrative Law Judge positions described in 5 U.S.C. 5372;
(18) Contract Appeals Board Member positions described in 5 U.S.C. 5372a; or
(19) Administrative Appeals Judge positions described in 5 U.S.C. 5732b.
(a) When OPM determines that, because of special or unusual circumstances, it is in the domestic interest of employees to participate in local elections, OPM may specify as a designated locality:
(1) The District of Columbia,
(2) A municipality or political subdivision in Maryland or Virginia and in the immediate vicinity of the District of Columbia, or
(3) A municipality in which the majority of voters are employed by the Government of the United States.
5 U.S.C. 1103, 1104, 7325; Reorganization Plan No. 2 of 1978, 92 Stat. 3783, 3 CFR 1978 Comp. p. 323; and E.O. 12107, 3 CFR 1978 Comp. p. 264.
(1) An Executive agency other than the General Accounting Office;
(2) A position within the competitive service which is not in an Executive agency; or
(3) The United States Postal Service or the Postal Rate Commission.
(1) In a pay status other than paid leave, compensatory time off, credit hours, time off as an incentive award, or excused or authorized absence (including leave without pay); or
(2) Representing any agency or instrumentality of the United States Government in an official capacity.
(a) The United States Office of Special Counsel has exclusive authority to investigate allegations of political activity prohibited by the Hatch Act Reform Amendments of 1993, as implemented by 5 CFR part 734, prosecute alleged violations before the United States Merit Systems Protection Board, and render advisory opinions concerning the applicability of 5 CFR part 734 to the political activity of Federal employees. (5 U.S.C. 1212 and 1216). Advice concerning the Hatch Act Reform Amendments may be requested from the Office of Special Counsel:
(1) By letter addressed to the Office of Special Counsel at 1730 M Street NW., Suite 218, Washington, DC 20036–4505;
(2) By telephone on (202) 254–3650, or (1–800) 854–2824;
(3) By fax on (202) 254–3700; or
(4) By email at
(b) The Merit Systems Protection Board has exclusive authority to determine whether a violation of the Hatch Act Reform Amendments of 1993, as implemented by 5 CFR part 734, has occurred and to impose a penalty of removal, reduction-in-grade, debarment from Federal employment for a period not to exceed 5 years, suspension, reprimand, or an assessment of a civil penalty not to exceed $1,000, for violation of the political activity restrictions regulated by this part. (5 U.S.C. 1204 and 7326).
(d) Participate fully in public affairs, except as prohibited by other Federal law, in a manner which does not compromise his or her efficiency or integrity as an employee or the neutrality, efficiency, or integrity of the agency or instrumentality of the United States Government in which he or she is employed.
(c) Each agency or instrumentality of the United States shall determine when a matter is pending and ongoing within employing offices of the agency or instrumentality for the purposes of this part.
(a) This subpart applies to employees in the following agencies and positions:
(1) The Federal Election Commission;
(2) The Election Assistance Commission;
(3) The Federal Bureau of Investigation;
(4) The Secret Service;
(5) The Central Intelligence Agency;
(6) The National Security Council;
(7) The National Security Agency;
(8) The Defense Intelligence Agency;
(9) The Merit Systems Protection Board;
(10) The Office of Special Counsel;
(11) The Office of Criminal Investigation of the Internal Revenue Service;
(12) The Office of Investigative Programs of the United States Customs Service;
(13) The Office of Law Enforcement of the Bureau of Alcohol, Tobacco, and Firearms;
(14) The Criminal Division of the Department of Justice;
(15) The National Security Division of the Department of Justice;
(16) The National Geospatial-Intelligence Agency;
(17) The Office of the Director of National Intelligence;
(18) Career Senior Executive Service positions described in 5 U.S.C. 3132(a)(4);
(19) Administrative Law Judge positions described in 5 U.S.C. 5372;
(20) Contract Appeals Board Member positions described in 5 U.S.C. 5372a; or
(21) Administrative Appeals Judge positions described in 5 U.S.C. 5732b.
(b) For the purposes of this subpart, normal duty hours and normal duty post will be determined by the head of each agency or instrumentality of the United States.
Federal Aviation Administration (FAA), DOT.
Notice of proposed rulemaking (NPRM).
We propose to supersede an existing airworthiness directive (AD) that applies to all BAE Systems (Operations) Limited Model BAe 146 series airplanes and Model Avro 146–RJ series airplanes. The existing AD currently requires revising the maintenance program by incorporating certain airworthiness limitations that require new life limits on certain main landing gear (MLG) components. Since we issued that AD, we have determined that reduced safe life limits on certain nose landing gear (NLG) fittings are necessary. Analysis of these fittings showed the presence of forging indications in the flash line, which might reduce the life limits of these fittings.
We must receive comments on this proposed AD by September 9, 2013.
You may send comments by any of the following methods:
•
•
•
•
For BAE Systems service information identified in this proposed AD, contact BAE Systems (Operations) Limited, Customer Information Department, Prestwick International Airport, Ayrshire, KA9 2RW, Scotland, United Kingdom; telephone +44 1292 675207; fax +44 1292 675704; email
You may examine the AD docket on the Internet at
Todd Thompson, Aerospace Engineer, International Branch, ANM–116, Transport Airplane Directorate, FAA, 1601 Lind Avenue SW., Renton, WA 98057–3356; telephone 425–227–1175; fax 425–227–1149.
We invite you to send any written relevant data, views, or arguments about this proposed AD. Send your comments to an address listed under the
We will post all comments we receive, without change, to
On November 8, 2011, we issued AD 2011–24–06, Amendment 39–16870 (76 FR 73477, November 29, 2011), which superseded AD 2010–10–22, Amendment 39–16301 (75 FR 28463, May 21, 2010). AD 2011–24–06 required actions intended to address an unsafe condition on the products listed above.
Since we issued AD 2011–24–06, Amendment 39–16870 (76 FR 73477, November 29, 2011), we have determined that reduced safe life limits on certain NLG fittings are necessary. Analysis of these fittings showed the presence of forging indications in the flash line, which might reduce the life limits of these fittings. In addition, the aircraft maintenance manual has been revised to redefine the operating time of the aileron and elevator dampers. The European Aviation Safety Agency (EASA), which is the Technical Agent for the Member States of the European Community, has issued EASA Airworthiness Directive 2012–0004, dated January 12, 2012 (referred to after this as “the MCAI”), to correct an unsafe condition for the specified products. The MCAI states:
* * * Compliance with [certain chapters of the BAe 146/AVRO 146–RJ Aircraft Maintenance Manual (AMM)] has been identified as a mandatory action for continued airworthiness and EASA AD 2011–0048 was issued to require operators to comply with those instructions.
Failure to comply with these instructions could result in an unsafe condition.
For the reasons described above, this EASA AD retains the requirements of EASA AD 2011–0048 [which corresponds to FAA AD 2011–24–06, Amendment 39–16870 (76 FR 73477, November 29, 2011)], which is superseded, and requires the implementation of the new or more restrictive maintenance requirements and/or airworthiness limitations as specified in * * * [certain] sub-chapters of Chapter 05 of the AMM at Revision 105 * * *.
BAE Systems (Operations) Limited has issued the following service information. The actions described in this service information are intended to correct the unsafe condition identified in the MCAI.
• Subject 05–10–15, “Aircraft Equipment Airworthiness Limitations,” of Chapter 05, “Time Limits/Maintenance Checks,” of BAe 146 Series/AVRO 146–RJ Series Aircraft Maintenance Manual, Revision 105, dated July 15, 2011.
• Subject 05–20–02, “Airframe Scheduled Maintenance—Landing/Calendar Life Extended,” of Chapter 05, “Time Limits/Maintenance Checks,” of BAe 146 Series/AVRO 146–RJ Series Aircraft Maintenance Manual, Revision 105, dated July 15, 2011.
• Subject 05–20–05, “Airframe Scheduled Maintenance—Life Extension Programme Landings Life Extended,” of Chapter 05, “Time Limits/Maintenance Checks,” of BAe 146 Series/AVRO 146–RJ Series Aircraft Maintenance Manual, Revision 105, dated July 15, 2011.
This product has been approved by the aviation authority of another country, and is approved for operation in the United States. Pursuant to our bilateral agreement with the State of Design Authority, we have been notified of the unsafe condition described in the MCAI and service information referenced above. We are proposing this AD because we evaluated all pertinent information and determined an unsafe condition exists and is likely to exist or develop on other products of the same type design.
This AD requires revisions to certain operator maintenance documents to include new actions (e.g., inspections) and/or Critical Design Configuration
Based on the service information, we estimate that this proposed AD would affect about 2 products of U.S. registry.
The actions that are required by AD 2011–24–06, Amendment 39–16870 (76 FR 73477, November 29, 2011), and retained in this proposed AD take about 2 work-hours per product, at an average labor rate of $85 per work hour. Required parts cost about $0 per product. Based on these figures, the estimated cost of the currently required actions is $170 per product.
We estimate that it would take about 1 work-hour per product to comply with the new basic requirements of this proposed AD. The average labor rate is $85 per work-hour. Based on these figures, we estimate the cost of the proposed AD on U.S. operators to be up to $170, or $85 per product.
Title 49 of the United States Code specifies the FAA's authority to issue rules on aviation safety. Subtitle I, section 106, describes the authority of the FAA Administrator. “Subtitle VII: Aviation Programs,” describes in more detail the scope of the Agency's authority.
We are issuing this rulemaking under the authority described in “Subtitle VII, Part A, Subpart III, Section 44701: General requirements.” Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this rulemaking action.
We determined that this proposed AD would not have federalism implications under Executive Order 13132. This proposed AD would not have a substantial direct effect on the States, on the relationship between the national Government and the States, or on the distribution of power and responsibilities among the various levels of government.
For the reasons discussed above, I certify this proposed regulation:
1. Is not a “significant regulatory action” under Executive Order 12866;
2. Is not a “significant rule” under the DOT Regulatory Policies and Procedures (44 FR 11034, February 26, 1979);
3. Will not affect intrastate aviation in Alaska; and
4. Will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.
We prepared a regulatory evaluation of the estimated costs to comply with this proposed AD and placed it in the AD docket.
Air transportation, Aircraft, Aviation safety, Incorporation by reference, Safety.
Accordingly, under the authority delegated to me by the Administrator, the FAA proposes to amend 14 CFR part 39 as follows:
49 U.S.C. 106(g), 40113, 44701.
We must receive comments by September 9, 2013.
This AD supersedes AD 2011–24–06, Amendment 39–16870 (76 FR 73477, November 29, 2011).
This AD applies to all BAE Systems (Operations) Limited Model BAe 146–100A, –200A, and –300A airplanes; and Model Avro 146–RJ70A, 146–RJ85A, and 146–RJ100A airplanes; certificated in any category.
Air Transport Association (ATA) of America Code 05.
This AD was prompted by a determination that reduced safe life limits on certain NLG fittings are necessary. We are issuing this AD to prevent fatigue cracking of certain structural elements, which could adversely affect the structural integrity of the airplane.
You are responsible for having the actions required by this AD performed within the compliance times specified, unless the actions have already been done.
(1) This paragraph restates the requirements of paragraph (g) of AD 2011–24–06, Amendment 39–16870 (76 FR 73477, November 29, 2011). Within 90 days after June 25, 2010 (the effective date of AD 2010–10–22, Amendment 39–16301 (75 FR 28463, May 21, 2010)), revise the maintenance program, by incorporating Chapter 5 of the BAE Systems (Operations) Limited BAe146 Series/Avro 146–RJ Series Aircraft Maintenance Manual (AMM) to incorporate new and more restrictive life limits for certain items and new and more restrictive inspections to detect fatigue cracking in certain structures, and to add fuel system (CDCCLs to prevent ignition sources in the fuel tanks, in accordance with a method approved by the Manager, International Branch, ANM–116, Transport Airplane Directorate, FAA; or the European Aviation Safety Agency (EASA) (or its delegated agent).
(2) This paragraph restates the provisions of Note 2 of AD 2011–24–06, Amendment 39–16870 (76 FR 73477, November 29, 2011). Guidance on revising Chapter 5 of the BAE Systems (Operations) Limited BAe146 Series/Avro 146–RJ Series AMM, Revision 97, dated July 15, 2009, can be found in the applicable sub-chapters listed in Table 1 to paragraph (g)(2) of this AD.
(3) This paragraph restates the provisions of Note 3 of AD 2011–24–06, Amendment 39–16870 (76 FR 73477, November 29, 2011). Sub-chapter 05–15–00 of the BAE Systems (Operations) Limited BAe146 Series/Avro 146–RJ Series AMM, is the CDCCL.
(4) This paragraph restates the provisions of Note 4 of AD 2011–24–06, Amendment 39–16870 (76 FR 73477, November 29, 2011). Within Sub-chapter 05–20–00 of the BAE Systems (Operations) Limited BAe146 Series/Avro 146–RJ Series AMM, the relevant issues of the support documents are as follows: BAE Systems (Operations) Limited BAe 146 Series/Avro 146–RJ Corrosion Prevention and Control Program Document CPCP–146–01, Revision 3, dated July 15, 2008, including BAE Systems (Operations) Limited Temporary Revision (TR) 2.1, dated December 2008; and BAE Systems (Operations) Limited BAe146 Series Supplemental Structural Inspection Document SSID–146–01, Revision 1, dated June 15, 2009.
(5) This paragraph restates the provisions of Note 5 of AD 2011–24–06, Amendment 39–16870 (76 FR 73477, November 29, 2011). Within Sub-chapter 05–20–01 of the BAE Systems (Operations) Limited BAe146 Series/Avro146–RJ Series AMM, the relevant issue of BAE Systems (Operations) Limited BAe 146/Avro 146–RJ Maintenance Review Board Report Document MRB 146–01, Issue 2, is Revision 15, dated March 2009 (mis-identified in EASA AD 2009–0215, dated October 7, 2009, as being dated May 2009).
(6) This paragraph restates the provisions of Note 6 of AD 2011–24–06, Amendment 39–16870 (76 FR 73477, November 29, 2011). Notwithstanding any other maintenance or operational requirements, components that have been identified as airworthy or installed on the affected airplanes before revision of Chapter 5 of the AMM, as required by paragraph (g) of this AD, do not need to be reworked in accordance with the CDCCLs. However, once the Airworthiness Limitations Section (ALS) or AMM has been revised, future maintenance actions on these components must be done in accordance with the CDCCLs.
This paragraph restates the requirements of paragraph (h) of AD 2011–24–06, Amendment 39–16870 (76 FR 73477, November 29, 2011). Except as specified in paragraphs (i) and (j) of this AD and required by paragraph (l) of this AD: After the actions specified in paragraph (g) of this AD have been accomplished, no alternative inspections or inspection intervals may be approved for the structural elements specified in the documents listed in paragraph (g) of this AD unless the actions, intervals, and/or CDCCLs are approved as an alternative method of compliance (AMOC) in accordance with the procedures specified in paragraph (n) of this AD.
This paragraph restates the provisions of paragraph (i) of AD 2011–24–06, Amendment 39–16870 (76 FR 73477, November 29, 2011). Modifying the main fittings of the main landing gear in accordance with Messier-Dowty Service Bulletin 146–32–171, dated August 11, 2009, extends the safe limit of the main landing gear main fitting from 32,000 landings to 50,000 landings on the main fitting.
This paragraph restates the requirements of paragraph (j) of AD 2011–24–06, Amendment 39–16870 (76 FR 73477, November 29, 2011). Within 90 days after January 3, 2012 (the effective date of AD 2011–24–06), revise the maintenance program, by incorporating Subject 05–10–15, “Aircraft Equipment Airworthiness Limitations” of Chapter 05, “Time Limits/Maintenance Checks,” of the BAE Systems (Operations) Limited BAe 146 Series/Avro 146–RJ Series AMM, Revision 104, dated April 15, 2011, to remove life limits on shock absorber assemblies, but not on the individual shock absorber components, amend life limits on MLG up-locks and door up-locks, and to introduce and amend life limits on MLG components. Incorporating the new life limits and inspections into the maintenance program terminates the requirements of paragraph (g) of this AD for Subject 05–10–15, “Aircraft Equipment Airworthiness Limitations” of Chapter 05, “Time Limits/Maintenance Checks,” of the BAE Systems (Operations) Limited BAe 146 Series/Avro 146–RJ Series AMM, Revision 104, dated April 15, 2011, and after incorporation has been done, the limitations required by paragraph (g) of this AD for Subject 05–10–15, “Aircraft Equipment Airworthiness Limitations” of Chapter 05, “Time Limits/Maintenance Checks,” of the BAE Systems (Operations) Limited BAe 146 Series/Avro 146–RJ Series AMM, Revision 104, dated April 15, 2011, may be removed from the maintenance program.
This paragraph restates the requirements of paragraph (k) of AD 2011–24–06, Amendment 39–16870 (76 FR 73477, November 29, 2011). Except as required by paragraph (l) of this AD, after accomplishing the revision required by paragraph (j) of this AD, no alternative actions (e.g., inspections), intervals, and/or CDCCLs may be used, unless the actions, intervals, and/or CDCCLs are approved as an alternative method of compliance (AMOC) in accordance with the procedures specified in paragraph (n) of this AD.
Within 90 days after the effective date of this AD, revise the maintenance program, by incorporating Chapter 05, “Time Limits/Maintenance Checks,” of the BAE Systems (Operations) Limited BAe 146 Series/Avro 146–RJ Series AMM, Revision 105, dated July 15, 2011, into the maintenance program. The initial compliance time for the replacement of any part having a new or revised life limit is at the applicable time specified in Chapter 05, “Time Limits/Maintenance Checks,” of the BAE Systems (Operations) Limited BAe 146 Series/Avro 146–RJ Series AMM, Revision 105, dated July 15, 2011, or within 90 days after the effective date of this AD, whichever occurs later.
(1) Within Sub-chapter 05–20–00 of the BAE Systems (Operations) Limited BAe146 Series/Avro 146–RJ Series AMM, supporting documents are BAE Systems (Operations) Limited CPCP Document CPCP–146–01, Revision 4, dated September 15, 2010; and BAE Systems (Operations) Limited Supplemental Structural Inspection Document (SSID) Document SSID–146–01/02/03, dated July 12, 2006.
(2) Within Sub-chapter 05–20–01 of the BAE Systems (Operations) Limited BAe146 Series/Avro146–RJ Series AMM, the supporting document is BAE Systems (Operations) Limited Maintenance Review
After accomplishing the revision required by paragraph (l) of this AD, no alternative actions (e.g., inspections), intervals, and/or CDCCLs may be used, unless the actions, intervals, and/or CDCCLs are approved as an AMOC in accordance with the procedures specified in paragraph (n) of this AD.
The following provisions also apply to this AD: (1)
(2)
(1) Refer to mandatory continuing airworthiness information EASA Airworthiness Directive 2012–0004, dated January 12, 2012; and Chapter 05, “Time Limits/Maintenance Checks,” of the BAE Systems (Operations) Limited BAe 146 Series/Avro 146–RJ Series AMM, Revision 105, dated July 15, 2011; for related information.
(2) For BAE Systems service information identified in this AD, contact BAE Systems (Operations) Limited, Customer Information Department, Prestwick International Airport, Ayrshire, KA9 2RW, Scotland, United Kingdom; telephone +44 1292 675207; fax +44 1292 675704; email
Federal Aviation Administration (FAA), DOT.
Notice of proposed rulemaking (NPRM).
We propose to adopt a new airworthiness directive (AD) for all DASSAULT AVIATION Model FAN JET FALCON; Model MYSTERE–FALCON 200 airplanes; and Model MYSTERE–FALCON 20–C5, 20–D5, 20–E5, and 20–F5 airplanes. This proposed AD was prompted by reports of defective fire extinguisher bottle cartridges. This proposed AD would require checking manufacturing references of pyrotechnical cartridges for batch number and date, repetitive checking of cartridges for electrical continuity, and replacing defective pyrotechnical cartridges if necessary. We are proposing this AD to detect and correct defective fire bottle cartridges, which could affect the capability to extinguish a fire in an engine, auxiliary power unit, or rear compartment, which could result in damage to the airplane and injury to the occupants.
We must receive comments on this proposed AD by September 9, 2013.
You may send comments by any of the following methods:
•
•
•
•
For service information identified in this proposed AD, contact Dassault Falcon Jet, P.O. Box 2000, South Hackensack, NJ 07606; telephone 201–440–6700; Internet
You may examine the AD docket on the Internet at
Tom Rodriguez, Aerospace Engineer, International Branch, ANM–116, Transport Airplane Directorate, FAA, 1601 Lind Avenue SW., Renton, WA 98057–3356; phone: 425–227–1137; fax: 425–227–1149.
We invite you to send any written relevant data, views, or arguments about this proposed AD. Send your comments to an address listed under the
We will post all comments we receive, without change, to
The European Aviation Safety Agency (EASA), which is the aviation authority for the Member States of the European Community, has issued EASA
Several defective fire bottle cartridges have been reported on certain Dassault Aviation Fan Jet Falcon and Mystère-Falcon 20-() 5 aeroplanes.
The results of the investigations concluded that there was a production quality issue with the fire bottle cartridge. In addition, the part numbers (P/N) of the fire bottle cartridge and the batch numbers have been identified.
This condition, if not detected and corrected, could constitute a dormant failure that might impact the capability to extinguish a fire, either in an engine or the Auxiliary Power Unit, or the rear compartment, possibly resulting in damage to the aeroplane and injury to the occupants.
For the reason described above, this [EASA] AD requires repetitive checking of the electrical continuity [and of the references] of the fire extinguishers bottles cartridges [extinguisher bottle cartridges] and depending on findings, replacement of an affected part with a serviceable part. It also ultimately requires replacement of any affected cartridges with a serviceable part. In addition, this [EASA] AD prohibits installation of an affected fire extinguisher bottle cartridge.
Dassault has issued Mandatory Service Bulletin F20–783, Revision 1, dated June 11, 2012 (for Model FAN JET FALCON and MYSTERE–FALCON 20-()5 airplanes); and Mandatory Service Bulletin F200–128, Revision 1, dated June 11, 2012 (for Model MYSTERE–FALCON 200 airplanes). The actions described in this service information are intended to correct the unsafe condition identified in the MCAI.
This product has been approved by the aviation authority of another country, and is approved for operation in the United States. Pursuant to our bilateral agreement with the State of Design Authority, we have been notified of the unsafe condition described in the MCAI and service information referenced above. We are proposing this AD because we evaluated all pertinent information and determined an unsafe condition exists and is likely to exist or develop on other products of the same type design.
Based on the service information, we estimate that this proposed AD would affect about 185 products of U.S. registry. We also estimate that it would take about 5 work-hours per product to comply with the basic requirements of this proposed AD. The average labor rate is $85 per work-hour. Required parts would cost about $6,300 per product. Where the service information lists required parts costs that are covered under warranty, we have assumed that there will be no charge for these parts. As we do not control warranty coverage for affected parties, some parties may incur costs higher than estimated here. Based on these figures, we estimate the cost of the proposed AD on U.S. operators to be $1,244,125, or $6,725 per product.
Title 49 of the United States Code specifies the FAA's authority to issue rules on aviation safety. Subtitle I, section 106, describes the authority of the FAA Administrator. “Subtitle VII: Aviation Programs,” describes in more detail the scope of the Agency's authority.
We are issuing this rulemaking under the authority described in “Subtitle VII, Part A, Subpart III, Section 44701: General requirements.” Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this rulemaking action.
We determined that this proposed AD would not have federalism implications under Executive Order 13132. This proposed AD would not have a substantial direct effect on the States, on the relationship between the national Government and the States, or on the distribution of power and responsibilities among the various levels of government.
For the reasons discussed above, I certify this proposed regulation:
1. Is not a “significant regulatory action” under Executive Order 12866;
2. Is not a “significant rule” under the DOT Regulatory Policies and Procedures (44 FR 11034, February 26, 1979);
3. Will not affect intrastate aviation in Alaska; and
4. Will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.
We prepared a regulatory evaluation of the estimated costs to comply with this proposed AD and placed it in the AD docket.
Air transportation, Aircraft, Aviation safety, Incorporation by reference, Safety.
Accordingly, under the authority delegated to me by the Administrator, the FAA proposes to amend 14 CFR part 39 as follows:
49 U.S.C. 106(g), 40113, 44701.
We must receive comments by September 9, 2013.
None.
This AD applies to the DASSAULT AVIATION airplanes identified in paragraphs (c)(1) through (c)(3) of this AD, certificated in any category, all serial numbers.
(1) Model FAN JET FALCON airplanes,
(2) Model MYSTERE–FALCON 200 airplanes,
(3) Model MYSTERE–FALCON 20–C5, 20–D5, 20–E5, and 20–F5 airplanes.
Air Transport Association (ATA) of America Code 26, Fire Protection.
This AD was prompted by reports of defective fire bottle cartridges. We are issuing this AD to detect and correct defective fire bottle cartridges which could impact the capability to extinguish a fire, either in an engine, auxiliary power unit, or rear compartment, which could result in damage to the airplane and injury to the occupants.
You are responsible for having the actions required by this AD performed within the compliance times specified, unless the actions have already been done.
For airplanes equipped with fire extinguisher bottle cartridges having a part number (P/N), batch number, and manufacturing date as listed in paragraph (g)(1), (g)(2), or (g)(3) of this AD: Within 30
(1) P/N 12–12–11707S1–4, with batch up to 44 inclusive, manufactured before May 2012.
(2) P/N 12–12–11707S2–4, with batch up to 33 inclusive, manufactured before May 2012.
(3) P/N 12–12–11707S3–4, with batch up to 44 inclusive, manufactured before May 2012.
If, during any check as required by paragraphs (g) and (i) of this AD, a discrepancy [excessive resistance or cartridges references matching (g)(1) through (g)(3)] is identified, before next flight, replace the discrepant fire extinguisher bottle cartridge(s) with a serviceable part, in accordance with the Accomplishment Instructions of Dassault Mandatory Service Bulletin F20–783, Revision 1, dated June 11, 2012 (for Model FAN JET FALCON and MYSTERE–FALCON 20-()5 airplanes); or Dassault Mandatory Service Bulletin F200–128, Revision 1, dated June 11, 2012 (for Model MYSTERE–FALCON 200 airplanes). Replacement of discrepant fire extinguisher bottle cartridges with a serviceable part terminates the repetitive actions required by paragraph (i) of this AD for that cartridge.
At the applicable time specified in paragraph (i)(1) and (i)(2) of this AD, repeat the checks required by paragraph (g) of this AD.
(1) For airplanes equipped with fire extinguisher bottle cartridges having P/N 12–12–11707S3–4, having a batch number, and manufacturing date, as listed in paragraph (g)(3) of this AD, at intervals not to exceed 65 days.
(2) For airplanes equipped with fire extinguisher bottle cartridges having P/N 12–12–11707S1–4 or P/N 12–12–11707S2–4, having a batch number, and manufacturing date, as listed in paragraph (g)(1) or (g)(2) of this AD, at intervals not to exceed 12 months.
Except as required by paragraph (h) of this AD: Within 30 months after installation of an affected fire extinguisher bottle cartridge on an airplane, or within 36 months since cartridge manufacturing date, whichever occurs first after the effective date of this AD, replace each affected fire extinguisher bottle cartridge listed in paragraphs (g)(1), (g)(2), and (g)(3) of this AD, with a serviceable part, in accordance with the Accomplishment Instructions of Dassault Mandatory Service Bulletin F20–783, Revision 1, dated June 11, 2012 (for Model FAN JET FALCON and MYSTERE–FALCON 20-()5 airplanes); or Dassault Mandatory Service Bulletin F200–128, Revision 1, dated June 11, 2012 (for Model MYSTERE–FALCON 200 airplanes). Replacing the affected fire extinguisher bottle cartridge with a serviceable part as required by paragraph (h) or (j) of this AD, terminates the repetitive actions required by paragraph (i) of this AD for that cartridge.
As of the effective date of this AD, no person may install any fire extinguisher bottle cartridge having a part number (P/N), batch number, and manufacturing date as listed in paragraph (g)(1), (g)(2), or (g)(3) of this AD, on any airplane.
The following provisions also apply to this AD:
(1)
(2)
(1) Refer to Mandatory Continuing Airworthiness Information (MCAI) European Aviation Safety Agency (EASA) Airworthiness Directive 2012–0190, dated September 24, 2012; and the service bulletins specified in (m)(1)(i) and (m)(1)(ii) of this AD, for related information.
(i) Dassault Mandatory Service Bulletin F20–783, Revision 1, dated June 11, 2012 (for Model FAN JET FALCON and MYSTERE–FALCON 20-()5 airplanes);
(ii) Dassault Mandatory Service Bulletin F200–128, Revision 1, dated June 11, 2012 (for Model MYSTERE–FALCON 200 airplanes).
(2) For service information identified in this AD, contact Dassault Falcon Jet, P.O. Box 2000, South Hackensack, NJ 07606; telephone 201–440–6700; Internet
Federal Energy Regulatory Commission, Energy.
Notice of proposed rulemaking.
Pursuant to section 215 of the Federal Power Act, the Commission proposes to approve a revised Reliability Standard, PRC–005–2—Protection System Maintenance, to supersede four existing Reliability Standards, PRC–005–1.1b (Transmission and Generation Protection System Maintenance and Testing), PRC–008–0 (Underfrequency Load Shedding Equipment Maintenance), PRC–011–0 (Undervoltage Load Shedding Equipment Maintenance) and PRC–017–0 (Special Protection System Maintenance and Testing). In addition, the Commission seeks clarification and comment on three aspects of the proposed Reliability Standard and proposes to modify one violation severity level.
Comments are due September 23, 2013.
Comments, identified by docket number, may be filed in the following ways:
• Electronic Filing through
Those unable to file electronically may mail or hand-deliver comments to: Federal Energy Regulatory Commission, Secretary of the Commission, 888 First Street NE., Washington, DC 20426.
1. Pursuant to section 215 of the Federal Power Act (FPA),
2. Proposed Reliability Standard PRC–005–2 represents an improvement over the four existing standards covering protection system maintenance and testing, by incorporating specific, required minimum maintenance activities and maximum time intervals for maintenance of individual components of protection systems and load shedding equipment affecting the bulk electric system. While the proposed Reliability Standard also gives responsible entities the option of developing their own, performance-based maintenance intervals for most components, the intervals must be designed to achieve a minimum performance level, and must be adjusted if that target performance level is not actually achieved. In addition, the proposed Reliability Standard combines the maintenance and testing requirements for protection systems into one comprehensive Reliability Standard, as was suggested by the Commission in Order No. 693.
3. While the proposed Reliability Standard contains overall improvements, as discussed below, we seek additional information and comments on the following: (A) Verification of operability and settings upon placement in-service of new or modified protection systems; (B) use of a four percent target for countable events in performance-based programs; and (C) violation severity levels for certain Requirement R1 violations.
4. We also propose to approve the six new definitions associated with proposed Reliability Standard PRC–005–2, i.e
5. Finally, we propose to approve NERC's proposed implementation plan for the proposed Reliability Standard, which requires entities to develop a compliant protection system maintenance program within twelve months, but allows for the transition over time of maintenance activities and documentation to conform to the new minimum maintenance activities and maximum maintenance intervals.
6. Section 215 of the FPA requires a Commission-certified Electric Reliability Organization (ERO) to develop mandatory and enforceable Reliability Standards, subject to Commission review and approval.
7. In 2006, the Commission certified NERC as the ERO pursuant to FPA section 215.
8. In approving these protection system-related Reliability Standards, the Commission directed NERC to develop or to consider a number of modifications. Specifically, the Commission directed NERC to: (1) Develop a revision to PRC–005–1 incorporating a maximum time interval during which to conduct maintenance and testing of protection systems; and (2) consider combining into one standard the various maintenance and testing requirements for all of the maintenance and testing-related Reliability Standards for protection systems, underfrequency load shedding (UFLS) equipment and undervoltage load shedding (UVLS) equipment.
9. In a subsequent order, issued in response to NERC's request for approval of its interpretation of PRC–005–1 (Order No. 758), the Commission issued three additional directives, addressing deficiencies in the existing version of Reliability Standard PRC–005.
10. Under currently-effective Reliability Standard PRC–005–1b, transmission owners, generator owners, and applicable distribution providers are required to have a protection system maintenance and testing program for any protection system elements that affect the bulk electric system, and must
11. On February 26, 2013, NERC submitted a petition seeking approval of proposed Reliability Standard PRC–005–2, six new definitions associated with that standard, and a proposed implementation plan that includes retirement of the four currently-effective Reliability Standards that address maintenance and testing of transmission and generation protection systems, UFLS and UVLS equipment, and special protection systems. NERC maintains that the proposed Reliability Standard not only consolidates the four currently-effective standards into a single standard, but also addresses the directives in Order No. 693 related to those standards.
12. NERC states that the proposed Reliability Standard establishes minimum acceptable maintenance activities and accompanying maximum allowable maintenance intervals for specific component types, gives responsible entities flexibility to implement “condition-based maintenance” that allows for adjustment of intervals and activities to reflect monitoring of components, and establishes requirements for the implementation of performance-based maintenance programs.
(i) defining and establishing criteria for a Protection System Maintenance Program; (ii) reducing the risk of Protection System Misoperations; (iii) clearly stating the applicability of the Requirements in proposed PRC–005–2 to certain Functional Entities and Facilities; (iv) establishing Requirements for time-based maintenance programs that include maximum allowable maintenance intervals for all relevant devices; and (v) establishing Requirements for condition-based and performance-based maintenance programs where hands-on maintenance intervals are adjusted to reflect the known and reported condition or the historical performance, respectively, of the relevant devices.
13. NERC asserts that the proposed Reliability Standard not only represents a comprehensive approach to documenting and implementing programs for maintenance of all protection systems affecting the reliability of the bulk electric system, but also reduces the risk of misoperations “by applying consistent, best practice maintenance and inspection activities of Protection System Components.”
14. NERC also maintains that the proposed Reliability Standard satisfies three outstanding directives from Order No. 693 related to the PRC maintenance standards. First, NERC explains that the proposed Reliability Standard includes maximum allowable intervals for maintenance of protection system components (as set out in Tables 1–1 through 1–5, Table 2 and Table 3 of Reliability Standard PRC–005–2).
15. The proposed Reliability Standard includes five requirements. Under Requirement R1, each responsible entity must establish a protection system maintenance program that: (1) Identifies which method (time-based or performance-based) will be used for each protection system component type, except that the maintenance program for all batteries associated with the station DC supply of a protection system must be time-based; and (2) identifies monitored component attributes for each component type where monitoring is used as a basis for extending maintenance intervals.
16. Under Requirement R2, any responsible entity that uses performance-based maintenance intervals must follow the procedures set out in Attachment A of the proposed Reliability Standard to set and to adjust, as necessary, appropriate maintenance intervals. The Attachment A procedures allow a responsible entity to establish maintenance intervals for a given population of similar components based on historical performance, as long as there is a statistically significant population of components for which performance can be examined and monitored. For example, under the Attachment A procedures, a responsible entity can only use a performance-based interval for “segments” with a component population of at least 60 components.
17. In addition, to continue to utilize a performance-based interval, the responsible entity must update its list of components and segments annually (or whenever a change occurs within a segment), must maintain a minimum number or percentage of components a year, and must analyze a given segment's maintenance record to determine the percentage of countable events. If the percentage of countable events for the last 30 components maintained or the number of components maintained over the last year (whichever is larger) exceeds four percent, the responsible entity must implement an action plan to reduce the expected countable events to less than four percent for that segment within the next three years.
18. Requirements R3 and R4 require a responsible entity to adhere to the requirements of its protection system maintenance program, including performance of minimum maintenance activities. Under Requirement R3, which governs time-based maintenance, the activities must be performed in accordance with the intervals prescribed in the tables attached to PRC–005–2. Under Requirement R4, the activities must be carried out in accordance with the performance-based intervals established under Requirement R2 and Attachment A.
19. Under Requirement R5, responsible entities must “demonstrate efforts to correct identified Unresolved Maintenance Issues,” which are defined as “deficienc[ies] identified during a maintenance activity that causes the component to not meet the intended performance, cannot be corrected during the maintenance interval, and requires follow-up corrective action.” NERC explains that the intent of Requirement R5 is “to assure that Protection System components are returned to working order following the discovery of failures or malfunctions during scheduled maintenance.”
20. With respect to implementation, NERC proposes to require entities to fully comply with Requirements R1, R2 and R5 within 12 months of regulatory approval (or 24 months from the date of NERC Board approval where no regulatory approval is required).
21. NERC explains that this implementation program takes into consideration that certain entities may not currently be performing all required maintenance activities specified in proposed PRC–005–2, and may not have all the documentation necessary to demonstrate compliance.
22. Pursuant to section 215(d)(2) of the FPA, the Commission proposes to approve Reliability Standard PRC–005–2, the six associated definitions referenced in the proposed standard, and NERC's proposed implementation plan. The proposed Reliability Standard appears to adequately address the Commission directives from Order No. 693 with respect to: (1) Including maximum allowable intervals in PRC–005; (2) combining PRC–005, PRC–008, PRC–011, and PRC–017; and (3) considering whether load serving entities and transmission operators should be included in the applicability of the PRC–005 Reliability Standard. Proposed Reliability Standard PRC–005–2 should also improve reliability by reducing the risk of protection system misoperations and establishing requirements for condition-based and performance-based maintenance programs where hands-on maintenance intervals are adjusted to reflect the known and reported condition or the historical performance of the relevant devices.
23. However, we believe that further clarification is warranted with respect to certain aspects of proposed PRC–005–2, including NERC's proposed approach to enforcement of its requirements. Additional information is also needed to fully evaluate NERC's proposed targets for the establishment of performance-based maintenance intervals. As discussed below, we seek additional information and comments on the following: (A) Verification of operability and settings upon placement in-service of new or modified protection systems; (B) use of a four percent target for countable events in performance-based programs; and (C) violation severity levels for certain Requirement R1 violations.
24. As proposed, Reliability Standard PRC–005–2 does not include separate requirements for protection system commissioning testing for new or modified equipment (i.e., testing activities necessary to ensure that new or modified equipment has been built and will function in accordance with its
25. At the same time, NERC acknowledges that “a thorough commission testing program would include, either directly or indirectly, the verification of all those Protection System attributes addressed by the maintenance activities specified in the Tables of PRC–005–2,” and that “an entity would be wise to retain commissioning records to show a maintenance start date.”
26. NERC's petition assumes that components will not be placed into service until they have been determined to be within the same range of operability and accuracy as would be required when completing the maintenance and inspection activities delineated in proposed Reliability Standard PRC–005–2. However, the Reliability Standard does not include a requirement to verify that protection system equipment and components operate at least as accurately as required under the PRC–005–2 maintenance standards when those components are first placed in service or are modified. We are concerned that a reliability gap may exist if entities are not required to demonstrate compliance with PRC–005–2 standards when relevant equipment or components are placed in service or modified.
27. We note that the failure to verify the accurate functioning of protection system components when placed in service, or when subsequently modified, has been identified as a direct cause of misoperations in several instances, resulting in violations of the currently-effective PRC–004 standard. For example, Notice of Penalty filings in Docket Nos. NP11–105, NP11–129, and NP13–37 contain Reliability Standard PRC–004 violations where protection systems were placed in service and misoperated.
28. If NERC does not believe that it can interpret and enforce the proposed Reliability Standard to include such a requirement, we seek comment on whether the proposed standard should be modified to address our underlying concern, i.e., verification that newly-commissioned or modified equipment and components meet the same requirements specified for subsequent maintenance and testing in the proposed Reliability Standard.
29. Pursuant to Requirement R2 of proposed Reliability Standard PRC–005–2, responsible entities may choose to establish performance-based maintenance intervals for individual component types, according to the procedures set out in Attachment A of the standard. According to the Attachment A procedures, the responsible entity must first develop a list of components to be included in the designated segment (with a minimum population of 60 components).
30. Under the proposed standard, an entity would not be in violation of Requirement R2 of the standard upon failing to achieve a 4 percent or less failure rate for a given segment in the first year the failure occurs, but would violate Requirement R2 if: (1) The entity could not show that the interval selected was initially set to expect a failure rate of no more than 4 percent; (2) the entity fails to make immediate
31. In the Technical Justification NERC submitted as part of its petition, NERC explains the basis for selecting a four percent target for countable events as follows:
The 4% number was developed using the following:
General experience of the drafting team based on open discussions of past performance.
Test results provided by Consumers Energy for the years 1998–2008 showing a yearly average of 7.5% out-of-tolerance relay test results and a yearly average of 1.5% defective rate.
Two failure analysis reports from Tennessee Valley Authority (TVA) where TVA identified problematic equipment based on a noticeably higher failure of a certain relay type (failure rate of 2.5%) and voltage transformer type (failure rate of 3.6%).
32. NERC does not provide any further details about the scope and specific results of the referenced studies, or a clear explanation of how the four percent figure was derived from these studies. Moreover, the referenced studies appear to focus on out-of-tolerance rates for electro-mechanical protective relays, and NERC provided little to no support for application of those expected rates to other types of components.
33. While NERC provides some historical support for the use of a four percent target figure for countable events in setting an appropriate performance-based maintenance interval for certain component types (
34. In light of NERC's finding in its State of Reliability Report that protection system misoperations are the leading initiating cause of disturbance events (other than weather and “unknown”),
35. Under Requirement R5, responsible entities must “demonstrate efforts to correct identified Unresolved Maintenance Issues.” An “unresolved maintenance issue” is defined as a “deficiency identified during a maintenance activity that causes the component to not meet the intended performance, cannot be corrected during the maintenance interval, and requires follow-up corrective action.”
36. According to NERC, the reliability objective of Requirement R5 is to “assure that Protection System components are returned to working order following the discovery of failure or malfunctions during scheduled maintenance,”
The drafting team does not believe entities should be found in violation of a maintenance program requirement because of the inability to complete a remediation program within the original maintenance interval. The drafting team does believe corrective actions should be timely but concludes it would be impossible to postulate all possible remediation projects and therefore, impossible to specify bounding time frames for resolution of all possible Unresolved Maintenance Issues or what documentation might be sufficient to provide proof that effective corrective action has been initiated. Therefore Requirement R5 requires only the entity demonstrate efforts to correct the Unresolved Maintenance Issues.
37. We agree that allowing entities additional time beyond the maximum maintenance interval period to complete “restorative” action may be warranted in certain circumstances, including when the corrective action involves redesign, ordering additional equipment, or timing corrective work to correspond to planned outages.
38. Under the second sentence of Part 1.1 of Requirement R1, all batteries associated with station DC supply must be included in a time-based maintenance program,
Batteries are the only element of a Protection System that is a perishable item with a shelf life. As a perishable item batteries require not only a constant float charge to maintain their freshness (charge), but periodic inspection to determine if there are problems associated with their aging process and testing to see if they are maintaining a charge or can still deliver their rated output as required.
All of the above mentioned factors and several more not discussed here are beyond the control of the Functional Entities that want to use a performance-based maintenance (PBM) program for its Protection Systems. These inherent variances in the aging process of a battery cell make establishment of a designated segment based on manufacturer and type of battery impossible.
39. NERC has assigned a “lower” violation severity level for the failure to include applicable station batteries under a time-based maintenance program. NERC states as to Requirement R1 that “[t]here is an incremental aspect to the violation and the [violation severity levels] follow the guidelines for incremental violations,” indicating that NERC believes the Commission's violation severity guideline for binary requirements is not applicable.
40. The following collection of information contained in this Notice of Proposed Rulemaking is subject to review by the Office of Management and Budget (OMB) under section 3507(d) of the Paperwork Reduction Act of 1995.
41. We solicit comments on the Commission's need for this information, whether the information will have practical utility, the accuracy of the burden estimates, ways to enhance the quality, utility, and clarity of the information to be collected or retained, and any suggested methods for minimizing respondents' burden, including the use of automated information techniques. Specifically, the Commission asks that any revised burden or cost estimates submitted by commenters be supported by sufficient detail to understand how the estimates are generated.
42. The Commission proposes to approve Reliability Standard PRC–005–2, which will replace PRC–005–1.1b (Transmission and Generation Protection System Maintenance and Testing), PRC–008–0 (Underfrequency Load Shedding Equipment Maintenance), PRC–011–0 (Undervoltage Load Shedding Equipment Maintenance) and PRC–017–0 (Special Protection System Maintenance and Testing). The proposed Reliability Standard combines the requirements for maintenance and testing of protection systems, special protection systems, underfrequency load shedding equipment, and undervoltage load shedding equipment into one, comprehensive standard. In addition, the proposed Reliability Standard sets out minimum maintenance activities and maximum maintenance intervals for the various components of these systems, but also allows applicable entities to adopt performance-based maintenance intervals in certain circumstances.
43. Proposed Reliability Standard PRC–005–2 includes specific requirements about the minimum maintenance activities required for each type of applicable component, as well as a maximum time interval during which the maintenance must be completed. Because the specific requirements were designed to reflect common industry practice, entities are not expected to experience a meaningful change in actual maintenance and documentation practices. However, applicable entities will have to perform a one-time review of their current protection system maintenance programs to ensure that they meet the requirements of the revised standard PRC–005–2. Accordingly, all expected information collection costs are expected to be limited to the first year of implementation of the revised standard.
44.
45. Affected entities must perform a one-time review of their existing protection system maintenance program to ensure that it contains at a minimum the activities listed in Tables 1 through 3 in Reliability Standard PRC–005–2 and that the activities are performed
46.
47. Interested persons may obtain information on the reporting requirements by contacting the Federal Energy Regulatory Commission, Office of the Executive Director, 888 First Street, NE., Washington, DC 20426 [Attention: Ellen Brown, email:
48. Comments concerning the information collections proposed in this NOPR and the associated burden estimates, should be sent to the Commission in this docket and may also be sent to the Office of Management and Budget, Office of Information and Regulatory Affairs [Attention: Desk Officer for the Federal Energy Regulatory Commission]. For security reasons, comments should be sent by email to OMB at the following email address:
49. The Regulatory Flexibility Act of 1980 (RFA)
50. The Commission estimates that, on average, each of the 230 small entities affected will have a one-time cost of $560, representing a one-time review of the program for each entity, consisting of 8 man-hours at $70/hour as explained above in the information collection statement. We do not consider this cost to be a significant economic impact for small entities. Accordingly, the Commission certifies that proposed Reliability Standard PRC–005–2 will not have a significant economic impact on a substantial number of small entities. The Commission seeks comment on this certification.
51. The Commission is required to prepare an Environmental Assessment or an Environmental Impact Statement for any action that may have a significant adverse effect on the human environment.
52. The Commission invites interested persons to submit comments on the matters and issues proposed in this notice to be adopted, including any related matters or alternative proposals that commenters may wish to discuss. Comments are due September 23, 2013. Comments must refer to Docket No. RM13–7–000, and must include the commenter's name, the organization they represent, if applicable, and address.
53. The Commission encourages comments to be filed electronically via the eFiling link on the Commission's Web site at
54. Commenters that are not able to file comments electronically must send an original of their comments to: Federal Energy Regulatory Commission, Secretary of the Commission, 888 First Street NE., Washington, DC 20426.
55. All comments will be placed in the Commission's public files and may be viewed, printed, or downloaded remotely as described in the Document Availability section below. Commenters on this proposal are not required to serve copies of their comments on other commenters.
56. In addition to publishing the full text of this document in the
57. From the Commission's Home Page on the Internet, this information is available on eLibrary. The full text of this document is available on eLibrary in PDF and Microsoft Word format for viewing, printing, and/or downloading. To access this document in eLibrary, type the docket number excluding the last three digits of this document in the docket number field.
58. User assistance is available for eLibrary and the Commission's Web site during normal business hours from the Commission's Online Support at 202–502–6652 (toll free at 1–866–208–3676) or email at
By direction of the Commission.
Food and Drug Administration, HHS.
Notice of availability.
The Food and Drug Administration (FDA or we) is announcing the availability of a draft guidance entitled “Guidance for Industry: Questions and Answers Regarding the Final Rule, Prevention of
Although you can comment on any guidance at any time (see 21 CFR 10.115(g)(5)), to ensure that the Agency considers your comments on the draft guidance before it begins work on the final version of the guidance, submit electronic or written comments on the draft guidance by September 23, 2013.
Submit electronic comments on the draft guidance to
Nancy Bufano, Center for Food Safety and Applied Nutrition (HFS–316), Food and Drug Administration, 5100 Paint Branch Pkwy., College Park, MD 20740, 240–402–1493.
In the
This draft guidance is being issued consistent with FDA's good guidance practices regulation (21 CFR 10.115). The draft guidance, when finalized, will represent our current thinking on how to interpret the requirements in the final rule with regard to production systems that provide laying hens with access to the outdoors, including questions and answers on coverage; definitions; SE prevention measures; and environmental sampling for SE. It does not create or confer any rights for or on any person and does not operate to bind FDA or the public. An alternate approach may be used if such approach satisfies the requirements of the applicable statutes and regulations.
This draft guidance refers to previously approved collections of information found in FDA regulations. These collections of information are subject to review by the Office of Management and Budget (OMB) under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501–3520). The collections of information in §§ 118.5, 118.6, 118.10, and 118.11 have been approved under OMB control number 0910–0660.
Interested persons may submit either electronic comments regarding this document to
Persons with access to the Internet may obtain the draft guidance at
Food and Drug Administration, HHS.
Advance notice of proposed rulemaking.
The Food and Drug Administration (FDA) is issuing this advance notice of proposed rulemaking (ANPRM) to obtain information related to the potential regulation of menthol in cigarettes. FDA is also making available its preliminary scientific evaluation of public health issues related to the use of menthol in cigarettes. The preliminary scientific evaluation indicates there is likely a public health impact of menthol in cigarettes. This ANPRM is seeking comments, including comments on FDA's preliminary evaluation, and data, research, or other information that may inform regulatory actions FDA might take with respect to menthol in cigarettes.
Submit either electronic or written comments by September 23, 2013.
You may submit comments, identified by Docket No. FDA–2013–N–0521, by any of the following methods:
Submit electronic comments in the following way:
•
Submit written submissions in the following ways:
•
Annette L. Marthaler, Center for Tobacco Products, Food and Drug Administration, 9200 Corporate Blvd., Rockville, MD 20850–3229, 877–287–1373,
The Family Smoking Prevention and Tobacco Control Act, enacted on June 22, 2009, amends the Federal Food, Drug, and Cosmetic Act (the FD&C Act) and provides FDA with the authority to regulate tobacco products (Pub. L. 111–31, 123 Stat. 1776). Among other things, section 907(e) of the FD&C Act (21 U.S.C 387g(e)) requires FDA's Tobacco Products Scientific Advisory Committee (TPSAC) to submit a report and recommendations to the Secretary of Health and Human Services (the Secretary of HHS) on the impact of the use of menthol in cigarettes on the public health, including use among children, African Americans, Hispanics, and other racial/ethnic minorities.
TPSAC has submitted the report to HHS, available at
Experts within FDA's Center for Tobacco Products (CTP) also initiated an independent evaluation of the available science related to the impact of the use of menthol in cigarettes on public health including peer-reviewed literature, secondary data analyses, and independent CTP analyses of relevant large data sets. This preliminary independent evaluation is entitled “Preliminary Scientific Evaluation of the Possible Public Health Effects of Menthol Versus Nonmenthol Cigarettes” (the evaluation) (Ref. 1). The evaluation has been peer reviewed, and the peer review report is available on FDA's Web site at
As discussed previously, the FD&C Act provides FDA with authority to regulate tobacco products. This includes authority to adopt a tobacco product standard under section 907 of the FD&C Act if the Secretary of HHS finds that a tobacco product standard is appropriate for the protection of public health and includes authority to amend an existing product standard. In making such a finding, the Secretary of HHS must consider scientific evidence concerning: (1) The risks and benefits to the population as a whole, including users and nonusers of tobacco products, of the product standard; (2) the increased or decreased likelihood that existing users of tobacco products will stop using such products; and (3) the increased or decreased likelihood that those who do not use tobacco products will start using such products. The FD&C Act also provides FDA with authority to, by
FDA intends to use the information submitted in response to this
FDA is seeking comments, including comments on its preliminary evaluation, and data, research (e.g., published or unpublished studies, case studies), and any other information related to the following questions. Please explain your responses and provide any evidence or other information supporting your responses to the following questions:
1. Should FDA consider establishing a tobacco product standard for menthol in menthol cigarettes? If so, what allowable level of menthol (e.g., maximum or minimum) would be appropriate for the protection of the public health?
2. Rather than a tobacco product standard for menthol in menthol cigarettes, should FDA consider a tobacco product standard for any additive, constituent, artificial or natural flavor, or other ingredient that produces a characterizing flavor of menthol in the tobacco product or its smoke?
3. If a tobacco product standard for menthol in menthol cigarettes were to be established, should FDA consider issuing regulations to address menthol in other tobacco products besides cigarettes? If so, what other tobacco products with menthol should be regulated: All tobacco products, just all combusted tobacco products, or some other category or group of tobacco products? If not, what distinctions should be made between products?
4. If a product standard prohibiting or limiting menthol were to be established, what length of time should manufacturers be provided to achieve compliance with the standard? If a product standard prohibiting or limiting menthol were to be established, would a stepped approach in which the level of menthol was gradually reduced be appropriate for the protection of the public health?
5. If a product standard limiting menthol were to be established, are there alternatives that could be substituted by manufacturers to maintain the effect or appeal of menthol to menthol cigarette smokers and potential initiators? If so, what are these substitutes? Should they be regulated if menthol is regulated; and if so, how should they be regulated? If not, what distinctions should be made between menthol and potential substitutes?
1. Should FDA consider establishing restrictions on the sale and/or distribution of menthol cigarettes? If so, what restrictions would be appropriate and what would be the impact on youth or adult smoking behavior, initiation, and cessation?
2. Should FDA consider establishing restrictions on the advertising and promotion of menthol cigarettes? If so, what restrictions would be appropriate and what would be the impact on youth or adult smoking behavior, initiation, and cessation?
1. Are there other tobacco product standards, regulatory, or other actions that FDA could implement that would more effectively reduce the harms caused by menthol cigarette smoking and better protect the public health than the tobacco product standards or regulatory actions discussed in the preceding questions?
2. To the extent that you have identified a tobacco product standard or other regulatory action in response to the prior questions, please provide additional information and comments on:
2.1 Is compliance with the tobacco product standard or other regulatory action you identified technically achievable?
2.2 How FDA would structure a corresponding rule to maximize compliance, facilitate enforcement, and otherwise maximize public health benefits?
3. If menthol cigarettes could no longer be legally sold, is there evidence that illicit trade in menthol cigarettes would become a significant problem? If so what would be the impact of any such illicit trade on public health? How would any such illicit trade compare to the existing illicit trade in cigarettes?
4. What additional information and research beyond that described in the evaluation is there on the potential impact of sale and distribution restrictions of menthol cigarettes on specific subpopulations, such as those based on racial, ethnic, socioeconomic status, and sexuality/gender identity?
5. To what extent are you aware of current (within the past 5 years) advertising and/or promotion of menthol cigarettes that have targeted specific communities, subpopulations, and locations, beyond that described in the evaluation?
6. Might any current advertising or other marketing or public statements concerning menthol cigarettes, or menthol in other tobacco products, constitute reduced risk claims?
Interested persons may submit either electronic comments regarding this document to
The following references have been placed on display in the Division of Dockets Management (see
Environmental Protection Agency (EPA).
Notice of extension of comment period.
The EPA is announcing an extension of the public comment period on the Proposed Rule Regarding “Implementation of the 2008 National Ambient Air Quality Standards for Ozone: State Implementation Plan Requirements” (June 6, 2013). The EPA is extending the comment period that originally was scheduled to end on August 5, 2013. The extended comment period will close on September 4, 2013. The EPA is extending the comment period because of a request we received in a timely manner.
Submit your comments, identified by Docket ID No. EPA–HQ–OAR–2010–0885, by one of the following methods:
•
•
•
•
For further general information on this rulemaking, contact Dr. Karl Pepple, Office of Air Quality Planning and Standards, U.S. Environmental Protection Agency, by phone at (206) 553–1778, or by email at
Entities potentially affected directly by this proposal include state, local and tribal governments. Entities potentially affected indirectly by this proposal include owners and operators of sources of emissions (volatile organic compounds (VOCs) and nitrogen oxides (NO
• Identify the rulemaking by docket number and other identifying information (subject heading,
• Follow directions—The agency may ask you to respond to specific questions or organize comments by referencing a Code of Federal Regulations (CFR) part or section number.
• Explain why you agree or disagree; suggest alternatives and substitute language for your requested changes.
• Describe any assumptions and provide any technical information and/or data that you used.
• If you estimate potential costs or burdens, explain how you arrived at your estimate in sufficient detail to allow for it to be reproduced.
• Provide specific examples to illustrate your concerns, and suggest alternatives.
• Explain your views as clearly as possible, avoiding the use of profanity or personal threats.
• Make sure to submit your comments by the comment period deadline identified.
In addition to being available in the docket, an electronic copy of this notice will be posted at
Environmental Protection Agency (EPA).
Proposed rule; supplemental.
EPA is issuing a supplement to its proposed approval of the State of West Virginia's request to redesignate the West Virginia portion of the Wheeling, WV–OH fine particulate matter (PM
Written comments must be received on or before August 23, 2013.
Submit your comments, identified by Docket ID Number EPA–R03–OAR–2012–0368 by one of the following methods:
A.
B.
C.
D.
Rose Quinto, (215) 814–2182, or by email at
On March 8, 2012, the State of West Virginia through the West Virginia Department of Environmental Protection (WVDEP) formally submitted a request to redesignate the West Virginia portion of the Wheeling Area from nonattainment to attainment of the 1997 annual PM
On December 11, 2012 (77 FR 73575), EPA published a notice of proposed rulemaking (NPR) determining that the Wheeling Area has attained the 1997 annual PM
EPA today is issuing a supplement to its December 11, 2012 NPR. This supplemental NPR addresses the recent decision of the D.C. Circuit Court which affects the proposed redesignation and which has arisen since the issuance of the NPR. The D.C. Circuit Court on January 4, 2013 remanded to EPA two final rules implementing the PM
On January 4, 2013, in
In this portion of EPA's supplemental proposal, EPA is soliciting comment on the limited issue of the effect of the D.C. Circuit Court's January 4, 2013 ruling on the proposed redesignation. As explained below, EPA is proposing to determine that the D.C. Circuit Court's January 4, 2013 decision does not prevent EPA from redesignating the Wheeling Area to attainment. Even in light of the D.C. Circuit Court's decision, redesignation for this Area is appropriate under the CAA and EPA's longstanding interpretations of the CAA's provisions regarding redesignation. EPA first explains its longstanding interpretation that requirements that are imposed, or that become due, after a complete redesignation request is submitted for an area that is attaining the standard, are not applicable for purposes of evaluating a redesignation request. Second, EPA then shows that, even if EPA applies the subpart 4 requirements to the Wheeling Area redesignation request and disregards the provisions of its 1997 PM
With respect to the 1997 PM
EPA's view that, for purposes of evaluating the Wheeling Area redesignation, the subpart 4 requirements were not due at the time West Virginia submitted the redesignation request is in keeping with the EPA's interpretation of subpart 2 requirements for subpart 1 ozone areas redesignated subsequent to the D.C. Circuit Court's decision in
EPA's interpretation derives from the provisions of section 107(d)(3) of the CAA. Section 107(d)(3)(E)(v) states that, for an area to be redesignated, a state must meet “all requirements `applicable' to the area under section 110 and part D.” Section 107(d)(3)(E)(ii) provides that EPA must have fully approved the “applicable” SIP for the area seeking redesignation. These two sections read together support EPA's interpretation of “applicable” as only those requirements that came due prior to submission of a complete redesignation request.
First, holding states to an ongoing obligation to adopt new CAA requirements that arose after the state submitted its redesignation request, in order to be redesignated, would make it problematic or impossible for EPA to act on redesignation requests in accordance with the 18-month deadline Congress set for EPA action in section 107(d)(3)(D) of the CAA. If “applicable requirements” were interpreted to be a continuing flow of requirements with no reasonable limitation, states, after submitting a redesignation request, would be forced continuously to make additional SIP submissions that in turn would require EPA to undertake further notice-and-comment rulemaking actions to act on those submissions. This would create a regime of unceasing rulemaking that would delay action on the redesignation request beyond the 18-month timeframe provided by the CAA for this purpose.
Second, a fundamental premise for redesignating a nonattainment area to attainment is that the area has attained the relevant NAAQS due to emission reductions from existing controls. Thus, an area for which a redesignation request has been submitted would have already attained the NAAQS as a result of satisfying statutory requirements that came due prior to the submission of the request. Absent a showing that unadopted and unimplemented requirements are necessary for future maintenance, it is reasonable to view the requirements applicable for purposes of evaluating the redesignation request as including only those SIP requirements that have already come due. These are the requirements that led to attainment of the NAAQS. To require, for redesignation approval, that a state also satisfy additional SIP requirements coming due after the state submits its complete redesignation request, and while EPA is reviewing it, would compel the state to do more than is necessary to attain the NAAQS, without a showing that the additional requirements are necessary for maintenance.
In the context of the Wheeling redesignation, the timing and nature of the D.C. Circuit Court's January 4, 2013 decision in
To require West Virginia's fully-completed and long-pending redesignation request to comply now with requirements of subpart 4 that the D.C. Circuit Court announced only on January 4, 2013, would be to give retroactive effect to such requirements when the State had no notice that it was required to meet them. The D.C. Circuit Court recognized the inequity of this type of retroactive impact in
Even if EPA were to take the view that the D.C. Circuit Court's January 4, 2013 decision requires that, in the context of pending redesignations, subpart 4 requirements were due and in effect at the time the State submitted its redesignation request, EPA proposes to determine that the Wheeling Area still qualifies for redesignation to attainment. As explained below, EPA believes that the redesignation request for the Wheeling Area, though not expressed in terms of subpart 4 requirements, substantively meets the requirements of that subpart for purposes of redesignating the area to attainment.
With respect to evaluating the relevant substantive requirements of subpart 4 for purposes of redesignating the Wheeling Area, EPA notes that subpart 4 incorporates components of subpart 1 of part D, which contains general air quality planning requirements for areas designated as nonattainment.
For the purposes of this redesignation, in order to identify any additional requirements which would apply under subpart 4, EPA is considering the Wheeling Area to be a “moderate” PM
The permit requirements of subpart 4, as contained in section 189(a)(1)(A), refer to and apply the subpart 1 permit provisions requirements of sections 172 and 173 to PM
With respect to the specific attainment planning requirements under subpart 4,
The General Preamble also explained that: “[t]he section 172(c)(9) requirements are directed at ensuring RFP and attainment by the applicable date. These requirements no longer apply when an area has attained the standard and is eligible for redesignation. Furthermore, section 175A for maintenance plans . . . provides specific requirements for contingency measures that effectively supersede the requirements of section 172(c)(9) for these areas.”
It is evident that even if we were to consider the D.C. Circuit Court's January 4, 2013 decision in
Moreover, even outside the context of redesignations, EPA has viewed the obligations to submit attainment-related SIP planning requirements of subpart 4 as inapplicable for areas that EPA determines are attaining the standard. EPA's prior “Clean Data Policy” rulemakings for the PM
In its December 11, 2012 NPR for this action, EPA proposed to determine that the Wheeling Area has attained the 1997 PM
Thus, EPA is proposing to conclude that the requirements to submit an attainment demonstration under 189(a)(1)(B), a RACM determination under section 172(c)(1) and section 189(a)(1)(c), and a RFP demonstration under 189(c)(1) are satisfied for
The D.C. Circuit Court in
EPA's 1997 PM
The D.C. Circuit Court in its January 4, 2013 decision made reference to both section 189(e) and 40 CFR 51.1002, and stated that, “In light of our disposition, we need not address the petitioners' challenge to the presumptions in [40 CFR 51.1002] that volatile organic compounds and ammonia are not PM
Elsewhere in the D.C. Circuit Court's opinion, however, the Court observed: “NH
For a number of reasons, EPA believes that its proposed redesignation of the Wheeling Area is consistent with the D.C. Circuit Court's decision on this aspect of subpart 4. First, while the D.C. Circuit Court, citing section 189(e), stated that “for a PM
However, even if EPA takes the view that the requirements of subpart 4 were deemed applicable at the time the state submitted the redesignation request, and disregards the implementation rule's rebuttable presumptions regarding NH
Precursors in subpart 4 are specifically regulated under the provisions of section 189(e), which requires, with important exceptions, control requirements for major stationary sources of PM
In the General Preamble, EPA discusses its approach to implementing section 189(e).
EPA notes that its 1997 PM
Although, as EPA has emphasized, its consideration here of precursor requirements under subpart 4 is in the context of a redesignation to attainment, EPA's existing interpretation of subpart 4 requirements with respect to precursors in attainment plans for PM
In summary, even if West Virginia were required to address precursors for the Wheeling Area under subpart 4 rather than under subpart 1, as interpreted in EPA's remanded PM
With regard to the redesignation of West Virginia, in evaluating the effect of the D.C. Circuit Court's remand of EPA's implementation rule, which included presumptions against consideration of VOC and ammonia as PM
In the December 11, 2012 NPR, EPA proposed to determine that the State's maintenance plan shows continued maintenance of the standard by tracking the levels of the precursors whose control brought about attainment of the 1997 annual PM
First, as noted above in EPA's discussion of section 189(e), VOC emission levels in this Area have historically been well-controlled under SIP requirements related to ozone and other pollutants. Second, total NH
West Virginia's maintenance plan shows that emissions of direct PM
Even if VOC and ammonia emissions were to increase unexpectedly between 2007 and 2020, the overall emissions reductions projected in direct PM
In addition, available air quality modeling analyses show continued maintenance of the standard during the maintenance period. The current air quality design value for the Area is 13.0 micrograms per cubic meter (μg/m
Thus, EPA believes that there is ample justification to conclude that the Wheeling Area should be redesignated, even taking into consideration the emissions of other precursors potentially relevant to PM
EPA in this proposal also addresses the State's submission that provides additional information concerning NH
In the December 11, 2012 NPR (77 FR 73575), EPA proposed to approve the emissions inventory information requirement for the Wheeling Area. On June 24, 2013, West Virginia supplemented its submittal with the 2008 emission inventories for NH
The NEI point data category contains emission estimates for sources that are individually inventory and located at a fixed, stationary location. Point sources include large industrial facilities and electric power plants. The NEI nonpoint data category contains emissions estimates for sources which individually are too small in magnitude or too numerous to inventory as individual point sources. The NEI onroad and nonroad data categories contain mobile sources which are estimated for the 2008 NEI version 3 via the MOVES2010b and NONROAD models, respectively. NONROAD was run within the National Mobile Inventory Model (NMIM).
EPA has concluded that the 2008 NH
After fully considering the D.C. Circuit Court's decision in
Under the CAA, the Administrator is required to approve a SIP submission that complies with the provisions of the CAA and applicable Federal regulations. 42 U.S.C. 7410(k); 40 CFR 52.02(a). Thus, in reviewing SIP submissions, EPA's role is to approve state choices, provided that they meet the criteria of the CAA. Accordingly, this action merely proposes to approve state law as meeting Federal requirements and does not impose additional requirements beyond those imposed by state law. For that reason, this proposed action:
• Is not a “significant regulatory action” subject to review by the Office of Management and Budget under Executive Order 12866 (58 FR 51735, October 4, 1993);
• does not impose an information collection burden under the provisions of the Paperwork Reduction Act (44 U.S.C. 3501
• is certified as not having a significant economic impact on a substantial number of small entities under the Regulatory Flexibility Act (5 U.S.C. 601
• does not contain any unfunded mandate or significantly or uniquely affect small governments, as described in the Unfunded Mandates Reform Act of 1995 (Pub. L. 104–4);
• does not have Federalism implications as specified in Executive Order 13132 (64 FR 43255, August 10, 1999);
• is not an economically significant regulatory action based on health or safety risks subject to Executive Order 13045 (62 FR 19885, April 23, 1997);
• is not a significant regulatory action subject to Executive Order 13211 (66 FR 28355, May 22, 2001);
• is not subject to requirements of Section 12(d) of the National Technology Transfer and Advancement Act of 1995 (15 U.S.C. 272 note) because application of those requirements would be inconsistent with the CAA; and
• does not provide EPA with the discretionary authority to address, as appropriate, disproportionate human health or environmental effects, using practicable and legally permissible methods, under Executive Order 12898 (59 FR 7629, February 16, 1994).
In addition, this proposed rule pertaining to the redesignation of the West Virginia portion of the Wheeling WV–OH 1997 annual PM
Environmental protection, Air pollution control, Incorporation by reference, Nitrogen dioxide, Ozone, Particulate matter, Reporting and recordkeeping requirements, Sulfur oxides, Volatile organic compounds.
42 U.S.C. 7401
Environmental Protection Agency (EPA).
Proposed rule.
EPA is proposing to approve, as a revision of the California state implementation plan, the State's request to redesignate the Sacramento nonattainment area to attainment for the 24-hour particulate matter of ten microns or less (PM
Comments must be received on or before August 23, 2013.
Submit your comments, identified by Docket ID Number EPA–R09–OAR–2012–0877, by one of the following methods:
1.
2.
3.
John Ungvarsky, Air Planning Office (AIR–2), U.S. Environmental Protection Agency, Region IX, (415) 972–3963,
Throughout this document, whenever “we,” “us,” or “our” is used, we mean EPA. This supplementary information section is arranged as follows:
Under Clean Air Act (CAA or “the Act”) section 107(d)(3)(D), EPA is proposing to approve the State's request to redesignate the Sacramento PM
In addition, under CAA section 110(k)(3), EPA is proposing to approve the maintenance plan including the motor vehicle emissions budgets (MVEBs) in the 2008 Sacramento PM
EPA is proposing these actions because the SIP revision meets the requirements of the CAA and EPA guidance for such plans and budgets.
EPA sets the NAAQS for certain ambient air pollutants at levels required to protect public health and welfare. Particulate matter with an aerodynamic diameter less than or equal to a nominal ten micrometers, or PM
EPA revised the NAAQS for particulate matter on July 1, 1987 (52 FR 24633), replacing standards for total suspended particulates (TSP less than 30 microns in diameter) with new standards applying only to particulate matter up to 10 microns in diameter (PM
In an October 17, 2006 p.m. NAAQS revision, the 24-hour PM
Effective January 20, 1994, EPA designated Sacramento County as a moderate nonattainment area for the PM
Beginning in the 1970's and continuing to the present, the SMAQMD
On February 15, 2002, EPA determined under section 179(c) of the CAA that the Sacramento PM
On December 7, 2010, CARB submitted the Sacramento PM
Sections 110(a)(1) and 110(l) of the Act require states to provide reasonable notice and public hearing prior to adoption of SIP revisions. In this action, we are proposing action on CARB's December 7, 2010 submittal of the Sacramento PM
CARB's submittal includes a letter dated October 28, 2010 from Larry Greene, Executive Director/Air Pollution Control Officer to the Board of Directors for the SMAQMD. In addition, Enclosure 1, Attachment 3 of CARB's submittal includes a copy of the notice to the public published on September 27, 2010, announcing a public hearing to be held on October 28, 2010. These materials document the public review process followed by SMAQMD in adopting the Sacramento PM
Enclosure I, Attachment 1 of CARB's submittal documents the adoption of the Sacramento PM
Enclosure IV of CARB's submittal documents CARB's board resolution regarding the Sacramento PM
Based on the documentation included in CARB's submittal, we find that the submittal of the Sacramento PM
CAA section 110(k)(1)(B) requires EPA to determine whether a SIP submittal is complete within 60 days of receipt. This section also provides that any plan that we have not affirmatively determined to be complete or incomplete will become complete six months after the day of submittal by operation of law. A completeness review allows us to determine if the submittal includes all the necessary items and information we need to act on it.
We make completeness determinations using criteria we have established in 40 CFR part 51, Appendix V. These criteria fall into two categories: administrative information and technical support information. The administrative information provides documentation that the State has followed basic administrative procedures during the SIP-adoption process and thus we have a legally-adopted SIP revision in front of us. The technical support information provides us the information we need to determine the impact of the proposed revision on attainment and maintenance of the air quality standards.
We notify a state of our completeness determination by letter unless the submittal becomes complete by operation of law. A finding of completeness does not approve the submittal as part of the SIP nor does it indicate that the submittal is approvable. It does start a 12-month clock for EPA to act on the SIP submittal. See CAA section 110(k)(2). The Sacramento PM
The CAA establishes the requirements for redesignation of a nonattainment area to attainment. Specifically, section 107(d)(3)(E) allows for redesignation provided that the following criteria are met: (1) EPA determines that the area has attained the applicable NAAQS; (2) EPA has fully approved the applicable implementation plan for the area under section 110(k); (3) EPA determines that the improvement in air quality is due to permanent and enforceable reductions in emissions resulting from implementation of the applicable SIP, applicable federal air pollution control regulations, and other permanent and
EPA provided guidance on redesignations in a document entitled, “State Implementation Plans; General Preamble for the Implementation of Title I of the Clean Air Act Amendments of 1990,” published in the
In this proposed rulemaking action, EPA applies these policies to the Sacramento PM
CAA section 107(d)(3)(E)(i) states that for an area to be redesignated to attainment, EPA must determine that the area has attained the relevant NAAQS. In this case, the relevant NAAQS is the 24-hour PM
Generally, EPA determines whether an area's air quality is meeting the 24-hour PM
Attainment of the 24-hour PM
To demonstrate attainment of the 24-hour PM
In the Sacramento PM
EPA regularly reviews these annual plans for compliance with the applicable reporting requirements in 40 CFR part 58. With respect to PM
There are two types of PM
There were six PM
Consistent with the requirements contained in 40 CFR part 50, EPA has reviewed the quality-assured, and certified PM
Table 1 summarizes the site-specific highest 24-hour PM
Section 107(d)(3)(E)(ii) and (v) require EPA to determine that the area has a fully approved applicable SIP under section 110(k) that meets all applicable requirements under section 110 and part D for the purposes of redesignation.
The general SIP elements and requirements set forth in section 110(a)(2) include, but are not limited to, the following: submittal of a SIP that has been adopted by the State after reasonable public notice and hearing; provisions for establishment and operation of appropriate procedures needed to monitor ambient air quality; implementation of a source permit program; provision for the implementation of part C requirements for prevention of significant deterioration (PSD) provisions; provisions for the implementation of part D requirements for nonattainment new source review (nonattainment NSR) NSR permit programs; provisions for air pollution modeling; and provisions for public and local agency participation in planning and emission control rule development.
We note that SIPs must be fully approved only with respect to applicable requirements for purposes of redesignation in accordance with section 107(d)(3)(E)(ii). The section 110 (and part D) requirements that are linked to a particular nonattainment area's designation and classification are the relevant measures to evaluate in reviewing a redesignation request. Requirements that apply regardless of the designation of any particular area on the State are not applicable requirements for the purposes of redesignation, and the State will remain subject to these requirements after the Sacramento PM
For example, CAA section 110(a)(2)(D) requires that SIPs contain certain measures to prevent sources in a state from significantly contributing to air quality problems in another state, known as “transport SIPs.” Because the section 110(a)(2)(D) requirements for transport SIPs are not linked to a particular nonattainment area's designation and classification but rather apply regardless of the attainment status, these are not applicable requirements for the purposes of redesignation under section 107(d)(3)(E).
Similarly, EPA believes that other section 110 (and part D) requirements that are not linked to nonattainment plan submissions or to an area's attainment status are not applicable requirements for purposes of redesignation. EPA believes that the section 110 (and part D) requirements that relate to a particular nonattainment area's designation and classification are the relevant measures to evaluate in reviewing a redesignation request. This view is consistent with EPA's existing policy on applicability of the conformity SIP requirement for redesignations.
On numerous occasions, CARB and SMAQMD have submitted and we have approved provisions addressing the basic CAA section 110 provisions. The Sacramento portion of the California SIP
Subparts 1 and 4 of part D, title 1 of the CAA contain air quality planning requirements for PM
As noted above, in 2002, EPA determined that the Sacramento PM
Moreover, in the context of evaluating the area's eligibility for redesignation, there is a separate and additional justification for finding that requirements associated with attainment are not applicable for purposes of redesignation. Prior to and independently of the Clean Data Policy, and specifically in the context of redesignations, EPA interpreted attainment-linked requirements as not applicable for purposes of redesignation. In the General Preamble, “General Preamble for the Interpretation of Title I of the Clean Air Act Amendments of 1990,” (General Preamble) 57 FR 13498, 13564 (April 16, 1992), EPA stated: [t]he section 172(c)(9) requirements are directed at ensuring RFP and attainment by the applicable date. These requirements no longer apply when an area has attained the standard and is eligible for redesignation. Furthermore, section 175A for maintenance plans * * * provides specific requirements for contingency measures that effectively supersede the requirements of section 172(c)(9) for these areas.
The remaining applicable Part D requirements for moderate PM
CAA section 172(c)(3) requires states to submit a comprehensive, accurate, current inventory of relevant PM
CAA Sections 172(c)(5) and 189(a)(1)(A) require the State to submit SIP revisions that establish certain requirements for new or modified stationary sources in nonattainment areas, including provisions to ensure that major new sources or major modifications of existing sources of
EPA has previously approved SMAQMD Rule 203 (Prevention of Significant Deterioration) and partially approved and partially disapproved SMAQMD Rule 214 (Federal New Source Review). 76 FR 43183 (July 20, 2011). Because of the partial disapproval, SMAQMD does not currently have a fully-approved nonattainment NSR program.
The NSR deficiencies identified in EPA's partial approval and partial disapproval of Rule 214 are limited to the following issues: (1) A small number of definitions: “begin actual construction,” “federally enforceable,” and “necessary preconstruction approvals or permits”; (2) the rule is missing adequate public notice requirements for minor sources; (3) the rule is missing provisions meeting the requirements of 40 CFR 51.165(a)(5)(ii) and 40 CFR 51.307(b)(2); and (4) the rule contains a cross reference to Rule 207—Title V—Federal Operating Permit Program, which is not SIP approved. The limited disapproval triggered an obligation on EPA to promulgate a federal implementation plan (FIP) to remedy the NSR deficiencies by August 19, 2013. See 76 FR 43184 (July 20, 2011). To correct the deficiencies, on September 26, 2012, CARB submitted amended SMAQMD Rule 214 for inclusion in the SIP. On February 14, 2013, a notice of proposed rulemaking to approve revised Rule 214 was published in the
If EPA does not approve revised Rule 214 prior to EPA finalizing the area's redesignation to attainment for PM
Based on our review of the Sacramento PM
We conclude that Sacramento's portion of the California SIP adequately meets the requirements of section 172(c)(5) and 189(a)(1)(A) for purposes of this redesignation.
Section 189(e) of the CAA requires that the control requirements applicable under the part D SIP for major stationary sources of PM
Section 172(c)(7) requires the SIP to meet the applicable provisions of section 110(a)(2). As noted above, we conclude the California SIP meets the requirements of section 110(a)(2) applicable for purposes of this redesignation.
Under section 176(c) of the Clean Air Act Amendments of 1990, states are required to establish criteria and procedures to ensure that federally supported or funded projects conform to the air quality planning goals in the applicable SIP. Section 176(c) further provides that state conformity provisions must be consistent with federal conformity regulations that the CAA requires EPA to promulgate. EPA's conformity regulations are codified at 40 CFR part 93, subparts A (referred to herein as “transportation conformity”) and B (referred to herein as “general conformity”). Transportation conformity applies to transportation plans, programs, and projects developed, funded, and approved under title 23 U.S.C. or the Federal Transit Act, and general conformity applies to all other federally-supported or funded projects. SIP revisions intended to address the conformity requirements are referred to herein as “conformity SIPs.”
EPA believes it is reasonable to interpret the conformity SIP requirements as not applying for purposes of a redesignation request under section 107(d) because state conformity rules are still required after redesignation and federal conformity rules apply where state rules have not been approved. See
Thus, EPA proposes to determine that, if EPA later finalizes its approval of the Sacramento PM
Section 107(d)(3)(E)(iii) requires EPA to determine that the improvement in air quality is due to emission reductions that are permanent and enforceable resulting from the implementation of the applicable SIP and applicable Federal air pollution control regulations and other permanent and enforceable regulations in order to approve a redesignation to attainment. Under this criterion, the State must be able to reasonably attribute the improvement in air quality to emissions reductions which are permanent and enforceable. Attainment resulting from temporary reductions in emissions rates (e.g., reduced production or shutdown due to temporary adverse economic conditions) or unusually favorable meteorology would not qualify as an air quality improvement due to permanent and enforceable emission reductions. Calcagni memorandum, p. 4.
Historically, exceedances of the 24-hour PM
The SMAQMD has jurisdiction over air quality planning requirements for Sacramento County. The SMAQMD has adopted numerous plans, rules, and revisions for Sacramento County in order to reduce PM
Source: Categories for which CARB has primary responsibility for reducing emissions in California include most new and existing on- and off-road engines and vehicles, motor vehicle fuels, and consumer products. In addition, California has unique authority under CAA section 209 (subject to a waiver by EPA) to adopt and implement new emission standards for many categories of on-road vehicles and engines, and new and in-use off-road vehicles and engines. California has been a leader in the development of some of the most stringent control measures nationwide for on-road and off-road mobile sources and the fuels that power them. These measures have helped reduce primary PM
CARB's 2007 State Strategy and 2009 and 2011 updates to the State Strategy provide a recent summary of the measures adopted and implemented by the State.
The on-road and off-road vehicle and engine standards cited above have contributed to improved air quality through the gradual, continued turnover and replacement of older vehicle models with newer models manufactured to meet increasingly stringent emissions standards.
We note that many of the control measures cited above and in the Sacramento PM
A sense of the effectiveness of the control measures to reduce PM
With respect to the connection between the emissions reductions and the improvement in air quality, we also conclude that the air quality improvement in the Sacramento PM
Thus, we find that the improvement in air quality in the Sacramento PM
Section 175A of the CAA sets forth the elements of a maintenance plan for areas seeking redesignation from nonattainment to attainment. We interpret this section of the Act to require, in general, the following core elements: attainment inventory, maintenance demonstration plus a commitment to submit a second maintenance plan eight years after redesignation, monitoring network, verification of continued attainment, and contingency plan. See Calcagni memorandum, pages 8 through 13.
Under CAA section 175A, a maintenance plan must demonstrate continued attainment of the applicable NAAQS for at least ten years after EPA approves a redesignation to attainment. Eight years after redesignation, the State must submit a revised maintenance plan that demonstrates continued attainment for the subsequent ten-year period following the initial ten-year maintenance period. To address the possibility of future NAAQS violations, the maintenance plan must contain such contingency provisions that EPA deems necessary to promptly correct any violation of the NAAQS that occurs after redesignation of the area. Based on our review and evaluation of the plan, as detailed below, we are proposing to approve the Sacramento PM
Section 172(c)(3) of the CAA requires plan submittals to include a comprehensive, accurate, and current inventory of actual emissions from all sources in the nonattainment area. In demonstrating maintenance in accordance with CAA section 175A and the Calcagni memorandum, the State should provide an attainment emissions inventory to identify the level of emissions in the area sufficient to attain the NAAQS. Where the State has made an adequate demonstration that air quality has improved as a result of the SIP, the attainment inventory will generally be an inventory of actual emissions at the time the area attained the standard. EPA's primary guidance in evaluating these inventories is the document entitled, “PM–10 Emissions Inventory Requirements,” EPA, OAQPS, EPA–454/R–94–033 (September 1994) which can be found at:
A maintenance plan for the 24-hour PM
SMAQMD selected year 2008 as the year for the attainment inventory in the Sacramento PM
Based on our review of the Sacramento PM
The Sacramento PM
The stationary source category includes non-mobile, fixed sources of air pollution. Examples of sources included in this category include fuel combustion (e.g., electric utilities), waste disposal (e.g., landfills), and oil and gas production. SMAQMD's 2008 (and subsequent year inventories) for stationary sources were developed using methods in CARB's 2009 Almanac
The on-road mobile source category consists of trucks, automobiles, buses, and motorcycles. The on-road emissions inventory estimates in the Sacramento PM
With respect to nonroad mobile sources (or other mobile as categorized in the PM
Table 4 presents the direct PM
Based on our review of the emissions inventories (and related documentation) from the Sacramento PM
Section 175A(a) of the CAA requires that the maintenance plan “provide for the maintenance of the national primary ambient air quality standard for such air pollutant in the area concerned for at
In addition to accounting for area-wide growth trends, SMAQMD included growth in airport emissions to accommodate future airport expansions within the Sacramento County Airport System.
SMAQMD also included emissions reduction credits (ERCs) from pre-2008 ERCs, future bankable rice burning ERCs, and the wood stove/fireplace change out incentive program in the event that the ERCs are used for the purposes of issuing permits for new or modified stationary sources in the air quality planning area.
We have reviewed the methods and assumptions, as described in connection with the attainment inventory, that SMAQMD used to project emissions to 2012 and 2022 for the various source categories and find them to be reasonable. The Sacramento PM
The results of the modeling show that all monitoring sites in the Sacramento PM
In addition to the CMB rollback modeling in the Sacramento PM
Based on our review of the 2012 and 2022 emissions inventories and related documentation from the Sacramento PM
Taking the CMB results into account gives an even stronger conclusion with respect to the acceptability of the slight increase of direct PM
Section 175A requires a state seeking redesignation to attainment to submit a SIP revision to provide for the maintenance of the NAAQS in the area “for at least 10 years after the redesignation.” EPA has interpreted this as a showing of maintenance “for a period of ten years following redesignation.” September 4, 1992 Memorandum from John Calcagni, Director, AQMD, “Procedures for Processing Requests to Redesignate Areas to Attainment,” p. 9.
As discussed in detail above, the Sacramento PM
1. Significant emissions controls remain in place and will continue to provide reductions that keep the area in attainment. Because the Sacramento area is currently nonattainment for the 1997 and 2008 ozone standards and the 2006 24-hour PM
2. The 2022 projected emissions inventory for PM
3. Fleet turnover supports a continued gradual decrease in emission levels beyond 2025. Specifically, California's Low Emission Vehicle (LEV) program sets gasoline and vehicle emissions standards for passenger cars, light trucks, and larger passenger vehicles. The program was designed to reduce emissions, including NO
4. Air quality concentrations are well below the 24-hour PM
For the above reasons, EPA believes the area will continue to maintain the 24-hour PM
In demonstrating maintenance, continued attainment of the NAAQS can be verified through operation of an appropriate air quality monitoring network. The Calcagni memorandum states that the maintenance plan should contain provisions for continued operation of air quality monitors that will provide such verification. Calcagni memorandum, p. 11. As discussed in section V.A. of this document, PM
Second, the transportation conformity process, which would require a comparison of on-road motor vehicle emissions that would occur under new or amended regional transportation plans and programs with the MVEBs in the PM
Lastly, while not cited in the Plan, CARB and SMAQMD must inventory emissions sources and report to EPA on a periodic basis under 40 CFR part 51, subpart A (“Air Emissions Reporting Requirements”). These emissions inventory updates will provide a third way to evaluate emissions trends in the area and thereby verify continued attainment of the NAAQS. These methods are sufficient for the purpose of verifying continued attainment.
Section 175A(d) of the Clean Air Act requires that maintenance plans include contingency provisions, as EPA deems necessary, to promptly correct any violations of the NAAQS that occur after redesignation of the area. Such provisions must include a requirement that the State will implement all measures with respect to the control of the air pollutant concerned that were contained in the SIP for the area before redesignation of the area as an attainment area. These contingency provisions are distinguished from those
Under section 175A(d), contingency measures identified in the contingency plan do not have to be fully adopted at the time of redesignation. However, the contingency plan is considered to be an enforceable part of the SIP and should ensure that the contingency measures are adopted expeditiously once they are triggered by a specified event. The maintenance plan should clearly identify the measures to be adopted, a schedule and procedure for adoption and implementation, and a specific timeline for action by the State. As a necessary part of the plan, the State should also identify specific indicators or triggers, which will be used to determine when the contingency measures need to be implemented.
As required by section 175A of the CAA, SMAQMD has adopted a contingency plan to address possible future PM
(1) Examine the violation to determine if it qualifies as a natural or exceptional event.
(2) If the violation was not a natural or exceptional event, SMAQMD will analyze the event to determine its plausible causes. Any applicable emission reductions from already adopted rules that have not yet been implemented would be evaluated to determine if these new emission reductions would be sufficient to prevent future PM
(3) If the additional emission reductions from already adopted rules are insufficient, the SMAQMD would proceed with selecting specific RACM measures for adoption and implementation that would be applicable to addressing the seasonal PM
In their June 28, 2013 letter, SMAQMD clarified that all three of the aforementioned steps will be completed, including the implementation of additional control measures, within 24 months.
Upon our review of the Plan, as summarized above, we find that the contingency provisions of the Sacramento PM
Section 175A(b) of the CAA provides that eight years after redesignation, the State must submit a revised maintenance plan that demonstrates continued attainment for the subsequent ten-year period following the initial ten-year maintenance period. The Sacramento PM
In light of the discussion set forth above, EPA is proposing to approve the Sacramento PM
Under section 176(c) of the CAA, transportation plans, programs and projects in the nonattainment or maintenance areas that are funded or approved under title 23 U.S.C. and the Federal Transit Laws (49 U.S.C. chapter 53) must conform to the applicable SIP. In short, a transportation plan and program are deemed to conform to the applicable SIP if the emissions resulting from the implementation of that transportation plan and program are less than or equal to the motor vehicle emissions budgets (budgets) established in the SIP for the attainment year, maintenance year and other years. See, generally, 40 CFR part 93 for the federal conformity regulations and 40 CFR 93.118 specifically for how budgets are used in conformity.
The budgets serve as a ceiling on emissions that would result from an area's planned transportation system. The budget concept is further explained in the preamble to the November 24, 1993, transportation conformity rule (58 FR 62188). Maintenance plan submittals must specify the maximum emissions of transportation-related PM
The Sacramento PM
The details for each component of the budgets are shown in table 10 and are comprised of direct on-road mobile source emissions, road construction emissions, fugitive emissions from paved and unpaved roads, and safety margins. A state may choose to apply a safety margin under our transportation conformity rule so long as such margins are explicitly quantified in the applicable plan and are shown to be consistent with attainment or maintenance of the NAAQS (whichever is relevant to the particular plan).
On September 1, 2011, EPA announced the availability of the Sacramento PM
As described earlier, the budgets were developed using emission factors generated by CARB's EMFAC2007 model and AP–42. The paved road emissions were originally calculated using the 2006 version of AP–42 by estimating the 2008 paved road emissions and projecting them to 2012 and 2022. The calculation relied on a California profile of silt loading, weather, and growth in roadway centerline miles.
EPA released an update to
EPA is proposing to approve the MVEBs for 2008, 2012 and 2022 as part of our approval of Sacramento PM
Based on our review of the Sacramento PM
First, under CAA section 107(d)(3)(D), we are proposing to approve CARB's request, which accompanied the submittal of the Sacramento PM
Second, in connection with the Sacramento PM
We are soliciting comments on these proposed actions. We will accept comments from the public on this proposal for 30 days following publication of this proposal in the
Under the CAA, redesignation of an area to attainment and the accompanying approval of a maintenance plan under section 107(d)(3)(E) are actions that affect the status of a geographical area and do not impose any additional regulatory requirements on sources beyond those imposed by State law. Redesignation to attainment does not in and of itself create any new requirements, but rather results in the applicability of requirements contained in the CAA for areas that have been redesignated to attainment. Moreover, the Administrator is required to approve a SIP submission that complies with the provisions of the Act and applicable federal regulations. 42 U.S.C. 7410(k); 40 CFR 52.02(a). Thus, in reviewing SIP submissions, EPA's role is to approve State choices, provided that they meet the criteria of the Clean Air Act. Accordingly, these actions merely propose to approve a State plan and redesignation request as meeting federal requirements and do not impose additional requirements beyond those by State law. For these reasons, these proposed actions:
• Are not a “significant regulatory action” subject to review by the Office of Management and Budget under Executive Order 12866 (58 FR 51735, October 4, 1993);
• Do not impose an information collection burden under the provisions of the Paperwork Reduction Act (44 U.S.C. 3501
• Are certified as not having a significant economic impact on a substantial number of small entities under the Regulatory Flexibility Act (5 U.S.C. 601
• Do not contain any unfunded mandate or significantly or uniquely affect small governments, as described in the Unfunded Mandates Reform Act of 1995 (Pub. L. 104–4);
• Do not have Federalism implications as specified in Executive Order 13132 (64 FR 43255, August 10, 1999);
• Are not an economically significant regulatory action based on health or safety risks subject to Executive Order 13045 (62 FR 19885, April 23, 1997);
• Are not a significant regulatory action subject to Executive Order 13211 (66 FR 28355, May 22, 2001);
• Are not subject to requirements of Section 12(d) of the National Technology Transfer and Advancement Act of 1995 (15 U.S.C. 272 note) because application of those requirements would be inconsistent with the CAA; and
• Do not provide EPA with the discretionary authority to address disproportionate human health or environmental effects with practical, appropriate, and legally permissible methods under Executive Order 12898 (59 FR 7629, February 16, 1994).
In addition, this proposed rule does not have tribal implications as specified by Executive Order 13175 (65 FR 67249, November 9, 2000), because the SIP is not approved to apply in Indian country located in the State, and EPA notes that it will not impose substantial direct costs on tribal governments or preempt tribal law. In addition, there are no federally recognized tribes located within the Sacramento PM
Environmental protection, Air pollution control, Incorporation by reference, Intergovernmental relations, Nitrogen dioxide, Particulate matter, Reporting and recordkeeping requirements, Sulfur dioxide.
Environmental protection, Air pollution control, National parks, Wilderness areas.
Environmental Protection Agency.
Proposed rule; notice of intent.
The Environmental Protection Agency (EPA) Region 9 is issuing a Notice of Intent to Delete the Sola Optical U.S.A., Inc. Superfund Site (Site) located in Petaluma, California, from the National Priorities List (NPL) and requests public comments on this proposed action. The NPL, promulgated pursuant to section 105 of the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) of 1980, as amended, is an appendix of the National Oil and Hazardous Substances Pollution Contingency Plan (NCP). The EPA and the State of California, through the Regional Water Quality Control Board—San Francisco Bay Region, have determined that all appropriate response actions under CERCLA have been completed. However, this deletion does not preclude future actions under Superfund.
Comments must be received by August 23, 2013.
Submit your comments, identified by Docket ID no. EPA–HQ–SFUND–1990–0010, by one of the following methods:
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Such deliveries are only accepted during the Docket's normal hours of operation, and special arrangements should be made for deliveries of boxed information.
All documents in the docket are listed in the
Dante Rodriguez, Remedial Project Manager, U.S. Environmental Protection Agency, Region 9, SFD–8–2, 75 Hawthorne Street, San Francisco, CA 94105, (415) 972–3166, email:
In the “Rules and Regulations” Section of today's
For additional information, see the direct final Notice of Deletion which is located in the
Environmental protection, Air pollution control, Chemicals, Hazardous waste, Hazardous substances, Intergovernmental relations, Penalties, Reporting and recordkeeping requirements, Superfund, Water pollution control, Water supply.
33 U.S.C. 1321(c)(2); 42 U.S.C. 9601–9657; E.O. 12777, 56 FR 54757, 3 CFR, 1991 Comp., p. 351; E.O. 12580, 52 FR 2923; 3 CFR, 1987 Comp., p. 193.
Health Resources and Services Administration (HRSA), Department of Health and Human Services (HHS).
Notice of proposed rulemaking.
The Secretary has made findings as to intussusceptions that can reasonably be determined in some circumstances to be caused or
Written comments must be submitted on or before January 21, 2014. A public hearing on this proposed rule will be held before the end of the public comment period. A separate notice will be published in the
You may submit comments in one of three ways, as listed below. The first is the preferred method. Please submit your comments in only
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Because of staffing and resource limitations, and to ensure that no comments are misplaced, HRSA cannot accept comments by facsimile (FAX) transmission. In commenting, by any of the above methods, please refer to file code (HRSA #0906–AB00). All comments received on a timely basis will be available for public inspection without charge, including any personal information provided, in Room 14–101 of the Health Resources and Services Administration's offices at 5600 Fishers Lane, Rockville, MD., on Monday through Friday of each week from 8:30 a.m. to 5 p.m. (excluding federal holidays). Phone: (301) 443–1785. This is not a toll-free number.
Please visit the National Vaccine Injury Compensation Program's Web site,
Under Title XXI of the Public Health Service (PHS) Act, individuals who demonstrate a vaccine-related injury or death may receive compensation through the National Vaccine Injury Compensation Program (VICP). To gain entitlement to compensation in the VICP, a petitioner must demonstrate that the injured or deceased individual received a vaccine set forth in the Vaccine Injury Table (a “covered vaccine”) and sustained a vaccine-related injury or death. A petitioner can prove a vaccine-related injury or death in two ways: (1) The petitioner can show that the vaccine recipient suffered an injury listed in the Vaccine Injury Table corresponding with the vaccine received, and that the onset of such injury occurred within the time period specified in the Table (a “Table injury”). As set out in sections 2111(c)(1)(C)(i), 2113(a)(1)(B), and 2114(a) of the PHS Act, a Table injury or death is given the legal presumption that it was caused by the vaccination. (2) If the petitioner cannot demonstrate a Table injury, the petitioner can prevail by proving, by a preponderance of the evidence, that the vaccine caused the injury or death (an “off-Table injury”). In either case, a petitioner must also show that the injury was sufficiently severe by demonstrating that such person suffered the residual effects of the injury for more than 6 months; died from the administration of the vaccine; or that the alleged injury resulted in inpatient hospitalization and surgical intervention. Section 2111(c) of the PHS Act. If the petitioner can prove a Table injury or off-Table injury, the petitioner is entitled to compensation unless it is affirmatively shown by the Secretary that the injury was caused by some factor unrelated to the vaccination.
Under section 2114(e)(2) of the PHS Act, when the Centers for Disease Control and Prevention (CDC) recommends a vaccine for routine administration to children, the Secretary is required to amend the Vaccine Injury Table to include such vaccine. Coverage becomes effective when an excise tax is imposed on the vaccine. Additionally, the Secretary is authorized to include specific adverse events on the Table with respect to each covered vaccine, including the time period when the first symptoms or manifestations of onset or other significant aggravation of such adverse event may occur. Under section 2114(c) of the PHS Act, the Secretary may make such modifications to the Table by promulgating regulations, with notice and opportunity for a public hearing, and at least 180 days of public comment.
The general category of rotavirus vaccines was added for coverage under the VICP, effective October 22, 1998. The prerequisites for adding rotavirus vaccines to the VICP were satisfied by the enactment of the Omnibus Consolidated and Emergency Supplemental Appropriations Act of 1999, Pub. L. 105–277 (October 21, 1998), which imposed an excise tax of 75 cents per dose on “any vaccine against rotavirus gastroenteritis,” and the publication of the CDC recommendation of the vaccine for “routine use in children” in the “Morbidity and Mortality Weekly Report” (MMWR), 1999:48 (March 19, 1999).
When the general category of rotavirus vaccines was added to the Table, it was added with “no condition specified.” 64 FR 40517. In other words, at the time rotavirus vaccines were first included for coverage under the Program, the Secretary had not identified any adverse events to include in the Table. Therefore, individuals who received the rotavirus vaccine did not receive a legal presumption of causation for any claimed injury and were required to prove that the vaccine actually caused the claimed injury.
On August 31, 1998, the Food and Drug Administration (FDA) licensed a live, oral, rhesus-based rotavirus tetravalent vaccine (trade name
Over the next eight months, the Secretary's Vaccine Adverse Event Reporting System (VAERS) began receiving reports of intussusception (a type of bowel obstruction that occurs when the bowel folds into itself) in infants receiving the Rotashield vaccine after the first dose. Based on an analysis of 15 reports, the CDC, in the July 16, 1999, issue of the MMWR, recommended that health care providers and parents postpone use of this rotavirus vaccine. The CDC undertook additional epidemiological studies to determine if there was a true association between the vaccine and intussusception. Also, at that time, the manufacturer, in consultation with the FDA, voluntarily ceased further distribution of the vaccine. Upon further consideration, and following consultation with CDC officials in preparation for the upcoming ACIP meeting, the manufacturer announced the withdrawal of the Rotashield vaccine (which was still the only U.S.-licensed rotavirus vaccine at that time) from the market on October 15, 1999, and requested the immediate return of all doses of the vaccine.
At its October 22, 1999, meeting, the ACIP reviewed scientific data from several sources, including a 19-state case-control study which showed a statistically significant rate of intussusception among recipients of the live, oral, rhesus-based rotavirus vaccine in the 2 week period following vaccine administration, with the highest risk period in the 3–14 days after the first dose of vaccine, and a much smaller risk in the same time period after dose two. Beyond 14 days, there did not appear to be more cases than might occur by chance alone. The ACIP concluded that intussusception occurs with significantly increased frequency in the first 14 days following administration of the Rotashield vaccine and withdrew its recommendation for use of this vaccine in infants. The CDC adopted and published the Committee's decision in the November 5, 1999, issue of the MMWR.
By December 2000, VAERS had received over 100 reports of confirmed intussusception cases, 58 of which had onset within 7 days of vaccine receipt. Of the cases reported, approximately one-half required surgical intervention. Nearly all of the other cases of bowel obstruction were relieved through barium enema, a radiological procedure used to both diagnose and often rectify the telescoped bowel segment, or resolved spontaneously without any intervention. At least one death associated with rotavirus vaccine was reported to VAERS.
The Secretary reviewed the epidemiological data, and in a notice of proposed rulemaking published on July 13, 2001, the Secretary announced his findings that the condition of intussusception could reasonably be determined in some circumstances to be caused by vaccines containing live, oral, rhesus-based rotavirus (66 FR 36735). Based on those findings, the Secretary proposed to amend the Table by adding the specific category of vaccines containing live, oral, rhesus-based rotavirus as a distinct category, with intussusception listed as a covered Table injury. This proposal was based on data indicating a strong association between Rotashield and intussusception in the two weeks following vaccination.
In a final rule published July 25, 2002 (67 FR 48558), the Secretary made final the changes proposed in the earlier notice. After these amendments, the Table included two categories of rotavirus vaccines. The first, the general category of rotavirus vaccines, did not include an associated injury. This category of vaccines was effective as of October 22, 1998, the effective date of the excise tax imposed for rotavirus vaccines. See 42 CFR 100.3(a), 100.3(c)(3). The second, more specific category of vaccines containing live, oral, rhesus-based rotavirus, contained an associated injury of intussusception with an onset interval of 0–30 days. The live, oral, rhesus-based rotavirus vaccine was covered in the VICP effective October 22, 1998, but the Table injury could only be claimed by those petitioners that had the vaccine administered on or before August 26, 2002 (the effective date of the final rule adding this category of vaccine), and beginning on August 26, 1994, the period of the eight-year “look back” prescribed in the statute. Because the manufacturer of the only U.S.-licensed rotavirus vaccine at the time voluntarily ceased distribution of the vaccine in July 1999, and because the CDC recommended that this vaccine no longer be routinely administered to children in the United States in October 1999, the Secretary concluded that it was unlikely that potential claims under this specific category would arise after the rule's publication. Because of this, the final rule limited the Table injury of intussusception to live, oral, rhesus-based rotavirus vaccines administered on or before the effective date of the final rule (August 26, 2002). Individuals who sought compensation for injuries related to such a vaccine administered after the effective date of the final rule were not entitled to the presumption of a Table injury for intussusception, but such individuals could still file claims under the Table's general category for rotavirus vaccines.
Through an interim final rule published October 9, 2008 (73 FR 59528), the Secretary removed the specific category of vaccines containing live, oral, rhesus-based rotavirus from the Table. Given the applicable statute of limitations and the fact that this category limited its application to vaccines administered on or before August 26, 2002, the Secretary believed that any potential Table claim under this category would have been time-barred, so no persons could have had claims under that category.
On February 3, 2006, the FDA licensed a pentavalent human-bovine reassortant rotavirus vaccine (trade name “RotaTeq”). Following a review by ACIP, the CDC published its recommendation for routine vaccination of U.S. infants with three doses of this rotavirus vaccine administered orally at ages 2, 4, and 6 months (MMWR 2006:55; RR12). On April 3, 2008, the FDA licensed a monovalent rotavirus vaccine derived from the human rotavirus strain (trade name “Rotarix”). In June 2008, the CDC updated its recommendation to include use of the newly licensed Rotarix (MMWR 2009:58; RR02). The prelicensure clinical trials for RotaTeq examined 70,000 infants, and did not identify an increased risk of intussusception in the 1–42 days post immunization. In addition, the prelicensure clinical trials for Rotarix examined over 60,000 infants, and found no increased risk in the 1–31 days after vaccination with either dose. Because of the prior association of intussusception with Rotashield, multiple post-marketing studies regarding RotaTeq, Rotarix, and intussusception were conducted to evaluate the possibility of a small risk
In February 2007, the FDA notified health care providers and consumers about 28 post-marketing reports of intussusception following administration of RotaTeq. The notification stated that of the reported 28 cases of intussusception, the number that may have been caused by the vaccine, or occurred by coincidence, was unknown. The FDA issued this notification both to encourage the reporting of any additional cases of intussusception that may have occurred in the past or will occur in the future after administration of RotaTeq, and to remind people that intussusception may be a potential complication of RotaTeq.
In 2008, the Vaccine Safety Datalink (VSD) published their experience from the first 111,521 doses of RotaTeq given from 2006 to 2007, and in 2012, the VSD and the CDC published data in “The Journal of the American Medical Association” (JAMA), from 786,725 doses of RotaTeq given from 2006 to 2010. There was no identifiable risk in the 1–7 day or 1–30 day periods following administration of RotaTeq in either analysis. The final post-marketing study of RotaTeq in the U.S. was performed by Merck and found no association with intussusception and RotaTeq. Post-marketing clinical trials of RotaTeq performed after U.S. licensure included two smaller efficacy studies from Africa and Asia. The African study had no cases of intussusception in either vaccine or placebo groups, and the Asian study had one case 97 days following the third dose of the placebo, and no cases in the vaccine group.
A 2011 post-marketing study of RotaTeq published in “Vaccine,” from the Australian National Immunization Program, suggests an association between RotaTeq and intussusception. Approximately 295,000 doses of RotaTeq were given in two states. In 1–3 month old infants, the expected number of intussusception cases was exceeded for the 1–7 and 1–21 day periods following the first dose of RotaTeq. In the 1–7 days following the first dose, three cases were found, compared to an expected 0.57 cases (relative risk of 5.26 [confidence interval (CI), 1.1–15.4]). (Relative risk is the ratio of the chance of a disease developing among members of a population exposed to a factor compared with a similar population not exposed to the factor.) [Confidence Intervals are a measure of estimation that represents the possible range of values in a population estimated from a given sample drawn from that population (in this case ranging from a relative risk value of 1.1 to 15.4)].
When the 1–21 day interval following the first dose was examined, six cases of intussusception were found, compared to an expected 1.71 cases (relative risk 3.5 [CI, 1.3–7.6]). There was no increase from the expected cases after dose two of RotaTeq, and actually a decrease from expected cases after dose three. Also important to note is that there was no evidence of increased risk of intussusception when examining the entire period of 1–9 months of age.
Rotarix was given in the other two states evaluated in the Australian post-marketing study, totaling approximately 302,000 doses. The study demonstrated an increased risk in both the 1–7 day and the 1–21 day windows following the first dose of Rotarix (relative risk of 3.45 [CI 0.7–10] and 1.53 [CI, 0.4–3.9], respectively). Neither of these risks showed statistical significance. There were no excess cases of intussusception associated with dose two of Rotarix. Similar to RotaTeq, the number of observed cases in the post-vaccine windows was small, with three cases observed in the 1–7 days after first dose vaccination versus 0.9 cases expected for the 1–3 month old infants. Since Rotarix constitutes a small percentage of total rotavirus vaccine given in the U.S. (3 million doses of Rotarix versus 35 million doses of RotaTeq as of 2010), comparable U.S. post-licensure studies of Rotarix are not currently available.
Post-marketing studies (case series and case-control analysis) performed in Mexico and Brazil, and published in “The New England Journal of Medicine” in 2011, identified an association between Rotarix and intussusception. In Mexico, there was an increased rate of intussusception during the 1–7 day period after the first dose of Rotarix with an incidence rate ratio of 5.3 (CI, 3–9.3). (Incidence rate ratio compares two incidence rates. Incidence rate is the number of new cases per population in a given time period.) There was no increase in the rate 1–7 days after the second dose, but a small increase by a factor of two was identified in the second and third week following the second dose. This contrasts with the Brazil data where there was no increase in the rate of intussusception found after the first dose of Rotarix, but a small elevation of the rate was identified 1–7 days following the second dose (incidence ratio of 2.6 [CI, 1.3–5.2]). The reason behind the variation between the data from Mexico and Brazil is unclear, but one potential explanation could be a result of Brazil's administering Rotarix and the oral polio virus vaccine (OPV) together, which has been shown to decrease the immunogenicity of the first dose of Rotarix, perhaps making the second dose function more like the initial dose.
The commentary in “The New England Journal of Medicine” in 2011 regarding the Rotarix data from Mexico and Brazil summarized the small attributable risk of intussusception as 1/51,000 vaccinated infants in Mexico and 1/68,000 vaccinated infants in Brazil. [Attributable risk is the difference in rate of a condition (intussusception in this case) between an exposed population (those who received rotavirus vaccine in this case) and an unexposed population.] The article raised the possibility that any live, oral, rotavirus vaccine, along with natural rotavirus infection, could carry a detectable risk of intussusception, although the risk is demonstrably quite low, based on the available studies. It is also biologically plausible that the different vaccines have differing intrinsic risks of intussusception based on the distinct strains in each vaccine, and that the same vaccine could manifest different risks in different populations. It is also possible that with small risks overall (resulting in a small number of excess intussusception cases in the specific narrow age groups receiving vaccine) and variability in background numbers of cases of intussusception year to year, an increase in overall burden of intussusception in infants aged < 1 year may not be detectable. The article raised the point that the small increase of intussusception after vaccination does not seem to increase the overall burden of intussusception, and that perhaps the rotavirus vaccination has a preventive role in long-term intussusception risk.
Because of these findings, the prescribing information in the U.S. for Rotarix was amended in September 2010 to reflect the above increased risk and the potential implications for U.S. infants. (GlaxosmithKline Biologicals Package Insert (PI) and Patient Package Information (PPI)). The PI and PPI were further amended in February 2011 to include “history of intussusception” as a contraindication to vaccination. (Statement available for viewing at
In addition, a large post-marketing surveillance study of intussusception in Mexico published in “The Pediatric Infectious Disease Journal” in July 2012 reported an “attributable risk of 3 to 4 additional cases of intussusception per 100,000 vaccinated infants after receipt if Rotarix.
In November 2010, the CDC issued a statement noting that some, but not all, studies suggest RotaTeq and Rotarix may possibly cause a small increase in the risk of intussusception; however, the CDC concluded that the benefits of these vaccines far outweigh this possible risk. The CDC continues to recommend routine rotavirus vaccination of U.S. infants to prevent severe rotavirus disease in U.S. infants and children. (Statement available for viewing at
The FDA's mini-sentinel “Post-Licensure Rapid Immunizations Safety Monitoring Program” (PRISM) is currently performing a study to assess the risk of intussusception from both Rotarix and RotaTeq vaccines in the United States. This self-controlled and case-centered study targets approximately 1 million infants. Results are expected late in 2012.
The Secretary has reviewed all the currently available data regarding the Rotarix and RotaTeq vaccines and the risk of intussusception. The background of the Rotashield experience in the U.S. and the recently published literature from Mexico, Brazil, and Australia supports a small attributable risk of intussusception after the first and second doses of Rotarix and RotaTeq (with a greater amount of data supporting an association with the first dose of both vaccines). Therefore, the Secretary proposes that the injury of intussusception be added to the general Table category of “rotavirus vaccines” to allow a presumption of causation for claims that meet the requirements set forth in the Table for that injury. Current U.S. studies of RotaTeq do not show a statistically identifiable risk of intussusception, but the number of study patients exposed to the vaccine in the U.S. may not be large enough (even with the results expected from the ongoing PRISM study) to rule out a very small attributable risk to the vaccine. Platforms like VSD in the U.S. have not been able to evaluate the possible small risk associated with Rotarix to date because of the low numbers of doses of Rotarix administered in settings captured by the surveillance program. To allow for a generous timeframe, the Secretary proposes that the Table injury for intussusception have an onset interval of 1–21 days under sections 2114(c) and (e) of the PHS Act, since evidence shows the increased risk within the 1–7 days following immunization with peaks in the fourth and fifth days.
The Qualifications and Aids to Interpretation section of the table will define the injury of “intussusception” as the invagination of a segment of intestine into the next segment of intestine, resulting in bowel obstruction, diminished arterial blood supply, and blockage of the venous blood flow. This is characterized by a sudden onset of abdominal pain that may be manifested by anguished crying, irritability, vomiting, abdominal swelling, and/or passing of stools mixed with blood and mucus. The definition for presumption of vaccine causation only applies to the first and second dose of vaccine, and excludes intussusception occurring with or after the third dose. The third dose of rotavirus vaccines lacks sufficient evidence showing risk.
The definition also delineates the alternative causes of intussusception which, if present in a case, would prevent it from qualifying as a Table injury. The alternative causes were classified into four categories: infectious diseases; anatomic lead points; anatomic bowel abnormalities; and underlying gastrointestinal or systemic diseases. Cases of intussusception where the onset was within 14 days after an infectious disease secondary to non-enteric or enteric adenovirus, other enteric viruses (such as Enterovirus), enteric bacteria (such as Campylobacter jejuni), or enteric parasites (such as Ascaris lumbricoides) would not qualify as a Table injury. Proof of these alternate causes may be demonstrated by clinical signs and symptoms and need not be confirmed by culture or serologic testing.
Cases of intussusception in a person with a pre-existing condition identified as the lead point for intussusception, such as intestinal masses and cystic structures (e.g., polyps; tumors; Meckel's diverticulum; lymphoma; or duplication cysts), would not qualify as a Table injury. Additionally, cases of intussusception in a person with abnormalities of the bowel, including congenital anatomic abnormalities, anatomic changes after abdominal surgery, and other anatomic bowel abnormalities caused by mucosal hemorrhage, trauma, or abnormal intestinal blood vessels (such as Henoch Scholein purpura, hematoma, or hemangioma); or in a person with underlying conditions or systemic diseases associated with intussusception (such as cystic fibrosis, celiac disease, or Kawasaki disease) would not qualify as a Table injury.
Petitioners may be eligible for compensation for vaccine-related cases of intussusception in which the onset is before 1 day or beyond 21 days, or where the condition does not satisfy the criteria under the Qualifications and Aids to Interpretation for intussusception (an “off-Table” claim), however the petitioners will be required to prove causation-in-fact. Regardless of whether the claim satisfies the criteria in the Table, all petitioners must demonstrate sufficient severity of the injury by proving that the injured person: 1) suffered the residual effects or complications of the alleged vaccine-related injury for more than 6 months after vaccine's administration; 2) died from administration of the vaccine; or 3) sustained inpatient hospitalization and surgery as a result of the alleged vaccine-related injury. Section 2111(c)(1)(D), PHS Act (42 U.S.C. 300aa–11(c)(1)(D)). In the case of rotavirus vaccine administration and subsequent intussusception, the Secretary does not consider a reduction of intussusception with an enema to be “surgical intervention.”
Petitions must also be filed within the applicable statute of limitations. The general statute of limitations applicable to petitions filed with the VICP, set forth in section 2116(a) of the PHS Act (42 U.S.C. 300aa–16(a)), continues to apply. In addition, section 2116(b) of the PHS Act identifies a specific exception to this statute of limitations that applies when the effect of a revision to the Table makes a previously ineligible person eligible to receive compensation or when an eligible person's likelihood of obtaining compensation significantly increases. Under this section, individuals who may be eligible to file petitions based on the revised Table may file a petition for compensation not later than 2 years after the effective date of the revision if the injury or death occurred not more than 8 years before the effective date of the revision of the Table (42 U.S.C. 300aa–16(b)).
The Advisory Commission on Childhood Vaccines (ACCV) voted unanimously to approve this proposal at its December 9, 2011, meeting. The Secretary, while moving forward with this proposal, understands that additional science is still forthcoming and recognizes the importance of keeping the Vaccine Injury Table in conformance with science. In addition, the Secretary recognizes that one goal of
Executive Order 12866 directs agencies to assess all costs and benefits of available regulatory alternatives and, when rulemaking is necessary, to select regulatory approaches that provide the greatest net benefits (including potential economic, environmental, public health, safety, distributive, and equity effects). In addition, under the Regulatory Flexibility Act, if a rule has a significant economic effect on a substantial number of small entities, the Secretary must specifically consider the economic effect of a rule on small entities and analyze regulatory options that could lessen the impact of the rule.
Executive Order 12866 requires that all regulations reflect consideration of alternatives, costs, benefits, incentives, equity, and available information. Regulations must meet certain standards, such as avoiding an unnecessary burden. Regulations that are “significant” because of cost, adverse effects on the economy, inconsistency with other agency actions, effects on the budget, or novel legal or policy issues, require special analysis.
The Secretary has determined that no resources are required to implement the requirements in this rule. Compensation will be made in the same manner. This proposed rule only lessens the burden of proof for potential petitioners. Therefore, in accordance with the Regulatory Flexibility Act of 1980 (RFA) and the Small Business Regulatory Enforcement Act of 1996, which amended the RFA, the Secretary certifies that this rule will not have a significant impact on a substantial number of small entities.
The Secretary has also determined that this proposed rule does not meet the criteria for a major rule as defined by Executive Order 12866, and it would not have a major effect on the economy or federal expenditures. The Department has determined that the proposed rule is not a “major rule” within the meaning of the statute providing for Congressional Review of Agency Rulemaking, 5 U.S.C. § 801. Similarly, it will not have effects on state, local, and tribal governments, or on the private sector such as to require consultation under the Unfunded Mandates Reform Act of 1995.
The Secretary finds that the provisions of this rule will not have an adverse affect on family well-being, because this rule does not affect the following family elements: family safety; family stability; marital commitment; parental rights in the education, nurture, and supervision of their children; family functioning; disposable income or poverty; or the behavior and personal responsibility of youth, as determined under section 654(c) of the Treasury and General Government Appropriations Act of 1999.
This rule is not being treated as a “significant regulatory action” under section 3(f) of Executive Order 12866. Accordingly, the rule has not been reviewed by the Office of Management and Budget.
As stated above, this proposed rule would modify the Vaccine Injury Table based on legal authority.
To date, 17 petitions have been filed alleging a vaccine-related injury of intussusception caused or aggravated by a rotavirus vaccine, not including the currently unavailable Rotashield vaccine. This proposed rule will have the effect of decreasing the burden of proof for future petitioners. Under this proposed rule, future petitioners alleging the injury of intussusception as the result of a rotavirus vaccine that meets the criteria in the Vaccine Injury Table will be afforded a presumption of causation. This proposed rule will not change the burden of proof applicable to petitioners alleging other injuries related to a rotavirus vaccine who must rely on a causation-in-fact analysis.
This proposed rule has no information collection requirements.
Biologics, Health Insurance, and Immunization.
Accordingly, 42 CFR part 100 is proposed to be amended as set forth below:
Sec. 215 of the Public Health Service Act (42 U.S.C. 216); sec. 2115 of the PHS Act; 100 Stat. 3767, as revised (42 U.S.C. 300aa–15); § 100.3 Vaccine Injury Table, issued under secs. 312 and 313 of Pub. L. 99–660, 100 Stat. 3779–3782 (42 U.S.C. 300aa–1 note); and sec. 2114(c) and (3) of the PHS Act, 100 Stat. 3766 and 107 Stat. 645 (42 U.S.C. 300aa–14(c) and (e)); sec. 904(b) of Pub. L. 105–34, 111 Stat. 873; and sec. 523(a) of Pub. L. 106–170, 113 Stat. 1860.
(a) * * *
(b) * * *
(3)
(ii) For purposes of paragraph (a) of this section, the following shall not be considered to be a Table intussusception:
(A) Onset that occurs with or after the third dose of a vaccine containing rotavirus;
(B) Onset within 14 days after an infectious disease associated with intussusception, including viral disease (such as those secondary to non-enteric or enteric adenovirus, or other enteric viruses such as Enterovirus), enteric bacteria (such as
(C) Onset in a person with a pre-existing condition identified as the lead point for intussusception such as intestinal masses and cystic structures (such as polyps, tumors, Meckel's diverticulum, lymphoma, or duplication cysts);
(D) Onset in a person with abnormalities of the bowel, including congenital anatomic abnormalities, anatomic changes after abdominal surgery, and other anatomic bowel abnormalities caused by mucosal hemorrhage, trauma, or abnormal intestinal blood vessels (such as Henoch Scholein purpura, hematoma, or hemangioma); or
(E) Onset in a person with underlying conditions or systemic diseases associated with intussusception (such as cystic fibrosis, celiac disease, or Kawasaki disease).
The Department of Agriculture has submitted the following information collection requirement(s) to OMB for review and clearance under the Paperwork Reduction Act of 1995, Public Law 104–13. Comments regarding (a) whether the collection of information is necessary for the proper performance of the functions of the agency, including whether the information will have practical utility; (b) the accuracy of the agency's estimate of burden including the validity of the methodology and assumptions used; (c) ways to enhance the quality, utility and clarity of the information to be collected; (d) ways to minimize the burden of the collection of information on those who are to respond, including through the use of appropriate automated, electronic, mechanical, or other technological collection techniques or other forms of information technology should be addressed to: Desk Officer for Agriculture, Office of Information and Regulatory Affairs, Office of Management and Budget (OMB), New Executive Office Building, 725–17th Street NW., Washington, DC 20502. Commenters are encouraged to submit their comments to OMB via email to:
An agency may not conduct or sponsor a collection of information unless the collection of information displays a currently valid OMB control number and the agency informs potential persons who are to respond to the collection of information that such persons are not required to respond to the collection of information unless it displays a currently valid OMB control number.
Forest Service, USDA.
Notice; Re-establishment of the Forest Resource Coordinating Committee and call for nominations.
The Department of Agriculture re-established the Forest Resource Coordinating Committee (Committee) pursuant to Section 8005 of the Food, Conservation, and Energy Act of 2008 (Act) (Pub. L. 110–246), and the Federal Advisory Committee Act (FACA), (5 U.S.C. App. 2). The Act passed into law as an amendment to the Cooperative Forestry Assistance Act of 1978 on June 18, 2008. The Committee has been re-established to continue coordinating non-industrial private forestry activities within the U.S. Department of Agriculture (USDA) and the private sector. The Secretary of Agriculture (Secretary) has determined that the work of the Committee is in the public's interest and relevant to the duties of the USDA. Therefore, the Secretary is seeking nominations to fill a vacancy and three expiring positions, with terms of 3 years, in the Conservation Organization, Forest Industry, Nonindustrial Private Forest Landowner, and Conservation District categories. The nominees must be associated with such organizations and be willing to represent that sector as it relates to non-industrial private forestry. The public is invited to submit nominations for membership on the Committee, either as a self-nomination or a nomination of any qualified and interested person.
Written nominations must be received by August 23, 2013. Nominations must contain a completed application packet that includes the nominee's name, resume, and completed Form AD–755 (Advisory Committee Membership Background Information).
The address to submit nominations will vary based upon delivery method. Nomination packages must be sent to the addresses below:
• Nominations sent via express mail or overnight courier service: Maya Solomon, USDA Forest Service, Cooperative Forestry Staff, 1621 North
• Nominations sent via the U.S. Postal Service must be sent to the following address: USDA Forest Service; Cooperative Forestry Staff, State & Private Forestry; mail stop 1123; 1400 Independence Avenue SW., Washington, DC 20250–1123.
Maya Solomon, Forest Resource Coordinating Committee Program Coordinator, Telephone: 202–205–1376 or Ted Beauvais, Designated Federal Officer, Telephone: 202–205–1190. Individuals who use telecommunication devices for the deaf (TDD) may call the Federal Information Relay Service (FIRS) at 1–800–877–8339 between 8 a.m. and 5 p.m., Eastern Standard Time, Monday through Friday.
In accordance with the provisions of the Federal Advisory Committee Act (FACA), as amended (5 U.S.C., App. 2), the Secretary of Agriculture re-established the Committee. The purpose of the Committee is to continue providing direction and coordination of actions within the USDA, and coordination with State agencies and the private sector, to effectively address the national priorities for private forest conservation, with specific focus on owners of non-industrial private forest land as described in Section 8005 of the Food, Conservation, and Energy Act of 2008 (Pub. L. 110–246). These priorities include:
1. Conserving and managing working forest landscapes for multiple values and uses;
2. Protecting forests from threats, including catastrophic wildfires, hurricanes, tornadoes, windstorms, snow or ice storms, flooding, drought, invasive species, insect or disease outbreak, or development, and restoring appropriate forest types in response to such threats; and
3. Enhancing public benefits from private forests, including air and water quality, soil conservation, biological diversity, carbon storage, forest products, forestry-related jobs, production of renewable energy, wildlife, wildlife corridors and wildlife habitat, and recreation.
The Committee will continue meeting on at least an annual basis and its primary duties will include:
1. Providing direction and coordination of actions within the USDA, and coordination with State agencies and the private sector, to effectively address the national priorities, with specific focus on non-industrial private forest land;
2. Clarifying responsibilities of each agency represented on the Committee concerning the national priorities with specific focus on non-industrial private forest land;
3. Providing advice on the allocation of funds, including the competitive funds set-aside for Competitive Allocation of Funds Innovation Projects (Sections 8007 and 8008 of the Food, Conservation, and Energy Act of 2008 (Pub. L. 110–246)).
The Committee is comprised of not more than 20 members. The members appointed to the Committee will be fair and balanced in terms of points of view represented, functions to be performed, and will represent a broad array of expertise and relevance to a membership category. The Committee members will serve staggered terms of up to 3 terms and meet annually, or as often as necessary at times as designated by the Designated Federal Officer (DFO). No individual who is currently registered as a Federal lobbyist is eligible to serve as a member of the Committee. The appointment of members to the Committee will be made by the Secretary. The Committee composition is as follows:
(a) Chief of the Forest Service;
(b) Chief of the Natural Resources Conservation Service;
(c) Director of the Farm Service Agency;
(d) Director of the National Institute of Food and Agriculture;
(e) Three State foresters or equivalent State officials from geographically diverse regions of the United States;
(f) A representative of a State fish and wildlife agency;
(g) Three owners of non-industrial private forest land;
(h) A forest industry representative;
(i) Three representatives from conservation organizations;
(j) A land-grant university or college representative;
(k) A private forestry consultant;
(l) A representative from a State Technical Committee;
(m) A representative of an Indian Tribe; and
(n) A representative from a Conservation District.
Representatives from the following categories will be appointed by the Secretary with terms of 3 years; Conservation Organization, Forestry Industry, Nonindustrial Private Forest Landowner, and Conservation District. Vacancies will be filled in the manner in which the original appointment was made.
The appointment of members to the Committee is made by the Secretary of Agriculture. Any individual or organization may nominate one or more qualified persons to represent the above vacancy on the Forest Resource Coordinating Committee. To be considered for membership, nominees must provide the following—
1. Résumé describing qualifications on how they are qualified to represent the unoccupied vacancy;
2. State why they want to serve on the committee and what they can contribute;
3. Show their past experience in working successfully as part of a coordinating group; and
4. Complete Form AD–755, Advisory Committee Membership Background Information. The form AD–755 may be obtained from the Forest Service contacts or from the following Web site:
5. Letters of recommendation are welcome.
All nominations will be vetted by USDA. Individuals may also nominate themselves. A list of qualified applicants from which the Secretary of Agriculture shall appoint members to the Forest Resource Coordinating Committee will be prepared. Applicants are strongly encouraged to submit nominations via overnight mail or delivery to ensure timely receipt by the USDA. Members of the Committee will serve without compensation; however, the DFO may approve the reimbursement for travel expenses for the performance of duties on behalf of the Committee.
All appointments to the Committee will follow equal opportunity practices in accordance with USDA policies. Membership will include, to the extent practicable, individuals with demonstrated ability to represent minorities, women, persons with disabilities, and senior citizen to ensure that the recommendations of the FRCC have taken into account the needs of the diverse groups served by the USDA.
Animal and Plant Health Inspection Service, USDA.
Extension of approval of an information collection; comment request.
In accordance with the Paperwork Reduction Act of 1995, this notice announces the Animal and Plant Health Inspection Service's intention to request an extension of approval of an information collection to evaluate service delivery by Veterinary Services to the public.
We will consider all comments that we receive on or before September 23, 2013.
You may submit comments by either of the following methods:
•
•
Supporting documents and any comments we receive on this docket may be viewed at
For information on the Veterinary Services customer service survey, contact Mr. Randy Snyder, Administrative Officer, VS, APHIS, 920 Main Campus Drive, Suite 200, Raleigh, NC 27606. For copies of more detailed information on the information collection, contact Mrs. Celeste Sickles, APHIS' Information Collection Coordinator, at (301) 851–2908.
After performing a service for an individual or business, VS conducts a survey to evaluate its customer service. The survey consists of a short questionnaire in which respondents are asked to identify the type of customer they are (e.g., pet owners, farm owners, animal/animal product producer, animal importer/exporter), and then to rate the services received in terms of courtesy, timeliness, helpfulness, etc. Respondents are also asked to rate and provide comments concerning their overall experience. Completion of the questionnaire is voluntary and responses do not identify the individual respondent.
VS uses the information collected to identify areas in which VS can improve service delivery to the public and more efficiently meet the needs and expectations of customers.
We are asking Office of Management and Budget (OMB) to approve our use of this information collection activity for an additional 3 years.
The purpose of this notice is to solicit comments from the public (as well as affected agencies) concerning our information collection. These comments will help us:
(1) Evaluate whether the collection of information is necessary for the proper performance of the functions of the Agency, including whether the information will have practical utility;
(2) Evaluate the accuracy of our estimate of the burden of the collection of information, including the validity of the methodology and assumptions used;
(3) Enhance the quality, utility, and clarity of the information to be collected; and
(4) Minimize the burden of the collection of information on those who are to respond, through use, as appropriate, of automated, electronic, mechanical, and other collection technologies; e.g., permitting electronic submission of responses.
All responses to this notice will be summarized and included in the request for OMB approval. All comments will also become a matter of public record.
Animal and Plant Health Inspection Service, USDA.
Notice of availability of a draft environmental impact statement; request for comments.
We are advising the public that the Animal and Plant Health Inspection Service has prepared a draft environmental impact statement (DEIS) to analyze the effects that may result from installing game fencing as a barrier to keep animals that carry cattle fever ticks and southern cattle ticks out of areas which are free of them and which are beyond the permanent tick quarantine zone in South Texas. We are seeking public comment on the DEIS and our evaluation of the alternatives we have identified as they relate to potential effects on the human environment.
We will consider all comments that we receive on or before August 30, 2013.
You may submit comments by either of the following methods:
•
•
Supporting documents and any comments we receive on this docket may be viewed at
For questions related to the Cattle Fever Tick Eradication Program, contact Dr. Matthew T. Messenger, Staff Entomologist, Cattle Fever Tick Eradication Program Manager, Ruminant Health Programs, VS, APHIS, 4700 River Road Unit 43, Riverdale, MD 20737; (301) 851–3421. For questions related to the DEIS, contact Ms. Michelle Gray, Environmental Protection Specialist, Environmental and Risk Analysis Services, PPD, APHIS, 4700 River Road Unit 149, Riverdale, MD 20737; (301) 851–3146.
The Cattle Fever Tick Eradication Program is a cooperative effort between the Animal and Plant Health Inspection Service (APHIS) of the U.S. Department of Agriculture (USDA) and the Texas Animal Health Commission. The program was established to eliminate bovine babesiosis, a severe and often fatal cattle disease, from the U.S. cattle population. Cattle fever ticks
Efforts to control cattle fever ticks along the permanent tick quarantine zone include vigilant surveillance and inspection for tick-infested cattle and wildlife, acaricide dip or spray treatment of livestock (primarily cattle and horses), and pasture vacation (temporary removal of cattle from infected pastures) to help protect cattle from potential exposure to the pathogen that can be transmitted by cattle fever ticks. However, an increasing number of cattle fever tick outbreaks have occurred outside the permanent tick quarantine zone in four of the eight Texas counties through which the zone passes: Maverick, Starr, Webb, and Zapata. The increase in outbreaks is attributed to numerous factors, including the free movement of deer and stray livestock carrying cattle fever ticks across the U.S.-Mexico border and an increase in the overall deer population, which serves as a reservoir for the disease. These outbreaks, which cause lengthy quarantine restrictions and increased herd management efforts and expenses to cattle producers within the tick-free zone, prompted us to explore additional control methods for cattle fever ticks. Subsequently, we determined that game fencing could help prevent the spread of cattle fever ticks to U.S. cattle populations from free-ranging tick hosts, thereby serving as another tool towards cattle fever tick eradication and control efforts.
On February 15, 2011, we published in the
APHIS prepared this DEIS in accordance with (1) the National Environmental Policy Act of 1969 (NEPA), as amended (42 U.S.C. 4321
We evaluated two alternatives in the DEIS:
In the DEIS, we evaluated both alternatives for their impacts on soil, air quality, water quality, livestock health, human health and safety, vegetation, wildlife, and cultural, historic, and visual resources.
We welcome comments on all of the issues presented in the DEIS and particularly on issues related to the alternatives outlined above.
Forest Service, USDA.
Notice of interim directive; Correction and extension of comment period.
The Forest Service is correcting a notice of interim directive that appeared in the
Comments must be received in writing by August 23, 2013.
Submit comments electronically through the internet Web site at
All comments, including names and addresses when provided, will be place in the record and are available for public inspection and copying. Persons wishing to inspect the comments received on this interim directive may do so in the Office of the Director, Watershed, Fish, Wildlife, Air and Rare Plants, U.S. Forest Service, 1601 N. Kent Street, 5th Floor, Arlington, VA 22209, between 8:30 a.m. and 4:00 p.m. on business days. Those wishing to inspect comments are encouraged to call ahead at 202–205–1167 to facilitate access to the building.
Penny Luehring, Watershed, Fish Wildlife, Air and Rare Plants Staff, 333 Broadway SE., Albuquerque, NM 87102, 505–842–3141 or
In the
Economic Development Administration, Department of Commerce.
Notice and Opportunity for Public Comment
Pursuant to Section 251 of the Trade Act 1974, as amended (19 U.S.C. 2341 et seq.), the Economic Development Administration (EDA) has received petitions for certification of eligibility to apply for Trade Adjustment Assistance from the firms listed below. Accordingly, EDA has initiated investigations to determine whether increased imports into the United States of articles like or directly competitive with those produced by each of these firms contributed importantly to the total or partial separation of the firm's workers, or threat thereof, and to a decrease in sales or production of each petitioning firm.
Any party having a substantial interest in these proceedings may request a public hearing on the matter. A written request for a hearing must be submitted to the Trade Adjustment Assistance for Firms Division, Room 71030, Economic Development Administration, U.S. Department of Commerce, Washington, DC 20230, no later than ten (10) calendar days following publication of this notice.
Please follow the requirements set forth in EDA's regulations at 13 CFR 315.9 for procedures to request a public hearing. The Catalog of Federal Domestic Assistance official number and title for the program under which these petitions are submitted is 11.313, Trade Adjustment Assistance for Firms.
Pursuant to its authority under the Foreign-Trade Zones Act of June 18, 1934, as amended (19 U.S.C. 81a–81u), the Foreign-Trade Zones Board (the Board) adopts the following Order:
The application to reorganize FTZ 122 under the ASF is approved, subject to the FTZ Act and the Board's regulations, including Section 400.13, to the Board's standard 2,000-acre activation limit for the zone, and to a three-year ASF sunset provision for usage-driven sites that would terminate authority for Sites 3, 7 and 8 if no foreign-status merchandise is admitted for a
The Bureau of Industry and Security, U.S. Department of Commerce (“BIS”), has notified Orville L. Parker, Jr., of Chicago, Illinois (“Parker”), of its intention to initiate an administrative proceeding against Parker pursuant to Section 766.3 of the Export Administration Regulations (the “Regulations”),
On or about February 29, 2008, Parker engaged in conduct prohibited by the Regulations by exporting a thermal imaging camera, an item subject to the Regulations, classified under Export Control Classification Number (“ECCN”) 6A003.b.4, controlled for Regional Stability reasons, and valued at approximately $4,050, from the United States to Germany without the Department of Commerce license required by Section 742.6(a)(1) of the Regulations. Parker stole the thermal imaging camera from his then-employer and subsequently advertised and then sold the item on eBay. In order to avoid detection by law enforcement, Parker intentionally used someone else's email address when he listed the item for sale on eBay while also falsely listing that the thermal imaging camera was physically located in Orlando, Florida. To further conceal his activities, Parker intentionally undervalued the thermal imaging camera at the time of export to avoid filing a Shipper's Export Declaration with the United States Government. In so doing, Parker committed one violation of Section 764.2(a) of the Regulations.
On or about February 29, 2008, in connection with the unlicensed export transaction described in Charge 1 above, Parker engaged in conduct prohibited by the Regulations when he failed to file a Shipper's Export Declaration (“SED”) or Automated Export System (“AES”) record with the U.S. Government. Pursuant to Section 758.1(b)(3) of the Regulations, an SED or AES record must be filed with the U.S. Government for all exports of commodities subject to the Regulations when the value of the commodity is over $2,500. Additionally, Section 758.1(b)(2) requires the filing of a SED or AES record for all exports subject to the Regulations that require submission of a license application, regardless of value or destination. Based on his experience filling out shipping air waybills Parker was aware that an SED or AES record was required for exports valued at over $2,500. Parker also knew the thermal imaging camera, which he had previously stolen from his then-employer, was valued at approximately $4,050. In order to avoid detection by law enforcement Parker intentionally undervalued the item to $2,400 in an attempt to avoid the SED/AES record filing requirement.
By failing to file the required SED or AES record, Parker committed one violation of Section 764.2(a) of the Regulations.
A. Applying for, obtaining, or using any license, License Exception, or export control document;
B. Carrying on negotiations concerning, or ordering, buying, receiving, using, selling, delivering, storing, disposing of, forwarding, transporting, financing, or otherwise servicing in any way, any transaction involving any item exported or to be exported from the United States that is subject to the Regulations, or in any other activity subject to the Regulations; or
C. Benefitting in any way from any transaction involving any item exported or to be exported from the United States that is subject to the Regulations, or in any other activity subject to the Regulations.
A. Export or reexport to or on behalf of the Denied Person any item subject to the Regulations;
B. Take any action that facilitates the acquisition or attempted acquisition by the Denied Person of the ownership, possession, or control of any item subject to the Regulations that has been or will be exported from the United States, including financing or other support activities related to a transaction whereby the Denied Person acquires or attempts to acquire such ownership, possession or control;
C. Take any action to acquire from or to facilitate the acquisition or attempted acquisition from the Denied Person of any item subject to the Regulations that has been exported from the United States;
D. Obtain from the Denied Person in the United States any item subject to the Regulations with knowledge or reason to know that the item will be, or is intended to be, exported from the United States; or
E. Engage in any transaction to service any item subject to the Regulations that has been or will be exported from the United States and which is owned, possessed or controlled by the Denied Person, or service any item, of whatever origin, that is owned, possessed or controlled by the Denied Person if such service involves the use of any item subject to the Regulations that has been or will be exported from the United States. For purposes of this paragraph, servicing means installation, maintenance, repair, modification or testing.
This Order, which constitutes the final agency action in this matter, is effective immediately.
Import Administration, International Trade Administration, Department of Commerce.
The Department of Commerce (“Department”) is conducting an administrative review of the antidumping duty order on certain cut-to-length carbon steel plate (“CTL plate”) from the People's Republic of China (“PRC”) for the period of review (“POR”) November 1, 2011, through October 31, 2012. This review covers three PRC companies.
Jeff Pedersen, AD/CVD Operations, Office 4, Import Administration, International Trade Administration, U.S. Department of Commerce, 14th Street and Constitution Avenue NW., Washington, DC 20230; telephone: (202) 482–2769.
The product covered by the order is certain cut-to-length carbon steel plate from the PRC.
The Department has conducted this review in accordance with section 751(a)(1)(A) of the Tariff Act of 1930, as amended (“the Act”). For a full description of the methodology underlying our conclusions,
The Department preliminarily determines that Hunan Valin did not have reviewable transactions during the POR and that Baosteel and Shanghai Pudong, did not establish their eligibility for separate rate status and, thus, are part of the PRC-wide entity.
Interested parties are invited to comment on the preliminary results and may submit case briefs and/or written comments within 30 days of the date of publication of this notice, pursuant to 19 CFR 351.309(c)(1)(ii). Rebuttal briefs, limited to issues raised in the case briefs, will be due five days after the due date for case briefs, pursuant to 19 CFR 351.309(d). Parties who submit
Pursuant to 19 CFR 351.310(c), interested parties, who wish to request a hearing, or to participate in a hearing if one is requested, must submit a written request to the Assistant Secretary for Import Administration, U.S. Department of Commerce, filed electronically using IA ACCESS. An electronically filed document must be received successfully in its entirety by the Department's electronic records system, IA ACCESS, by 5:00 p.m. Eastern Standard Time, within 30 days after the date of publication of this notice.
Upon issuance of the final results, the Department will determine, and U.S. Customs and Border Protection (“CBP”) shall assess, antidumping duties on all appropriate entries covered by this review.
The following cash deposit requirements will be effective upon publication of the final results of this administrative review for all shipments of the subject merchandise entered, or withdrawn from warehouse, for consumption on or after the publication date of the final results of review, as provided by section 751(a)(2)(C) of the Act: (1) For Hunan Valin, which had no shipments, the cash deposit rate will remain unchanged from the rate assigned to this company in the most recently completed review of the company; (2) for previously investigated or reviewed PRC and non-PRC exporters who are not under review in this segment of the proceeding but which have separate rates, the cash deposit rate will continue to be the exporter-specific rate published for the most recent period; (2) for all PRC exporters of subject merchandise that have not been found to be entitled to a separate rate, including Baosteel and Shanghai Pudong, the cash deposit rate will be the PRC-wide rate of 128.59 percent; and (3) for all non-PRC exporters of subject merchandise which have not received their own rate, the cash deposit rate will be the rate applicable to the PRC exporter(s) that supplied that non-PRC exporter. These deposit requirements, when imposed, shall remain in effect until further notice.
This notice also serves as a preliminary reminder to importers of their responsibility under 19 CFR 351.402(f)(2) to file a certificate regarding the reimbursement of antidumping duties prior to liquidation of the relevant entries during this review period. Failure to comply with this requirement could result in the Department's presumption that reimbursement of antidumping duties occurred and the subsequent assessment of double antidumping duties.
We are issuing and publishing these results in accordance with sections 751(a)(1) and 777(i)(1) of the Act and 19 CFR 351.213.
Import Administration, International Trade Administration, Department of Commerce.
Laurel LaCivita or Paul Stolz (India); Raquel Silva or Joy Zhang (Thailand) at (202) 482–4243, (202) 482–4474, (202) 482–6475, or (202) 482–1168, respectively, AD/CVD Operations, Office 8, Import Administration, International Trade Administration, U.S. Department of Commerce, 14th Street and Constitution Avenue NW., Washington, DC 20230.
On June 27, 2013, the Department of Commerce (the “Department”) received antidumping duty (“AD”) petitions concerning imports of steel threaded rod from India and Thailand filed in proper form on behalf of All America Threaded Products Inc.; Bay Standard Manufacturing Inc.; and Vulcan Threaded Products Inc. (“Vulcan”) (collectively, “Petitioners”).
In accordance with section 732(b) of the Tariff Act of 1930, as amended (the “Act”), Petitioners allege that imports of steel threaded rod from India and Thailand are being, or are likely to be, sold in the United States at less than fair value within the meaning of section 731 of the Act and that such imports are materially injuring, or threatening material injury to, an industry in the United States. Also, consistent with section 732(b)(1) of the Act, the Petitions are accompanied by information reasonably available to Petitioners supporting their allegations.
The Department finds that Petitioners filed these Petitions on behalf of the domestic industry because Petitioners are interested parties as defined in section 771(9)(C) of the Act. The Department also finds that Petitioners have demonstrated sufficient industry support with respect to the initiation of the AD investigations that Petitioners are requesting.
Because the Petitions were filed on June 27, 2013, the period of investigation (“POI”) for the India and Thailand investigations is April 1, 2012, through March 31, 2013.
The product covered by these investigations is steel threaded rod from India and Thailand. For a full description of the scope of the investigations,
During our review of the Petitions, we discussed the scope with Petitioners to ensure that it is an accurate reflection of the product for which the domestic industry is seeking relief. Moreover, as discussed in the preamble to the regulations,
All comments must be filed on the record of both the India and the Thailand AD investigations. All comments and submissions to the Department must be filed electronically using Import Administration's Antidumping Countervailing Duty Centralized Electronic Service System (“IA ACCESS”).
The period of scope comments is intended to provide the Department with ample opportunity to consider all comments and to consult with parties prior to the issuance of the preliminary determinations.
The Department requests comments from interested parties regarding the appropriate physical characteristics of steel threaded rod to be reported in response to the Department's AD questionnaires. This information will be used to identify the key physical characteristics of the subject merchandise in order to report the relevant factors and costs of production accurately as well as to develop appropriate product-comparison criteria.
Interested parties may provide any information or comments that they feel are relevant to the development of an accurate list of physical characteristics. Specifically, they may provide comments as to which characteristics are appropriate to use as: (1) General product characteristics and (2) product-comparison criteria. We note that it is not always appropriate to use all product characteristics as product-comparison criteria. We base product-comparison criteria on meaningful commercial differences among products. In other words, while there may be some physical product characteristics utilized by manufacturers to describe steel threaded rod, it may be that only a select few product characteristics take into account commercially meaningful physical characteristics. In addition, interested parties may comment on the order in which the physical characteristics should be used in matching products. Generally, the Department attempts to list the most important physical characteristics first and the least important characteristics last.
In order to consider the suggestions of interested parties in developing and issuing the AD questionnaires, we must receive comments on product characteristics by August 16, 2013. Rebuttal comments must be received by August 26, 2013. All comments and submissions to the Department must be filed electronically using IA ACCESS, as referenced above.
Section 732(b)(1) of the Act requires that a petition be filed on behalf of the domestic industry. Section 732(c)(4)(A) of the Act provides that a petition meets this requirement if the domestic producers or workers who support the petition account for: (i) at least 25 percent of the total production of the domestic like product; and (ii) more than 50 percent of the production of the domestic like product produced by that portion of the industry expressing support for, or opposition to, the petition. Moreover, section 732(c)(4)(D) of the Act provides that, if the petition does not establish support of domestic producers or workers accounting for more than 50 percent of the total production of the domestic like product, the Department shall: (i) poll the industry or rely on other information in order to determine if there is support for the petition, as required by subparagraph (A); or (ii) determine industry support using a statistically valid sampling method to poll the industry.
Section 771(4)(A) of the Act defines the “industry” as the producers as a whole of a domestic like product. Thus, to determine whether a petition has the requisite industry support, the statute directs the Department to look to producers and workers who produce the domestic like product. The U.S. International Trade Commission (“ITC”), which is responsible for determining whether “the domestic industry” has been injured, must also determine what constitutes a domestic like product in order to define the industry. While both the Department and the ITC must apply the same statutory definition regarding the domestic like product,
Section 771(10) of the Act defines the domestic like product as “a product which is like, or in the absence of like, most similar in characteristics and uses with, the article subject to an investigation under this title.” Thus, the reference point from which the domestic like product analysis begins is “the article subject to an investigation” (
With regard to the domestic like product, Petitioners do not offer a definition of domestic like product distinct from the scope of the investigations. Based on our analysis of the information submitted on the record, we have determined that steel threaded rod constitutes a single domestic like product and we have analyzed industry support in terms of that domestic like product.
In determining whether Petitioners have standing under section 732(c)(4)(A) of the Act, we considered the industry support data contained in the Petitions with reference to the domestic like product as defined in the “Scope of Investigations” section above. To establish industry support, Petitioners provided their production of the domestic like product in 2012, and compared this to the estimated total production of the domestic like product for the entire domestic industry.
Based on information provided in the Petitions, supplemental submissions, and other information readily available to the Department, we determine that Petitioners have met the statutory criteria for industry support under section 732(c)(4)(A)(i) of the Act because the domestic producers (or workers) who support the Petitions account for at least 25 percent of the total production of the domestic like product.
The Department finds that Petitioners filed the Petitions on behalf of the domestic industry because they are interested parties as defined in section 771(9)(C) of the Act and they have demonstrated sufficient industry support as required under section 732(c)(4)(A), with respect to the AD investigations that they are requesting the Department initiate.
Petitioners allege that the U.S. industry producing the domestic like product is being materially injured, or is threatened with material injury, by reason of the imports of the subject merchandise sold at less than normal value (“NV”). In addition, Petitioners allege that subject imports exceed the negligibility threshold provided for under section 771(24)(A) of the Act.
Petitioners contend that the industry's injured condition is illustrated by reduced market share; increased import penetration; underselling and price depression or suppression; lost sales and revenues; low capacity utilization; stagnant employment-related variables; and decline in financial performance.
The following is a description of the allegations of sales at less-than-fair-value upon which the Department based its decision to initiate investigations of imports of steel threaded rod from India and Thailand. The sources of data for the deductions and adjustments relating to U.S. price and NV are discussed in greater detail in the India AD Initiation Checklist and the Thailand AD Initiation Checklist.
Petitioners calculated export price (“EP”) based on lost U.S. sales and offers for sale for major types of steel threaded rod for delivery to the U.S. customer during the POI. To derive the ex-factory price, Petitioners made deductions to U.S. price for domestic brokerage and handling, international freight, distributor markup, and discounts/rebates, as appropriate, based on the stated sales and delivery terms.
Petitioners calculated EP based on lost U.S. sales and offers for sale for major types of steel threaded rod for delivery to the U.S. customer during the POI. Based on the stated sales and delivery terms, Petitioners deducted from the U.S. price domestic brokerage and handling, international freight, U.S. inland freight, and distributor mark-up, where appropriate.
Petitioners estimated international freight and U.S. inland freight based on their own knowledge and experience regarding shipments of full containers from Thailand to the West Coast and from a West Coast port to the buyer's location. Petitioners calculated domestic brokerage and handling using 2012 average charges (inclusive of document fees, terminal handling and port charges, and customs clearance charges) for exports from Thailand, as published in
Petitioners provided home market prices for steel threaded rod in India. These prices were adjusted to exclude distributor mark-up, where appropriate.
Petitioners provided information demonstrating reasonable grounds to believe or suspect that sales of steel threaded rod in the Indian market were made at prices below the fully-absorbed cost of production (“COP”), within the meaning of section 773(b) of the Act, and requested that the Department conduct a country-wide sales-below-cost investigation. The Statement of Administrative Action (“SAA”) accompanying the Uruguay Round Agreements Act states that an allegation of sales below COP need not be specific to individual exporters or producers.
Further, the SAA provides that section 773(b)(2)(A) of the Act retains the requirement that the Department have “reasonable grounds to believe or suspect” that below-cost sales have occurred before initiating such an investigation. Reasonable grounds exist when an interested party provides specific factual information on costs and prices, observed or constructed, indicating that sales in the foreign market in question are at below-cost prices.
Pursuant to section 773(b)(3) of the Act, COP consists of the cost of manufacturing (“COM”); selling, general and administrative (“SG&A”) expenses; financial expenses; and packing expenses. Petitioners calculated COM (except factory overhead) and packing expenses based on the input quantities of Vulcan's Pelham facility adjusted for known differences, during the anticipated POI, multiplied by the value of the inputs used to manufacture threaded rod in India using publicly-available data. Petitioners used their actual tolling costs of zinc coating and hot-dip galvanization because Petitioners did not perform these processes in-house.
To determine factory overhead, SG&A, and financial expense rates, Petitioners relied on the fiscal year (“FY”) ended March 31, 2013 financial statements of an Indian producer of comparable merchandise.
Based upon a comparison of the prices of the foreign like product in the home market to the calculated COP of the most comparable product, we find reasonable grounds to believe or suspect that sales of the foreign like product were made below the COP, within the meaning of section 773(b)(2)(A)(i) of the Act. Accordingly, the Department is initiating a country-wide cost investigation.
Because they alleged sales below cost, pursuant to sections 773(a)(4), 773(b) and 773(e) of the Act, Petitioners calculated NV based on CV. Petitioners calculated CV using the same average COM, SG&A, financial expense, and packing figures used to compute the COP. Petitioners relied on the same FY ended March 31, 2013, audited unconsolidated financial statements used as the basis for the factory overhead, SG&A, and financial expense rates to calculate the profit rate.
Petitioners based NV on CV, as neither a home market nor a third-country price was reasonably available. Pursuant to section 773(e) of the Act, CV consists of the COM; SG&A expenses; financial expenses; packing expenses; and profit. Petitioners calculated COM (except factory overhead) and packing expenses based on the input quantities of Vulcan's Pelham facility adjusted for known differences, during the anticipated POI, multiplied by the value of the inputs used to manufacture threaded rod in Thailand using publicly-available data. Petitioners used their actual tolling costs of zinc coating and hot-dip galvanization because Petitioners did not perform these processes in-house.
To determine factory overhead, SG&A, and financial expense rates, Petitioners relied on the FY ended December 31, 2011 financial statements of a Thai producer of comparable merchandise. Petitioners relied on the same FY ended December 31, 2011 financial statements used as the basis for the factory overhead, SG&A, and financial expense rates to calculate the profit rate.
Based on the data provided by Petitioners, there is reason to believe that imports of threaded rod from India and Thailand are being, or are likely to be, sold in the United States at less than fair value. Based on comparisons of EP to CV in accordance with section 773(a)(4) of the Act, the estimated dumping margins for threaded rod from India and Thailand range from from 17.93–119.87 percent,
Based upon the examination of the Petitions on steel threaded rod from India and Thailand, we find that the Petitions meet the requirements of section 732 of the Act. Therefore, we are initiating AD investigations to determine whether imports of steel threaded rod from India and Thailand are being, or are likely to be, sold in the United States at less than fair value. In accordance with section 733(b)(1)(A) of the Act and 19 CFR 351.205(b)(1),
Following standard practice in AD investigations involving market economy countries, in the event the Department determines that the number of known exporters or producers for this investigation is large, the Department may select respondents based on U.S. Customs and Border Protection (“CBP”) data for U.S. imports of threaded rod from India or Thailand under
The Petitions identified 69 producers and/or exporters of steel threaded rod in India,
We intend to make our decision regarding respondent selection within 20 days of publication of this notice. The Department invites comments regarding the CBP data and respondent selection within seven days of publication of this
In accordance with section 732(b)(3)(A) of the Act and 19 CFR 351.202(f), copies of the public version of the Petitions have been provided to the Governments of India and Thailand via IA ACCESS. To the extent practicable, we will attempt to provide a copy of the public version of the Petitions to each exporter named in the Petitions, as provided under 19 CFR 351.203(c)(2).
We have notified the ITC of our initiation, as required by section 732(d) of the Act.
The ITC will preliminarily determine no later than August 12, 2013, whether there is a reasonable indication that imports of steel threaded rod from India and Thailand are materially injuring or threatening material injury to a U.S. industry. A negative ITC determination for any country will result in the investigation being terminated with respect to that country; otherwise, these investigations will proceed according to statutory and regulatory time limits.
On April 10, 2013, the Department published
Interested parties must submit applications for disclosure under administrative protective order in accordance with 19 CFR 351.305. On January 22, 2008, the Department published
Any party submitting factual information in an AD or CVD proceeding must certify to the accuracy and completeness of that information.
This notice is issued and published pursuant to section 777(i) of the Act and 19 CFR 351.203(c).
The merchandise covered by these investigations is steel threaded rod. Steel threaded rod is certain threaded rod, bar, or studs, of carbon quality steel, having a solid, circular cross section, of any diameter, in any straight length, that have been forged, turned, cold-drawn, cold-rolled, machine straightened, or otherwise cold-finished, and into which threaded grooves have been applied. In addition, the steel threaded rod, bar, or studs subject to these investigations are nonheaded and threaded along greater than 25 percent of their total length. A variety of finishes or coatings, such as plain oil finish as a temporary rust protectant, zinc coating (
Included in the scope of these investigations are steel threaded rod, bar, or studs, in which: (1) Iron predominates, by weight, over each of the other contained elements; (2) the carbon content is 2 percent or less, by weight; and (3) none of the elements listed below exceeds the quantity, by weight, respectively indicated:
Steel threaded rod is currently classifiable under subheadings 7318.15.5051, 7318.15.5056, 7318.15.5090 and 7318.15.2095 of the
Excluded from the scope of these investigations are: (a) Threaded rod, bar, or studs which are threaded only on one or both ends and the threading covers 25 percent or less of the total length; and (b) threaded rod, bar, or studs made to American Society for Testing and Materials (“ASTM”) A193 Grade B7, ASTM A193 Grade B7M, ASTM A193 Grade B16, and ASTM A320 Grade L7.
International Trade Administration, U.S. Department of Commerce.
Notice of an opportunity for travel and tourism industry leaders to apply for membership on the Board of Directors of the Corporation for Travel Promotion.
The Department of Commerce is currently seeking applications from travel and tourism leaders from specific industries for membership on the Board of Directors (Board) of the Corporation for Travel Promotion (dba Brand USA). The purpose of the Board is to guide the Corporation for Travel Promotion on matters relating to the promotion of the U.S. travel and tourism industry, among other tasks.
Electronic applications may be sent to:
All applications must be received by the Office of Advisory Committees by close of business on August 9, 2013.
Julie Heizer, Deputy Director, Office of Travel and Tourism Industries, Room 10003, 1401 Constitution Avenue NW., Washington, DC 20230. Telephone: 202.482.4904. Email:
The Corporation is governed by a board of directors, consisting of 11 members with knowledge of international travel promotion and marketing, broadly representing various regions of the United States. The TPA directs the Secretary of Commerce (after consultation with the Secretary of Homeland Security and the Secretary of State) to appoint the board of directors for the Corporation.
At this time, the Department will be selecting four individuals with the appropriate expertise and experience from specific sectors of the travel and tourism industry to serve on the Board as follows:
(A) 1 shall have appropriate expertise and experience in the attractions or recreations sector;
(B) 1 shall have appropriate expertise and experience in the passenger air sector;
(C) 1 shall have appropriate expertise and experience in immigration law and policy, including visa requirements and United States entry procedures; and
(D) 1 shall have appropriate expertise in the inter-city passenger railroad business.
To be eligible for Board membership, one must have international travel and tourism marketing experience and must also be a U.S. citizen. In addition, individuals cannot be federally registered lobbyists or registered as a foreign agent under the Foreign Agents Registration Act of 1938, as amended.
Those selected for the Board must be able to meet the time and effort commitments of the Board. Priority may be given to individuals with experience as a Chief Executive Officer or President (or comparable level of responsibility) of an organization or entity in the travel and tourism sector in the United States.
Board members serve at the discretion of the Secretary of Commerce (who may remove any member of the Board for good cause). The terms of office of each member of the Board appointed by the Secretary shall be 3 years. Board members can serve a maximum of two consecutive full three-year terms. Board members are not considered Federal government employees by virtue of their service as a member of the Board and will receive no compensation from the Federal government for their participation in Board activities. Members participating in Board meetings and events will be paid actual travel expenses and per diem when away from their usual places of residence.
To be considered for membership, please provide the following:
1. Name, title, and personal resume of the individual requesting consideration; and
2. A brief statement of why the person should be considered for membership on the Board. This statement should also address the individual's relevant international travel and tourism marketing experience and indicate clearly the sector or sectors enumerated above in which the individual has the requisite expertise and experience. Individuals who have the requisite expertise and experience in more than one sector can be appointed for only one of those sectors. Appointments of members to the Board will be made by the Secretary of Commerce.
Import Administration, International Trade Administration, Department of Commerce.
Brooke Kennedy, AD/CVD Operations, Office 8, Import Administration, International Trade Administration, U.S. Department of Commerce, 14th Street and Constitution Avenue NW., Washington, DC 20230; telephone: (202) 482–3818.
On June 27, 2013, the Department of Commerce (“Department”) received a countervailing duty (“CVD”) petition concerning imports of steel threaded rod from India, filed in proper form by All America Threaded Products Inc., Bay Standard Manufacturing, Inc., and Vulcan Threaded Products Inc., (collectively hereinafter “Petitioners”).
In accordance with section 702(b)(1) of the Tariff Act of 1930, as amended (“the Act”), Petitioners allege that manufacturers, producers, or exporters of steel threaded rod from India receive countervailable subsidies within the meaning of sections 701 and 771(5) of the Act, and that such imports are materially injuring, or threatening material injury to, the domestic industry producing steel threaded rod in the United States. Also, consistent with section 702(b)(1) of the Act, the Petition is accompanied by information reasonably available to Petitioners supporting their allegations.
The Department finds that Petitioners filed the Petition on behalf of the domestic industry because they are interested parties as defined in section 771(9)(C) of the Act. The Department also finds that Petitioners have demonstrated sufficient industry support with respect to the investigation that Petitioners request the Department initiate.
The period of investigation is January 1, 2012, through December 31, 2012.
The product covered by this investigation is steel threaded rod from India. For a full description of the scope of the investigation,
During our review of the Petition, the Department had discussions pertaining to the proposed scope with Petitioners to ensure that the scope language in the Petition was an accurate reflection of the products for which the domestic industry is seeking relief. Moreover, as discussed in the preamble to the regulations,
All submissions to the Department must be filed electronically using Import Administration's Antidumping and Countervailing Duty Centralized Electronic Service System (“IA ACCESS”). An electronically filed document must be received successfully in its entirety by the Department's electronic records system, IA ACCESS, by the time and date set by the Department. Documents excepted from the electronic submission requirements must be filed manually (
The period of scope comments is intended to provide the Department with ample opportunity to consider all comments and to consult with parties prior to the issuance of the preliminary determination.
Pursuant to section 702(b)(4)(A)(ii) of the Act, the Department invited representatives of the Government of India (“GOI”) for consultations with respect to the Petition.
The GOI did not accept our invitation to hold consultations before the initiation. All memoranda are on file electronically via IA ACCESS. Access to IA ACCESS is available in the Central Records Unit (“CRU”), Room 7046, of the main Department of Commerce Building.
Section 702(b)(1) of the Act requires that a petition be filed on behalf of the domestic industry. Section 702(c)(4)(A) of the Act provides that a petition meets this requirement if the domestic producers or workers who support the petition account for: (i) at least 25 percent of the total production of the domestic like product; and (ii) more than 50 percent of the production of the domestic like product produced by that portion of the industry expressing support for, or opposition to, the petition. Moreover, section 702(c)(4)(D) of the Act provides that, if the petition does not establish support of domestic producers or workers accounting for more than 50 percent of the total production of the domestic like product, the Department shall: (i) poll the industry or rely on other information in order to determine if there is support for the petition, as required by subparagraph (A); or (ii) determine industry support using a statistically valid sampling method to poll the industry.
Section 771(4)(A) of the Act defines the “industry” as the producers as a
Section 771(10) of the Act defines the domestic like product as “a product which is like, or in the absence of like, most similar in characteristics and uses with, the article subject to an investigation under this subtitle.” Thus, the reference point from which the domestic like product analysis begins is “the article subject to an investigation” (
With regard to the domestic like product, Petitioners do not offer a definition of domestic like product distinct from the scope of the investigation. Based on our analysis of the information submitted on the record, we have determined that steel threaded rod constitutes a single domestic like product and we have analyzed industry support in terms of that domestic like product.
In determining whether Petitioners have standing under section 702(c)(4)(A) of the Act, we considered the industry support data contained in the Petition with reference to the domestic like product as defined in the “Scope of Investigation” section above. To establish industry support, Petitioners provided their production of the domestic like product in 2012, and compared this to the estimated total production of the domestic like product for the entire domestic industry.
Based on information provided in the Petition, supplemental submission, and other information readily available to the Department, we determine that Petitioners have met the statutory criteria for industry support under section 702(c)(4)(A)(i) of the Act because the domestic producers (or workers) who support the Petition account for at least 25 percent of the total production of the domestic like product.
The Department finds that Petitioners filed the Petition on behalf of the domestic industry because they are interested parties as defined in section 771(9)(C) of the Act and they have demonstrated sufficient industry support with respect to the CVD investigation that they are requesting the Department initiate.
Because India is a “Subsidies Agreement Country” within the meaning of section 701(b) of the Act, section 701(a)(2) of the Act applies to this investigation. Accordingly, the ITC must determine whether imports of the subject merchandise from India materially injure, or threaten material injury to, a U.S. industry.
Petitioners allege that imports of the subject merchandise are benefitting from countervailable subsidies and that such imports are causing, or threaten to cause, material injury to the U.S. industry producing the domestic like product. Petitioners allege that subject imports from India exceed the negligibility threshold provided under section 771(24)(B) of the Act, which states that in CVD petitions, imports of subject merchandise from developing countries must exceed the negligibility threshold of 4 percent.
Petitioners contend that the industry's injured condition is illustrated by reduced market share; increased import penetration; underselling and price depression or suppression; lost sales and revenues; low capacity utilization; stagnant employment-related variables; and decline in financial performance.
Section 702(b)(1) of the Act requires the Department to initiate a CVD investigation whenever an interested party files a CVD petition on behalf of an industry that: (1) alleges the elements necessary for an imposition of a duty under section 701(a) of the Act; and (2) is accompanied by information reasonably available to the petitioner supporting the allegations.
In the Petition, Petitioners allege that producers and exporters of steel threaded rod from India benefited from countervailable subsidies bestowed by the GOI.
The Department has examined the Petition on steel threaded rod from India and finds that it complies with the requirements of section 702(b)(1) of the Act. Therefore, in accordance with section 702(b)(1) of the Act, we are initiating a CVD investigation to determine whether manufacturers, producers, or exporters of steel threaded
Based on our review of the Petition, we find that there is sufficient information to initiate a CVD investigation of 11 alleged programs. For five other programs alleged to benefit Indian producers and exporters of steel threaded rod, we have determined that the requirements for initiation have not been met. For a full discussion of the basis for our decision to initiate or not initiate on each program,
A public version of the initiation checklist for this investigation is available at
For this investigation, the Department expects to select respondents based on U.S. Customs and Border Protection (“CBP”) data for U.S. imports of subject merchandise during the period of investigation under the following Harmonized Tariff Schedule of the United States numbers: 7318.15.5051, 7318.15.5056, 7318.15.5090 and 7318.15.2095.
We intend to release the CBP data under Administrative Protective Order (“APO”) to all parties with access to information protected by APO shortly after the announcement of this case initiation. Interested parties must submit applications for disclosure under APO in accordance with 19 CFR 351.305(b). Instructions for filing such applications may be found on the Department's Web site at
Interested parties may submit comments regarding the CBP data and respondent selection within seven calendar days of publication of this notice. Comments must be filed electronically using IA ACCESS. An electronically filed document must be received successfully in its entirety by the Department's electronic records system, IA ACCESS, by 5 p.m. Eastern time by the date noted above. Documents excepted from the electronic submission requirements must be filed manually (
We intend to make our decision regarding respondent selection within 20 days of publication of this notice.
In accordance with section 702(b)(4)(A)(i) of the Act and 19 CFR 351.202(f), copies of the public version of the Petition have been provided to the representatives of the GOI via IA ACCESS. Because of the particularly large number of producers/exporters identified in the Petition, the Department considers the service of the public version of the Petition to the foreign producers/exporters satisfied by the delivery of the public version of the Petition to the Government of India, consistent with 19 CFR 351.203(c)(2).
We have notified the ITC of our initiation, as required by section 702(d) of the Act.
The ITC will preliminarily determine, within 45 days after the date on which the Petition was filed, whether there is a reasonable indication that imports of allegedly subsidized steel threaded rod from India are materially injuring, or threatening material injury to, a U.S. industry.
On April 10, 2013, the Department published
Interested parties must submit applications for disclosure under protective orders in accordance with 19 CFR 351.305. On January 22, 2008, the Department published
Any party submitting factual information in an AD or CVD proceeding must certify to the accuracy and completeness of that information.
This notice is issued and published pursuant to section 777(i) of the Act.
The merchandise covered by this investigation is steel threaded rod. Steel threaded rod is certain threaded rod, bar, or studs, of carbon quality steel, having a solid, circular cross section, of any diameter, in any straight length, that have been forged, turned, cold-drawn, cold-rolled, machine straightened, or otherwise cold-finished, and into which threaded grooves have been applied. In addition, the steel threaded rod, bar, or studs subject to this investigation are nonheaded and threaded along greater than 25 percent of their total length. A variety of finishes or coatings, such as plain oil finish as a temporary rust protectant, zinc coating (
Included in the scope of this investigation are steel threaded rod, bar, or studs, in which: (1) iron predominates, by weight, over each of the other contained elements; (2) the carbon content is 2 percent or less, by weight; and (3) none of the elements listed below exceeds the quantity, by weight, respectively indicated:
• 1.80 percent of manganese, or
• 1.50 percent of silicon, or
• 1.00 percent of copper, or
• 0.50 percent of aluminum, or
• 1.25 percent of chromium, or
• 0.30 percent of cobalt, or
• 0.40 percent of lead, or
• 1.25 percent of nickel, or
• 0.30 percent of tungsten, or
• 0.012 percent of boron, or
• 0.10 percent of molybdenum, or
• 0.10 percent of niobium, or
• 0.41 percent of titanium, or
• 0.15 percent of vanadium, or
• 0.15 percent of zirconium.
Steel threaded rod is currently classifiable under subheadings 7318.15.5051, 7318.15.5056, 7318.15.5090 and 7318.15.2095 of the Harmonized Tariff Schedule of the United States (“HTSUS”). Although the HTSUS subheadings are provided for convenience and customs purposes, the written description of the merchandise is dispositive.
Excluded from the scope of this investigation are: (a) threaded rod, bar, or studs which are threaded only on one or both ends and the threading covers 25 percent or less of the total length; and (b) threaded rod, bar, or studs made to American Society for Testing and Materials (“ASTM”) A193 Grade B7, ASTM A193 Grade B7M, ASTM A193 Grade B16, and ASTM A320 Grade L7.
ITA, DOC.
Notice of Federal Advisory Committee meeting.
This notice sets forth the schedule and proposed agenda for a meeting of the CINTAC.
The meeting is scheduled for Wednesday, August 28, 2013, 9:00 a.m. to 4:00 p.m. Eastern Daylight Time (EDT).
The meeting will be held in Room 1412, U.S. Department of Commerce, Herbert Clark Hoover Building, 1401 Constitution Ave. NW., Washington, DC 20230.
Mr. David Kincaid, Office of Energy & Environmental Industries, ITA, Room 4053, 1401 Constitution Ave. NW., Washington, DC 20230. (Phone: 202–482–1706; Fax: 202–482–5665; email:
The meeting will be disabled-accessible. Public seating is limited and available on a first-come, first-served basis. Members of the public wishing to attend the meeting must notify Mr. David Kincaid at the contact information below by 5:00 p.m. EDT on Friday, August 23, 2013 in order to pre-register for clearance into the building. Please specify any requests for reasonable accommodation at least five business days in advance of the meeting. Last minute requests will be accepted, but may be impossible to fill.
A limited amount of time will be available for pertinent brief oral comments from members of the public attending the meeting. To accommodate as many speakers as possible, the time for public comments will be limited to two (2) minutes per person, with a total public comment period of 30 minutes. Individuals wishing to reserve speaking time during the meeting must contact Mr. Kincaid and submit a brief statement of the general nature of the comments and the name and address of the proposed participant by 5:00 p.m. EDT on Friday, August 23, 2013. If the number of registrants requesting to make statements is greater than can be reasonably accommodated during the meeting, ITA may conduct a lottery to determine the speakers. Speakers are requested to bring at least 20 copies of their oral comments for distribution to the participants and public at the meeting.
Any member of the public may submit pertinent written comments concerning the CINTAC's affairs at any time before and after the meeting. Comments may be submitted to the Civil Nuclear Trade Advisory Committee, Office of Energy & Environmental Industries, Room 4053, 1401 Constitution Ave, NW., Washington, DC 20230. For consideration during the meeting, and to ensure transmission to the Committee prior to the meeting, comments must be received no later than 5:00 p.m. EDT on Friday, August 23, 2013. Comments received after that date will be distributed to the members but may not be considered at the meeting.
Copies of CINTAC meeting minutes will be available within 90 days of the meeting.
National Oceanic and Atmospheric Administration (NOAA), Commerce.
Notice.
The Department of Commerce, as part of its continuing effort to reduce paperwork and respondent burden, invites the general public and other Federal agencies to take this opportunity to comment on proposed and/or continuing information collections, as required by the Paperwork Reduction Act of 1995.
Written comments must be submitted on or before September 23, 2013.
Direct all written comments to Jennifer Jessup, Departmental Paperwork Clearance Officer, Department of Commerce, Room 6616, 14th and Constitution Avenue NW., Washington, DC 20230 (or via the Internet at
Requests for additional information or copies of the information collection instrument and instructions should be directed to Tahara Dawkins,
This request is for an extension of a current information collection.
NOAA has established requirements for the licensing of private operators of remote-sensing space systems. The information in applications and subsequent reports is needed to ensure compliance with the Land Remote- Sensing Policy Act of 1992 and with the national security and international obligations of the United States. The requirements are contained in 15 CFR Part 960.
Information is submitted via email.
Comments are invited on: (a) Whether the proposed collection of information is necessary for the proper performance of the functions of the agency, including whether the information shall have practical utility; (b) the accuracy of the agency's estimate of the burden (including hours and cost) of the proposed collection of information; (c) ways to enhance the quality, utility, and clarity of the information to be collected; and (d) ways to minimize the burden of the collection of information on respondents, including through the use of automated collection techniques or other forms of information technology.
Comments submitted in response to this notice will be summarized and/or included in the request for OMB approval of this information collection; they also will become a matter of public record.
National Marine Fisheries Service (NMFS), National Oceanic and Atmospheric Administration (NOAA), Commerce.
Notice of Availability of a Draft Environmental Impact Statement; notice of public hearing meetings; request for comments.
NMFS proposes to amend the regulations implementing the Atlantic Large Whale Take Reduction Plan (Plan). The proposed rule revises the management measures for reducing the incidental mortality and serious injury to the North Atlantic right whale (
The public hearings will be held in August and September. For specific dates, times, and locations see
You may submit comments on this document, identified by 130201095–3095–01, by any of the following methods:
•
•
•
•
Kate Swails, NMFS, Northeast Region, 978–282–8481,
Large whale entanglements resulting in serious injuries and mortalities are still occurring; therefore, NMFS believes modifications to the Plan are needed to meet the goals of the Marine Mammal Protection Act (MMPA). Under the MMPA, NMFS is required to reduce the incidental mortality and serious injury to three strategic large whale stocks—the Western Stock of the North Atlantic right whales (
At its 2009 meeting, the Team agreed on a schedule to develop a management approach to reduce the risk of serious injury and mortality due to vertical line. As a result of this schedule NMFS committed to publishing a final rule to address vertical line entanglement by 2014. The approach for the vertical line rule will focus on reducing the risk of vertical line entanglements in high impact areas versus a wide-broad scale management scheme. Using fishing gear survey data and whale sightings per unit effort (SPUE), a model was developed to determine the co-occurrence of fishing gear density and whale density.
The Team's Northeast Subgroup met in November 2010 and the Mid-Atlantic/Southeast Subgroup met in April 2011 to review the model and consider its implications for an overall management strategy to address vertical line entanglements.
The Team agreed NMFS should use the model to consider and develop possible options to address fishery interactions with large whales by reducing the potential for entanglements, minimize adverse effects if entanglements occur, and mitigate the effects of any unavoidable entanglements.
To solicit additional stakeholder involvement, on June 14, 2011, NMFS published a Notice of Intent in the
NMFS designed the proposed alternatives in the DEIS based on comments received during public scoping and using many of the measures submitted by the team in their stakeholder proposals. The alternatives include measures requiring increased traps per trawl, the use of weaker weak links and/or vertical lines of lower breaking strength, and potential time-area closures.
Several of the background documents for the Plan and the take reduction planning process can be downloaded from the Plan Web site at
The dates, times, and locations of the meetings are scheduled as follows:
These meetings are physically accessible to people with disabilities. Request for sign language interpretation or other auxiliary aids should be directed to Kate Swails (978) 282–8481 at least 7 working days prior to the hearing date.
16 U.S.C. 1361
National Marine Fisheries Service (NMFS), National Oceanic and Atmospheric Administration (NOAA), Commerce.
Notice of public meetings.
The Caribbean Fishery Management Council (Council) and its Administrative Committee will hold meetings.
The meetings will be held on August 13–14, 2013. The Council will convene on Tuesday, August 13, 2013 from 9 a.m. to 5 p.m., and the Administrative Committee will meet from 5:15 p.m. to 6 p.m. The Council will reconvene on Wednesday, August 14, 2013, from 8:30 a.m. to 5 p.m.
The meetings will be held at the Hilton Ponce Golf and Casino Resort, 1150 Caribe Avenue, Ponce, Puerto Rico 00716–2015.
Caribbean Fishery Management Council, 270 Muñoz Rivera Avenue, Suite 401, San Juan, Puerto Rico 00918; telephone: (787) 766–5926.
The Council will hold its 147th regular Council Meeting to discuss the items contained in the following agenda:
Public Comment Period (5-minutes presentations)
Public Comment Period (5-minute presentations)
The established times for addressing items on the agenda may be adjusted as necessary to accommodate the timely completion of discussion relevant to the agenda items. To further accommodate discussion and completion of all items on the agenda, the meeting may be extended from, or completed prior to the date established in this notice.
The meetings are open to the public, and will be conducted in English. Fishers and other interested persons are invited to attend and participate with oral or written statements regarding agenda issues.
Although non-emergency issues not contained in this agenda may come before this group for discussion, those issues may not be subjects for formal action during these meetings. Actions will be restricted to those issues specifically identified in this notice, and any issues arising after publication of this notice that require emergency action under section 305(c) of the Magnuson-Stevens Fishery Conservation and Management Act, provided that the public has been notified of the Council's intent to take final action to address the emergency.
These meetings are physically accessible to people with disabilities. For more information or request for sign language interpretation and/other auxiliary aids, please contact Mr. Miguel A. Rolón, Executive Director, Caribbean Fishery Management Council, 270 Muñoz Rivera Avenue, Suite 401, San Juan, Puerto Rico, 00918, telephone (787) 766–5926, at least 5 days prior to the meeting date.
National Marine Fisheries Service (NMFS), National Oceanic and Atmospheric Administration (NOAA), Commerce.
Notice of public meeting.
The Mid-Atlantic Fishery Management Council (Council) and its Research Set-Aside Committee (RSA), and its Ecosystems and Ocean Planning Committee will hold public meetings.
The meetings will be held Tuesday, August 13, 2013 through Thursday, August 15, 2013. See
The meeting will be held at the Double Tree Hilton Wilmington, 4727 Concord Pike, Wilmington, DE telephone: (302) 478–6000.
Christopher M. Moore, Ph.D. Executive Director, Mid-Atlantic Fishery Management Council; telephone: (302) 526–5255.
1 p.m. until 3 p.m.—The RSA Committee will meet.
3 p.m. until 5 p.m.—The Ecosystems and Ocean Planning Committee with Advisors will meet.
5 p.m. until 6 p.m.—The Listening Session will be held.
9 a.m.—The Council will convene.
9 a.m. until 9:15 a.m.—Swearing in of new and reappointed Council members and the election of Council Officers will be held.
9:15 a.m. until 10:30 a.m.—A discussion of the Strategic Plan will be held.
10:30 a.m. until 12 p.m.—The Deep Sea Coral Amendment will be discussed.
1:30 p.m. until 2:30 p.m.—The Omnibus Baseline Amendment will be discussed.
2:30 p.m. until 3 p.m.—Surfclams and Ocean Quahogs will be discussed.
3 p.m. until 4 p.m.—Butterfish research will be discussed from
4 p.m. until 5—The South Atlantic Fishery Management Council (SAFMC) will hold a public hearing.
9 a.m. until 1 p.m.—The Council will hold its regular Business Session to approve the June 2013 minutes, receive Organizational Reports, the New England and South Atlantic Liaison Reports, the Executive Director's Report, the Science Report, Committee Reports, and conduct any continuing and/or new business.
Agenda items by day for the Council's Committees and the Council itself are:
The RSA Committee will develop research recommendations for 2015 and discuss Council policy for future RSA research prioritization and Request for Proposal development. The Ecosystems and Ocean Planning Committee will meet with Advisors to review and approve the Deep Sea Coral alternatives for Public Hearing. The Listening Session will focus on Mid-Atlantic ocean wind power and fisheries.
The Council will swear in new and reappointed Council Members and elect Council Officers. The Council will review public comments and approve the Strategic Plan and discuss development of an implementation plan. The Council will approve alternatives for public hearings for the Deep Sea Coral Amendment. The Council will receive an Omnibus Baseline Amendment update on National Marine Fisheries Service actions on NE vessel replacement restrictions. The Council will discuss possible approaches to update Biological Reference Points and Optimum Yield range for Surfclams and Ocean Quahogs. The Council will hear the results of butterfish and longfin squid bio-economic research from recent Duke and University of Delaware graduate students. The SAFMC will hold a public hearing for the Generic Dealer Amendment, Amendment 5 to Dolphin/Wahoo, Amendment 19 and 20 to the Joint Coastal Migratory Pelagics (CMP), and the Framework to CMP.
The Council will hold its regular Business Session to approve the June 2013 minutes, receive Organizational Reports to include a presentation from the US Coast Guard on Enforceability Precepts for Northeast Regional Fishery Management Councils, the New England and South Atlantic Liaison Reports, the Executive Director's Report, Science Report, Committee Reports, receive and approve SSC nominations, and conduct any continuing and/or new business.
Although non-emergency issues not contained in this agenda may come before this group for discussion, in accordance with the Magnuson-Stevens Fishery Conservation and Management Act (Magnuson-Stevens Act), those issues may not be the subject of formal action during these meetings. Actions will be restricted to those issues specifically identified in this notice and any issues arising after publication of this notice that require emergency action under Section 305(c) of the Magnuson-Stevens Act, provided the public has been notified of the Council's intent to take final action to address the emergency.
These meetings are physically accessible to people with disabilities. Requests for sign language interpretation or other auxiliary aid should be directed to M. Jan Saunders, (302) 526–5251, at least 5 days prior to the meeting date.
National Marine Fisheries Service (NMFS), National Oceanic and Atmospheric Administration (NOAA), Commerce.
Notice; issuance of an incidental harassment authorization.
In accordance with the regulations implementing the Marine Mammal Protection Act (MMPA) as amended, notification is hereby given that we have issued an incidental harassment authorization (IHA) to the U.S. Navy (Navy) to incidentally harass, by Level B harassment only, four species of marine mammals during construction activities associated with a pier replacement project in San Diego Bay, California.
This authorization is effective from September 1, 2013, through August 31, 2014.
A copy of the IHA and related documents may be obtained by visiting the Internet at:
Ben Laws, Office of Protected Resources, NMFS, (301) 427–8401.
Sections 101(a)(5)(A) and (D) of the MMPA (16 U.S.C. 1361
Authorization for incidental takings shall be granted if NMFS finds that the taking will have a negligible impact on the species or stock(s), will not have an unmitigable adverse impact on the availability of the species or stock(s) for subsistence uses (where relevant), and if the permissible methods of taking and requirements pertaining to the mitigation, monitoring and reporting of such takings are set forth. NMFS has defined “negligible impact” in 50 CFR 216.103 as “. . . an impact resulting from the specified activity that cannot be reasonably expected to, and is not reasonably likely to, adversely affect the species or stock through effects on annual rates of recruitment or survival.”
Section 101(a)(5)(D) of the MMPA established an expedited process by which citizens of the U.S. can apply for an authorization to incidentally take small numbers of marine mammals by harassment. Section 101(a)(5)(D) establishes a 45-day time limit for NMFS review of an application followed by a 30-day public notice and comment period on any proposed authorizations for the incidental harassment of marine mammals. Within 45 days of the close of the comment period, NMFS must either issue or deny the authorization. Except with respect to certain activities not pertinent here, the MMPA defines “harassment” as: “any act of pursuit, torment, or annoyance which (i) has the potential to injure a marine mammal or marine mammal stock in the wild [Level A harassment]; or (ii) has the potential to disturb a marine mammal or marine mammal stock in the wild by causing disruption of behavioral patterns, including, but not limited to, migration, breathing, nursing, breeding, feeding, or sheltering [Level B harassment].”
We received an application on September 24, 2012, from the Navy for the taking of marine mammals incidental to pile driving and removal in association with a pier replacement project in San Diego Bay at Naval Base Point Loma in San Diego, CA (NBPL). The Navy submitted a revised version of the application on November 15, 2013, which we deemed adequate and complete, and submitted additional revisions on December 20, 2012, and April 22, 2013. The pier replacement project is a multi-year project; this IHA would cover only the first year of the project, from September 1, 2013, through August 31, 2014. Four species of marine mammals are expected to occur in the vicinity of the project during all or a portion of the project duration: California sea lion (
NBPL provides berthing and support services for Navy submarines and other fleet assets. The existing fuel pier serves as a fuel depot for loading and unloading tankers and Navy underway replenishment vessels that refuel ships at sea (“oilers”), as well as transferring fuel to local replenishment vessels and other small craft operating in San Diego Bay, and is the only active Navy fueling facility in southern California. Portions of the pier are over one hundred years old, while the newer segment was constructed in 1942. The pier as a whole is significantly past its design service life and does not meet current construction standards.
Demolition and construction will occur in two phases to maintain the fueling capabilities of the existing fuel pier while the new pier is being constructed. The total duration of demolition/construction is estimated to be approximately four years (2013–17). During the first year of construction (the specified activity considered under this IHA), approximately 120 piles (including 18-in concrete and 36 to 48-in steel) will be installed and 109 piles will be removed (via multiple methods). All steel piles will be driven with a vibratory hammer for their initial embedment depths and finished with an impact hammer for proofing, as necessary.
For pile driving activities, the Navy used NMFS-promulgated thresholds for assessing project impacts, outlined later in this document. The Navy used a site-specific model for transmission loss and empirically-measured source levels from other 36–72 in diameter pile driving events to estimate potential marine mammal exposures. Predicted exposures are outlined later in this document.
NBPL is located on the peninsula of Point Loma near the mouth and along the northern edge of San Diego Bay (see Figures 1–1 and 1–2 in the Navy's application). The specified activities with the potential to cause harassment of marine mammals within the waterways adjacent to NBPL, under the MMPA, are vibratory and impact pile driving and removal of piles via vibratory driver or pneumatic chipper associated with the pier replacement project and associated projects. The entire project is scheduled to occur from 2013–17; the specified activities for which incidental take is authorized by this IHA will occur for one year from September 1, 2013. Under the terms of a memorandum of understanding between the Navy and the U.S. Fish and Wildlife Service, all noise- and turbidity-producing in-water activities in designated least tern foraging habitat are to be avoided during the period when least terns are present and engaged in nesting and foraging. Therefore, all in-water construction activities will occur during a window from approximately September 15 through April 1. Additional details regarding the specified geographic area and construction plans for the project were described in our
The fuel pier replacement will consist of concurrent demolition of the old pier and construction of the new pier, such that fueling capabilities are maintained, as well as (1) temporary relocation of the Navy Marine Mammal Program (MMP); (2) temporary relocation of the Everingham Brothers San Diego Bay Bait Barge facility; and (3) dredging and sediment disposal. The bait barge facility is being moved during the project because it is a primary attractant of California sea lions to the project area and the relocation may be expected to reduce the number of sea lions exposed to noise levels constituting harassment under the MMPA. Dredging and sediment disposal are not considered to have significant impacts under the MMPA and are not considered as part of the specified activities described herein and in the FR notice. Pier demolition and construction and relocation of the MMP will require impact and vibratory pile driving. See Table 1–1 in the Navy's application for a complete construction phase summary.
For the entire project, approximately 1,500 piles and caissons of various materials will be removed. There are multiple methods for pile removal, including dry pulling, cutting at the mudline, jetting, and vibratory removal. The majority of these methods do not produce significant levels of underwater sound; however, a vibratory hammer or pneumatic chipper may be required for certain piles. For the replacement pier structure, approximately 554 total piles will be installed, including steel and concrete piles of various sizes. For steel piles, vibratory driving is the preferred method of installation and will be used to drive the pile to refusal. The impact hammer may then be used for proofing or until the pile meets structural requirements. The concrete piles will first be jetted, a process wherein pressurized air or water jets are applied at the tip of the pile to loosen the substrate and allow the pile to sink vertically, before being driven the last few feet with the impact hammer. The fiberglass piles do not need to be embedded very deeply into the subsurface so will be impact-driven for the entire length. In all cases, impact driving will be minimized.
Initial pile driving will be conducted as part of an Indicator Pile Program (IPP), designed to validate the length of pile required and the method of installation (vibratory and impact). Approximately twelve steel pipe piles (36- and 48-in diameter, exact mix to be determined later) will be driven in the new pier alignment to verify the driving conditions and establish the final driving lengths prior to fabrication of the final production piles that will be used to construct the new pier. In addition, the IPP will validate the acoustics modeling used by the Navy to estimate incidental take levels. Table 1–4 in the Navy's application summarizes the total piles that would be installed over the life of the project.
The specified activity for the one-year period of this IHA includes pile driving associated with relocation of the MMP, pile driving associated with the IPP and construction of a temporary mooring dolphin, and beginning of construction of the new pier structure. In addition, pile removal associated with demolition of the old structure will begin. These activities are detailed in Table 1. The majority of pile removal will likely not require the use of vibratory extraction and/or pneumatic chipping, and these methods are included here as contingency in the event other methods of extraction are not successful.
The analysis contained herein is based upon the specified work schedule. During the first year of work, approximately 66 non-overlapping days of pile driving are expected to occur in the episodes described in Table 1. Approximately 84 days of demolition work are expected, beginning in March 2014. The majority of these 84 days will involve above-water work or other no-impact methods and will not impact marine mammals; the Navy assumes that approximately one quarter of the days (21 days) might involve methods that could cause disturbance to marine mammals.
An in-depth description of sound sources in general was provided in the FR notice (78 FR 30873; May 23, 2013). Significant sound-producing in-water construction activities associated with the project include impact and vibratory pile driving and vibratory pile removal.
NMFS uses generic sound exposure thresholds to determine when an activity that produces sound might result in impacts to a marine mammal such that a take by harassment might occur. To date, no studies have been conducted that examine impacts to marine mammals from pile driving sounds from which empirical sound thresholds have been established. Current NMFS practice (in relation to the MMPA) regarding exposure of marine mammals to sound is that cetaceans and pinnipeds exposed to sound levels of 180 and 190 dB root mean square (rms; note that all underwater sound levels in this document are referenced to a pressure of 1 µPa) or above, respectively, are considered to have been taken by Level A (i.e., injurious) harassment, while behavioral harassment (Level B) is considered to have occurred when
Pile driving generates underwater noise that can potentially result in disturbance to marine mammals in the project area. Please see the FR notice (78 FR 30873; May 23, 2013) for a detailed description of the calculations and information used to estimate distances to relevant threshold levels. In general, the sound pressure level (SPL) at some distance away from the source (e.g., driven pile) is governed by a measured source level, minus the transmission loss of the energy as it dissipates with distance. Transmission loss—the decrease in acoustic intensity as an acoustic pressure wave propagates out from a source—was modeled specifically for the project site on the basis of historical temperature-salinity data and location-dependent bathymetry. In the model, TL is the same for different sound source levels and is applied to each of the different activities to determine the point at which the applicable thresholds are reached as a function of distance from the source. The model's predictions result in a slightly lower average rate of TL than practical spreading, and hence are conservative. Because the model is specific to the project area around the fuel pier site, practical spreading loss was assumed in modeling sound propagation for pile driving at the relocation site for the Navy Marine Mammal Program facility. The practical spreading model follows a geometric propagation loss based on the distance from the pile, resulting in a 4.5 dB reduction in level for each doubling of distance from the source.
The intensity of pile driving sounds is greatly influenced by factors such as the type of piles, hammers, and the physical environment in which the activity takes place. Literature regarding SPLs recorded from pile driving projects is available for consideration. In order to determine reasonable SPLs and their associated effects on marine mammals that are likely to result from pile driving at NBPL, studies with similar properties to the proposed action were evaluated. Piles to be installed include 36- and 48-in steel pipe piles, 24- and 18-in concrete piles, and 16-in fiberglass-concrete piles. In addition, a vibratory pile driver could be used in the extraction of 16-in steel, 14-, 16- and 24-in concrete, 13-in plastic, and 12-in timber piles. Sound levels associated with vibratory pile removal are assumed to be the same as those during vibratory installation (Reyff, 2007)—which is likely a conservative assumption—and have been taken into consideration in the modeling analysis. Overall, studies which met the following parameters were considered: (1) Pile size and materials: Steel pipe piles (30–72 in diameter); (2) Hammer machinery: Vibratory and impact hammer; and (3) Physical environment: shallow depth (less than 100 ft [30 m]).
Representative data for pile driving SPLs recorded from similar construction activities in recent years, as well as additional assumptions made in determining appropriate proxy values, were presented in the FR notice (78 FR 30873; May 23, 2013). Underwater sound levels from pile driving for this project are therefore assumed to be as follows:
• For 36- and 48-in steel pipes, 195 dB re 1 μPa (rms) at 10 m when driven by impact hammer, 180 dB re 1 μPa (rms) at 10 m when driven by vibratory hammer;
• For 24-in concrete piles driven by impact hammer, 176 dB re 1 μPa (rms) at 10 m; and
• For 16- and 18-in concrete piles driven by impact hammer, 173 dB re 1 μPa (rms) at 10 m.
• For vibratory removal of steel piles, 172 dB re 1 µPa (rms) at 10 m; for vibratory removal/pneumatic chipping of non-steel piles, 160 dB re 1 µPa (rms) at 10 m.
Based on these values and the results of site-specific transmission loss modeling, distances to relevant thresholds and associated areas of ensonification are presented in Table 2. Predicted distances to thresholds for different sources are shown in Figures 6–1 through 6–7 of the Navy's application. The areas of ensonification reflect the conventional assumption that topographical features such as shorelines act as a barrier to underwater sound. Although it is known that there can be leakage or diffraction around such barriers, it is generally accepted practice to model underwater sound propagation from pile driving as continuing in a straight line past a shoreline projection such as Ballast Point. In contrast, although Zuniga Jetty would likely prevent sound propagation east of the jetty, this effect was not considered. Hence the projection of sound through the mouth of the bay into the open ocean would be truncated along the jetty and narrower in reality than shown. The limits of ensonification due to the project are assumed to be essentially the same for different pile sizes subject to vibratory installation or removal.
Pile driving can generate airborne sound that could potentially result in disturbance to marine mammals (specifically, pinnipeds) which are hauled out or at the water's surface. As a result, the Navy analyzed the potential for pinnipeds hauled out or swimming at the surface near NBPL to be exposed to airborne SPLs that could result in Level B behavioral harassment. A spherical spreading loss model (i.e., 6 dB reduction in sound level for each doubling of distance from the source), in which there is a perfectly unobstructed (free-field) environment not limited by depth or water surface, is appropriate for use with airborne sound and was used to estimate the distance to the airborne thresholds.
As was discussed for underwater sound from pile driving, the intensity of pile driving sounds is greatly influenced by factors such as the type of piles, hammers, and the physical environment in which the activity takes place. In order to determine reasonable airborne SPLs and their associated effects on marine mammals that are likely to result from pile driving at NBPL, studies with similar properties to the Navy's project, as described previously, were evaluated.
Based on in-situ recordings from similar construction activities, the Navy previously considered the maximum airborne sound levels that would result from impact and vibratory pile driving as 118 dB and 96 dB (at 15 m), respectively (Blackwell
We published a notice of receipt of the Navy's application and proposed IHA in the
During Navy surveys of the action area, an average abundance of approximately 63 California sea lions was observed (5.50 sea lions/km
Finally, the Commission points out that this approach produces a density estimate that is reduced by as much as a factor of five, depending on seasonality. For California sea lions, an increase in the currently authorized level of take (994 incidences) by a factor of five would not affect either our small numbers finding or our negligible impact determination. However, we believe the approach to take estimation described here to be appropriate to produce the most accurate estimate.
Soft start is required for the first impact pile driving of each day and, subsequently, after any impact pile driving stoppage of 30 minutes or greater. The purpose of a soft start is to provide a “warning” to animals by
The Commission justifies this recommendation on the basis of the potential for undetected animals to remain in the shutdown zone, and describes various biases (i.e., availability, detection, and perception) on an observer's ability to detect an animal. We do not believe that time is a factor in determining the influence of these biases on the probability of observing an animal in the shutdown zone. That is, an observer is not more likely to detect the presence of an animal at the 15-minute mark of continuous monitoring than after 30 minutes (it is established that soft start is required after any unmonitored period). Therefore, requiring soft start after 15 minutes (i.e., more soft starts) is not likely to result in increased avoidance of injury. Finally, we do not believe that the use of soft start may be expected to appreciably reduce the potential for injury where the probability of detection is high (e.g., small, shallow zones with good environmental conditions). Rather, the primary purpose of soft start under such conditions is to reduce the intensity of potential behavioral reactions to underwater sound in the disturbance zone.
As noted by the Commission, there are multiple reasons why marine mammals may remain in a shutdown zone and yet be undetected by observers. Animals are missed because they are underwater (availability bias) or because they are available to be seen, but are missed by observers (perception and detection biases) (e.g., Marsh and Sinclair, 1989). Negative bias on perception or detection of an available animal may result from environmental conditions, limitations inherent to the observation platform, or observer ability. While missed detections are possible in theory, this would require that an animal would either (a) remain submerged (i.e., be unavailable) for periods of time approaching or exceeding 15 minutes and/or (b) remain undetected while at the surface. We provide further site-specific detail below.
First, environmental conditions in San Diego Bay are typically excellent and, unlike the moving aerial or vessel-based observation platforms for which detectability bias is often a concern, the observers here will be positioned in the most suitable locations to ensure high detectability (randomness of observations is not a concern, as it is for abundance sampling). We believe that the probability of detecting an animal within the 190 dB zone is 100 percent and, even in the larger 180 dB zone, we believe that under similar circumstances the appropriate monitoring strategy will allow detection of marine mammals. Biologists conducting Navy marine mammal surveys in the action area from 2007–12 believe that the detectability of animals within the study area at the time the surveys were conducted approached 100 percent. Regarding availability, the most abundant species, and therefore the species most likely to be present in the mitigation zones, are the California sea lion and bottlenose dolphin.
It is extremely unlikely that a pinniped would remain within approximately 40 m (the radial distance to the shutdown zone for pinnipeds is 36 m) of a construction zone and area of high vessel traffic, in the absence of any known foraging opportunities or other attractant of any significance, for an extended period of time. However, in the event that such an unlikely situation occurred, the possibility that individuals would remain submerged for a period of time exceeding 15 minutes is discountable. Sea lions employ a shallow epipelagic foraging strategy, and numerous studies have reported mean dive times of approximately 2 minutes for California sea lions (e.g., Feldkamp
For bottlenose dolphins, a much greater proportion of time is typically spent submerged. However, dive intervals are also typically much shorter, meaning that surfacing occurs frequently. Mate et al. (1995) report a typical dive duration from another shallow bay (Tampa Bay) of only 25 seconds. Short dive duration coupled with a large average group size—approximately six during Navy surveys—means high availability and increased detectability. Based on the foregoing factors, we have high confidence in the ability of observers to detect marine mammals in the shutdown zones estimated for this project in San Diego Bay.
There are four marine mammal species which are either resident or have known seasonal occurrence in San Diego Bay, including the California sea lion, harbor seal, bottlenose dolphin, and gray whale. In addition, Pacific white-sided and common dolphins (
We have determined that pile driving, as outlined in the project description, has the potential to result in behavioral harassment of marine mammals that may be present in the project vicinity while construction activity is being conducted. Pile driving could potentially harass those pinnipeds that are in the water close to the project site, whether exposed to airborne or underwater sound. The FR notice (78 FR 30873; May 23, 2013) provides a detailed description of marine mammal hearing and of the potential effects of these construction activities on marine mammals.
The specified activities at NBPL will not result in permanent impacts to habitats used directly by marine mammals, such as haul-out sites, but may have potential short-term impacts to food sources such as forage fish. There are no rookeries or major haul-out sites nearby (the bait barges will be relocated from the project area), foraging hotspots, or other ocean bottom structure of significant biological importance to marine mammals that may be present in the marine waters in the vicinity of the project area. Therefore, the main impact issue associated with the specified activity will be temporarily elevated sound levels and the associated direct effects on marine mammals. The most likely impact to marine mammal habitat occurs from pile driving effects on likely marine mammal prey (i.e., fish) near NBPL and minor impacts to the immediate substrate during installation and removal of piles during the pier replacement project. The FR notice (78 FR 30873; May 23, 2013) describes these potential impacts in greater detail.
In order to issue an incidental take authorization (ITA) under section 101(a)(5)(D) of the MMPA, we must set forth the permissible methods of taking pursuant to such activity, and other means of effecting the least practicable impact on such species or stock and its habitat, paying particular attention to rookeries, mating grounds, and areas of similar significance, and on the availability of such species or stock for taking for certain subsistence uses (where relevant).
Proxy source measurements and site-specific modeling of spreading loss (with the exception of the MMP relocation site, where practical spreading loss was assumed) were used to estimate zones of influence (ZOIs; see “Estimated Take by Incidental Harassment”); these values were used to develop mitigation measures for pile driving activities at NBPL. The ZOIs effectively represent the mitigation zones that will be established around each pile to prevent Level A harassment to marine mammals, while providing estimates of the areas within which Level B harassment might occur. In addition to the measures described later in this section, the Navy will employ the following standard mitigation measures:
(a) Conduct briefings between construction supervisors and crews, marine mammal monitoring team, acoustical monitoring team, and Navy staff prior to the start of all pile driving activity, and when new personnel join the work, in order to explain responsibilities, communication procedures, marine mammal monitoring protocol, and operational procedures.
(b) Comply with applicable equipment sound standards and ensure that all construction equipment has sound control devices no less effective than those provided on the original equipment.
(c) For in-water heavy machinery work with the potential to affect marine mammals (other than pile driving), if a marine mammal comes within 10 m, operations shall cease and vessels shall reduce speed to the minimum level required to maintain steerage and safe working conditions. This type of work could include the following activities: (1) movement of the barge to the pile location and (2) removal of the pile from the water column/substrate via a crane (i.e., deadpull). For these activities, monitoring will take place from 15 minutes prior to initiation until the action is complete.
The following measures will apply to the Navy's mitigation through shutdown and disturbance zones:
In order to document observed incidences of harassment, monitors record all marine mammal observations, regardless of location. The observer's location, as well as the location of the pile being driven, is known from a GPS. The location of the animal is estimated as a distance from the observer, which is then compared to the location from the pile. If acoustic monitoring is being conducted for that pile, a received SPL may be estimated, or the received level may be estimated on the basis of past or subsequent acoustic monitoring. It may then be determined whether the animal was exposed to sound levels constituting incidental harassment in post-processing of observational and acoustic data, and a precise accounting of observed incidences of harassment created. Therefore, although the predicted distances to behavioral harassment thresholds are useful for estimating incidental harassment for purposes of authorizing levels of incidental take, actual take may be determined in part through the use of empirical data. That information may then be used to extrapolate observed takes to reach an approximate understanding of actual total takes.
The following additional measures apply to visual monitoring:
(1) Monitoring will be conducted by qualified observers, who will be placed at the best vantage point(s) practicable (as defined in the Navy's Monitoring Plan) to monitor for marine mammals and implement shutdown/delay procedures when applicable by calling for the shutdown to the hammer operator. Qualified observers are trained biologists, with the following minimum qualifications:
• Visual acuity in both eyes (correction is permissible) sufficient for discernment of moving targets at the water's surface with ability to estimate target size and distance; use of binoculars may be necessary to correctly identify the target;
• Advanced education in biological science, wildlife management, mammalogy, or related fields (bachelor's degree or higher is required);
• Experience and ability to conduct field observations and collect data according to assigned protocols (this may include academic experience);
• Experience or training in the field identification of marine mammals, including the identification of behaviors;
• Sufficient training, orientation, or experience with the construction operation to provide for personal safety during observations;
• Writing skills sufficient to prepare a report of observations including but not limited to the number and species of marine mammals observed; dates and times when in-water construction activities were conducted; dates and times when in-water construction activities were suspended to avoid potential incidental injury from construction sound of marine mammals observed within a defined shutdown zone; and marine mammal behavior; and
• Ability to communicate orally, by radio or in person, with project personnel to provide real-time information on marine mammals observed in the area as necessary.
(2) Prior to the start of pile driving activity, the shutdown zone will be monitored for 15 minutes to ensure that it is clear of marine mammals. Pile driving will only commence once observers have declared the shutdown zone clear of marine mammals; animals will be allowed to remain in the shutdown zone (i.e., must leave of their own volition) and their behavior will be monitored and documented. The shutdown zone may only be declared clear, and pile driving started, when the entire shutdown zone is visible (i.e., when not obscured by dark, rain, fog, etc.). In addition, if such conditions should arise during impact pile driving that is already underway, the activity will be halted.
(3) If a marine mammal approaches or enters the shutdown zone during the course of pile driving operations, activity will be halted and delayed until either the animal has voluntarily left and been visually confirmed beyond the shutdown zone or 15 minutes have passed without re-detection of the animal. Monitoring will be conducted throughout the time required to drive a pile.
The Navy has set timing restrictions for pile driving activities to avoid in-water work when least tern populations are most likely to be foraging and nesting. The in-water work window for avoiding negative impacts to terns is September 16–March 31. All pile driving will be conducted only during daylight hours.
The use of a soft-start procedure is believed to provide additional protection to marine mammals by warning or providing a chance to leave the area prior to the hammer operating at full capacity, and typically involves a requirement to initiate sound from vibratory hammers for fifteen seconds at reduced energy followed by a 30-second waiting period. This procedure is repeated two additional times. However, implementation of soft start for vibratory pile driving during previous pile driving work conducted by the Navy at another location has led to equipment failure and serious human safety concerns. Therefore, although vibratory soft start was proposed for implementation in the FR notice (78 FR 30873; May 23, 2013), it is not required as a mitigation measure for this project, as we have determined it not to be practicable. We have further determined this measure unnecessary to providing the means of effecting the least practicable impact on marine mammals and their habitat. For impact driving, soft start will be required, and contractors will provide an initial set of three strikes from the impact hammer at 40 percent energy, followed by a 30-second waiting period, then two subsequent three strike sets.
We have carefully evaluated the applicant's mitigation measures and considered a range of other measures in the context of ensuring that we prescribe the means of effecting the least practicable impact on the affected marine mammal species and stocks and their habitat. Our evaluation of potential measures included consideration of the following factors in relation to one another: (1) the manner in which, and the degree to which, the successful implementation of the measure is expected to minimize adverse impacts to marine mammals; (2) the proven or
Based on our evaluation of the applicant's planned measures, as well as any other potential measures that may be relevant to the specified activity, we have determined that these mitigation measures provide the means of effecting the least practicable impact on marine mammal species or stocks and their habitat, paying particular attention to rookeries, mating grounds, and areas of similar significance.
In order to issue an ITA for an activity, section 101(a)(5)(D) of the MMPA states that we must set forth “requirements pertaining to the monitoring and reporting of such taking”. The MMPA implementing regulations at 50 CFR 216.104 (a)(13) indicate that requests for ITAs must include the suggested means of accomplishing the necessary monitoring and reporting that will result in increased knowledge of the species and of the level of taking or impacts on populations of marine mammals that are expected to be present in the proposed action area. Please see the Navy's Acoustic and Marine Mammal Monitoring Plan for full details of the requirements for monitoring and reporting. We have determined that this monitoring plan, which is summarized here, is sufficient to meet the MMPA's monitoring and reporting requirements.
The primary purpose of acoustic monitoring is to empirically verify modeled injury and behavioral disturbance zones for marine mammals. The Navy will determine actual distances to the 160-, 180-, and 190-dB zones for underwater sound (where applicable) and to the 90- and 100-dB zones for airborne sound. For non-pulsed sound, distances will be determined for attenuation to the greater of either the 120-dB threshold or to the point at which sound becomes indistinguishable from background levels. Acoustic monitoring will be conducted with the following objectives:
(a) Indicator Pile Program (IPP)—Implement a robust in-situ monitoring effort to measure sound pressure levels from different project activities, including impact and vibratory driving of 36- and 48-in piles, and to validate the Navy's site-specific transmission loss modeling effort.
(b) Conduct acoustic monitoring for vibratory pile extraction and for pneumatic chipping, if used.
(c) Continue the Navy's collection of ambient underwater sound measurements in the absence of project activities to develop a rigorous baseline for the San Diego Bay region.
It is assumed that the measured contours will be significantly reduced compared to the conservatively modeled ZOIs. As statistically robust results from acoustic monitoring become available, marine mammal mitigation zones will be revised as necessary to encompass actual ZOIs in subsequent years of the fuel pier replacement project. However, should substantial discrepancies become evident through limited data processing, the Navy will contact NMFS to propose and discuss appropriate changes in monitoring protocols. Acoustic monitoring will be conducted in accordance with the approved Acoustic and Marine Mammal Monitoring Plan developed by the Navy. Notional monitoring locations are shown in Figures 3–1 and 3–2 of the Navy's Plan. Please see that plan, available at
Some details of the methodology include:
• Hydroacoustic monitoring will be conducted for each different type of pile and each different method of installation and removal. Monitoring will occur across a representative range of locations with special attention given to the 120-, 160-, 180-, and 190-dB ZOI contours. The resulting data set will be analyzed to provide a statistically robust characterization of the sound source levels and transmission loss associated with different types of pile driving and removal activities.
• For underwater recordings, hydrophone systems with the ability to measure real time SPLs will be used in accordance with NMFS' most recent guidance for the collection of source levels.
• For airborne recordings, to the extent that logistics and security allow, reference recordings will be collected at approximately 50 ft (15.2 m) from the source via a sound meter with integrated microphone placed on a tripod 5 ft above the ground. Other distances may also be utilized to obtain better data if the signal cannot be isolated clearly due to other sound sources (i.e., barges or generators). If from a distance other than 50 ft, the source data would be converted to the 50-ft distance based on simple spherical spreading.
• Hydrophones will be placed 10 m from the source and within the ZOIs to their predicted eastern and southern limits. An integrated DGPS will record the location of individual acoustic records. A depth sounder or weighted tape measure will be used to determine the depth of the water. The hydrophone will be attached to a weighted line to maintain a constant depth.
• Each hydrophone (underwater) and microphone (airborne) will be calibrated at the beginning of each day of monitoring activity. Pressure and intensity levels will be reported relative to 1 μPa and 1 μPa
• For each monitored location, a hydrophone will be deployed at mid-depth in order to evaluate site specific attenuation and propagation characteristics.
• In order to determine the area encompassed by the relevant isopleths for marine mammals, hydrophones will collect data at various distances from the source to measure attenuation throughout the ZOIs.
• Ambient conditions, both airborne and underwater, will be measured at the same monitoring locations but in the absence of project sound to determine background sound levels. Ambient levels are intended to be recorded over the frequency range from 7 Hz to 20 kHz. Ambient conditions will be recorded for at least one minute every hour of the work day, for at least one week of each month of the period of the IHA.
• Sound levels associated with soft-start techniques will also be measured but will be differentiated from source level measurements.
• Airborne levels will be recorded as unweighted as well as in dBA, and the distance to marine mammal injury and behavioral disturbance thresholds, also referred to as shutdown and buffer zones, would be measured.
• Environmental data will be collected including but not limited to: wind speed and direction, air temperature, humidity, surface water temperature, water depth, wave height, weather conditions and other factors that could contribute to influencing the airborne and underwater sound levels (e.g., aircraft, boats, etc.).
The Navy will collect sighting data and behavioral responses to construction for marine mammal species observed in the region of activity during the period of activity. All observers will be trained in marine mammal identification and behaviors and are required to have no other construction-related tasks while
• MMOs would be located at the best vantage point(s) in order to properly see the entire shutdown zone and as much of the disturbance zone as possible.
• During all observation periods, observers will use binoculars and the naked eye to search continuously for marine mammals.
• If the shutdown zones are obscured by fog or poor lighting conditions, pile driving at that location will not be initiated until that zone is visible. Should such conditions arise while impact driving is underway, the activity will be halted.
• The shutdown and disturbance zones around the pile will be monitored for the presence of marine mammals before, during, and after any pile driving or removal activity.
Individuals implementing the monitoring protocol will assess its effectiveness using an adaptive approach. Monitoring biologists will use their best professional judgment throughout implementation and seek improvements to these methods when deemed appropriate. Any modifications to protocol will be coordinated between NMFS and the Navy.
We require that observers use approved data forms. Among other pieces of information, the Navy will record detailed information about any implementation of shutdowns, including the distance of animals to the pile and description of specific actions that ensued and resulting behavior of the animal, if any. In addition, the Navy will attempt to distinguish between the number of individual animals taken and the number of incidences of take. We require that, at a minimum, the following information be collected on the sighting forms:
• Date and time that monitored activity begins or ends;
• Construction activities occurring during each observation period;
• Weather parameters (e.g., percent cover, visibility);
• Water conditions (e.g., sea state, tide state);
• Species, numbers, and, if possible, sex and age class of marine mammals;
• Description of any observable marine mammal behavior patterns, including bearing and direction of travel, and if possible, the correlation to SPLs;
• Distance from pile driving activities to marine mammals and distance from the marine mammals to the observation point;
• Locations of all marine mammal observations; and
• Other human activity in the area.
In addition, photographs will be taken of any gray whales observed. These photographs will be submitted to NMFS' Southwest Regional Office for comparison with photo-identification catalogs to determine whether the whale is a member of the western North Pacific population.
A draft report must be submitted to NMFS within 45 calendar days of the completion of acoustic measurements and marine mammal monitoring. The report will include marine mammal observations pre-activity, during-activity, and post-activity during pile driving days, and will also provide descriptions of any adverse responses to construction activities by marine mammals and a complete description of all mitigation shutdowns and the results of those actions and a refined take estimate based on the number of marine mammals observed during the course of construction. A final report must be submitted within 30 days following resolution of comments on the draft report. Required contents of the monitoring reports are described in more detail in the Navy's Acoustic and Marine Mammal Monitoring Plan.
The MMPA defines “harassment” as: “any act of pursuit, torment, or annoyance which (i) has the potential to injure a marine mammal or marine mammal stock in the wild [Level A harassment]; or (ii) has the potential to disturb a marine mammal or marine mammal stock in the wild by causing disruption of behavioral patterns, including, but not limited to, migration, breathing, nursing, breeding, feeding, or sheltering [Level B harassment].”
All anticipated takes will be by Level B harassment, involving temporary changes in behavior. The planned mitigation and monitoring measures are expected to minimize the possibility of injurious or lethal takes such that take by Level A harassment, serious injury or mortality is considered discountable. However, it is unlikely that injurious or lethal takes would occur even in the absence of the planned mitigation and monitoring measures.
If a marine mammal responds to a stimulus by changing its behavior (e.g., through relatively minor changes in locomotion direction/speed or vocalization behavior), the response may or may not constitute taking at the individual level, and is unlikely to affect the stock or the species as a whole. However, if a sound source displaces marine mammals from an important feeding or breeding area for a prolonged period, impacts on animals or on the stock or species could potentially be significant (Lusseau and Bejder, 2007; Weilgart, 2007). Given the many uncertainties in predicting the quantity and types of impacts of sound on marine mammals, it is common practice to estimate how many animals are likely to be present within a particular distance of a given activity, or exposed to a particular level of sound. This practice potentially overestimates the numbers of marine mammals taken.
The project area is not believed to be particularly important habitat for marine mammals, nor is it considered an area frequented by marine mammals (with the exception of California sea lions). The occurrence of California sea lions in the project area, and, therefore, the likely incidence of exposure of sea lions to sound levels above relevant thresholds, will be much reduced due to the relocation of the bait barges (i.e., significant California sea lion haul-outs). Therefore, behavioral disturbances that could result from anthropogenic sound associated with these activities are expected to affect only a relatively small number of individual marine mammals, although those effects could be recurring over the life of the project if the same individuals remain in the project vicinity.
The Navy has requested authorization for the potential taking of small numbers of California sea lions, harbor seals, bottlenose dolphins, and gray whales in San Diego Bay that may result from pile driving during construction activities associated with the fuel pier replacement project described previously in this document.
For all species, the best scientific information available was used to construct density estimates or estimate local abundance. Although information exists for regional offshore surveys for marine mammals, it is unlikely that these data would be representative of
The take calculations presented here rely on the best data currently available for marine mammal populations in San Diego Bay. The methodology for estimating take was described in detail in the FR notice (78 FR 30873; May 23, 2013). The ZOI impact area is the estimated range of impact to the sound criteria. The distances (actual) specified in Table 2 were used to calculate ZOI around each pile. The ZOI impact area took into consideration the possible affected area of San Diego Bay with attenuation due to land shadowing from bends in the shoreline. Because of the close proximity of some of the piles to the shore, the ZOIs for each threshold are not necessarily spherical and may be truncated.
While pile driving can occur any day throughout the in-water work window, and the analysis is conducted on a per day basis, only a fraction of that time is actually spent pile driving. The exposure assessment methodology is an estimate of the numbers of individuals exposed to the effects of pile driving activities exceeding NMFS-established thresholds. Of note in these exposure estimates, mitigation methods (i.e., visual monitoring and the use of shutdown zones) were not quantified within the assessment and successful implementation of mitigation is not reflected in exposure estimates. For the reasons noted above, results from this acoustic exposure assessment likely overestimate take estimates to some degree.
In the proposal for this IHA, because the nearest known haul-out location for harbor seals is approximately 250 m from the fuel pier and within the largest airborne ZOI, we did assume that individuals present could be incidentally taken by both underwater and airborne sound on each day. However, we have determined that this is not likely and is inconsistent with our past practice with regard to the potential for incidental taking by airborne sound. Because few harbor seals are likely to be present, and harbor seals readily flush from haul-outs in the presence of harassing stimuli, we believe that any harbor seals present at the haul-out would likely be exposed to potentially harassing levels of underwater sound in addition to the airborne sound. Therefore, our take proposal for harbor seals was an overestimate and double-counted potential incidences of harbor seal take.
The derivation of density or abundance estimates for each species, as well as further description of the rationale for each take estimate, was described in detail in the FR notice (78 FR 30873; May 23, 2013). A summary of the information and assumptions that went into take estimates for each species is provided here. Total take estimates are presented in Table 3.
• California sea lion—For California sea lions, the most common species in northern San Diego Bay and the only species with regular occurrence in the project area, it was determined that the density value derived from site-specific surveys would be most appropriate for use in estimating potential incidences of take. Corrected survey data indicate an average abundance in the project area of 63 individuals; however, an average of 47 animals was observed on or swimming next to the bait barges. Assuming the same proportion of the population continues to congregate at the bait barges when they are relocated, there would be an average of approximately 13 individuals within the ZOI without the bait barges' influence as a sea lion aggregator.
• Bottlenose dolphin—Given the sporadic nature of bottlenose dolphin sightings and their high variability in terms of numbers and locations, the regional density estimate of 0.36/km
• Harbor seal—Harbor seal presence in the project area is assessed on the basis of the only observational data available, the opportunistic observation of several individuals occurring in the vicinity of Pier 122 repeatedly for a period of about a month. We therefore assume that as many as three harbor seals could be incidentally harassed on a daily basis for as much as one month.
• Gray whale—On the basis of limited information, we assume here that 15 exposures of gray whales to sound that could result in harassment might occur. This could result from as many as 15 individuals transiting near the mouth of the Bay, or from one individual entering the Bay and lingering in the project area for 15 days. We limit the time period to 15 days because, although both of these scenarios are unlikely, they would only possibly occur in March. Most sightings of gray whales near or within the Bay have been outside of the in-water work window.
Steel pile installation involves a combination of vibratory and impact hammering. Both are assumed to occur on the same day and, therefore, the estimated number of animals taken is given by the maximum of either type of exposure. Given that the vibratory (120 dB rms) ZOI is larger, all animals considered behaviorally harassed by impact pile driving are also considered to potentially be harassed by vibratory pile driving, whereas animals outside of the ZOI for impact hammering but within the ZOI for vibratory hammering would only be harassed by the latter. For example, for California sea lions the estimate for vibratory pile driving is 700 and the estimate for impact pile driving is 500. Because both events occur on the same day and the vibratory harassment zone subsumes the impact harassment zone, the estimate for vibratory pile driving necessarily includes the 500 incidents of harassment estimated for impact pile driving alone. To provide a more conservative estimate of total harassments, demolition use of vibratory extraction is assumed not to
NMFS has defined “negligible impact” in 50 CFR 216.103 as “. . . an impact resulting from the specified activity that cannot be reasonably expected to, and is not reasonably likely to, adversely affect the species or stock through effects on annual rates of recruitment or survival.” In making a negligible impact determination, NMFS considers a variety of factors, including but not limited to: (1) the number of anticipated mortalities; (2) the number and nature of anticipated injuries; (3) the number, nature, intensity, and duration of Level B harassment; and (4) the context in which the take occurs.
The numbers of animals authorized to be taken for California sea lions, harbor seals, and gray whales would be considered small relative to the relevant stocks or populations (each less than one percent) even if each estimated taking occurred to a new individual—an extremely unlikely scenario. However, for animals occurring in northern San Diego Bay, there will almost certainly be some overlap in individuals present day-to-day and, for harbor seals and gray whales, the estimates are explicitly assumed to represent repeated incidental taking of the same individuals (three harbor seals and one gray whale).
The number of authorized takes for bottlenose dolphins is higher relative to the total stock abundance estimate. However, these numbers represent the estimated incidences of take, not the number of individuals taken. That is, it is likely that a relatively small subset of California coastal bottlenose dolphins would be harassed by project activities. California coastal bottlenose dolphins range from San Francisco Bay to San Diego (and south into Mexico) and the specified activity will be stationary within an enclosed bay that is not recognized as an area of any special significance for coastal bottlenose dolphins (and is therefore not an area of dolphin aggregation, as evident in Navy observational records). We therefore believe that the estimated numbers of takes, were they to occur, likely represent repeated exposures of a much smaller number of bottlenose dolphins and that, based on the limited region of exposure in comparison with the known distribution of the coastal bottlenose dolphin, these estimated incidences of take represent small numbers of bottlenose dolphins.
Pile driving activities associated with the pier replacement project, as outlined previously, have the potential to disturb or displace marine mammals. Specifically, the specified activities may result in take, in the form of Level B harassment (behavioral disturbance) only, from airborne or underwater sounds generated from pile driving. Potential takes could occur if individuals of these species are present in the ensonified zone when pile driving is happening.
No injury, serious injury, or mortality is anticipated given the methods of installation and measures designed to minimize the possibility of injury to marine mammals. The potential for these outcomes is minimized through the construction method and the implementation of the planned mitigation measures. Specifically, vibratory hammers will be the primary method of installation, and this activity does not have significant potential to cause injury to marine mammals due to the relatively low source levels produced (less than 190 dB) and the lack of potentially injurious source characteristics. Impact pile driving produces short, sharp pulses with higher peak levels and much sharper rise time to reach those peaks. When impact driving is necessary, required measures (use of a sound attenuation system, which reduces overall source levels as well as dampening the sharp, potentially injurious peaks, and implementation of shutdown zones) significantly reduce any possibility of injury. Likewise, Level B harassment will be reduced to the level of least practicable adverse impact through the use of mitigation measures described herein that, given sufficient “notice” through mitigation measures including soft start (for impact driving), marine mammals are expected to move away from a sound source that is annoying prior to its becoming potentially injurious, and the likelihood that marine mammal detection ability by trained observers is high under the
Effects on individuals that are taken by Level B harassment, on the basis of reports in the literature as well as monitoring from other similar activities, will likely be limited to reactions such as increased swimming speeds, increased surfacing time, or decreased foraging (if such activity were occurring). Most likely, individuals will simply move away from the sound source and be temporarily displaced from the areas of pile driving, although even this reaction has been observed primarily only in association with impact pile driving. The pile driving activities analyzed here are similar to numerous other construction activities conducted in San Francisco Bay and in the Puget Sound region, which have taken place with no reported injuries or mortality to marine mammals, and no known long-term adverse consequences from behavioral harassment. Repeated exposures of individuals to levels of sound that may cause Level B harassment are unlikely to result in hearing impairment or to significantly disrupt foraging behavior. Thus, even repeated Level B harassment of some small subset of the overall stock is unlikely to result in any significant realized decrease in viability for California coastal bottlenose dolphins, and thus would not result in any adverse impact to the stock as a whole. For pinnipeds, no rookeries are present in the project area, there are no haul-outs other than those provided opportunistically by man-made objects (the primary such haul-out, the bait barges, will be relocated away from the project area), and the project area is not known to provide foraging habitat of any special importance.
In summary, this negligible impact analysis is founded on the following factors: (1) The possibility of injury, serious injury, or mortality may reasonably be considered discountable; (2) the anticipated incidences of Level B harassment consist of, at worst, temporary modifications in behavior; (3) the absence of any major rookeries and only a few isolated and opportunistic haul-out areas near or adjacent to the project site; (4) the absence of any other known areas or features of special significance for foraging or reproduction within the project area; (5) the presumed efficacy of the planned mitigation measures in reducing the effects of the specified activity to the level of least practicable impact. In addition, none of these stocks are listed under the ESA or considered of special status (e.g., depleted or strategic) under the MMPA. California sea lions and harbor seals (in California) are thought to have reached or to be approaching carrying capacity, while gray whales are thought to be increasing. The California coastal stock of bottlenose dolphins remained stable during the most recent period of trend analysis. In combination, we believe that these factors, as well as the available body of evidence from other similar activities, demonstrate that the potential effects of the specified activity will have only short-term effects on individuals. The specified activity is not expected to impact rates of recruitment or survival and will therefore not result in population-level impacts.
The number of marine mammals actually incidentally harassed by the project will depend on the distribution and abundance of marine mammals in the vicinity of the survey activity. However, we find that the number of potential takings authorized (by level B harassment only), which we consider to be a conservative, maximum estimate, is small relative to the relevant regional stock or population numbers, and that the effect of the activity will be mitigated to the level of least practicable impact through implementation of the mitigation and monitoring measures described previously. Based on the analysis contained herein of the likely effects of the specified activity on marine mammals and their habitat, we find that the total taking from the activity will have a negligible impact on the affected species or stocks.
There are no relevant subsistence uses of marine mammals implicated by this action.
The Navy initiated informal consultation under section 7 of the ESA with NMFS' Southwest Regional Office on March 5, 2013. NMFS concluded on May 16, 2013, that the proposed action may affect, but is not likely to adversely affect, western North Pacific gray whales. The Navy has not requested authorization of the incidental take of WNP gray whales and no such authorization is issued. There are no other ESA-listed marine mammals found in the action area. Therefore, no consultation under the ESA is required.
In compliance with the National Environmental Policy Act of 1969 (42 U.S.C. 4321
As a result of these determinations, we have issued an IHA to the Navy to conduct the specified activities in San Diego Bay for one year, from September 1, 2013, through August 31, 2014, provided the previously described mitigation, monitoring, and reporting requirements are incorporated.
Notice.
The Department of Defense has submitted to OMB for clearance, the following proposal for collection of information under the provisions of the Paperwork Reduction Act (44 U.S.C. Chapter 35).
Consideration will be given to all comments received by August 23, 2013.
Written comments and recommendations on the proposed information collection should be sent to Ms. Seehra at the Office of Management and Budget, Desk Officer for DoD, Room 10236, New Executive Office Building, Washington, DC 20503.
You may also submit comments, identified by docket number and title, by the following method:
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Written requests for copies of the information collection proposal should be sent to Ms. Toppings at WHS/ESD Information Management Division, 4800 Mark Center Drive, East Tower, Suite 02G09, Alexandria, VA 22350–3100.
Transition to Veterans Program Office, Office of the Secretary of Defense for Personnel & Readiness, DoD.
Notice.
In compliance with Section 3506(c)(2)(A) of the
Consideration will be given to all comments received by September 23, 2013.
You may submit comments, identified by docket number and title, by any of the following methods:
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To request more information on this proposed information collection or to obtain a copy of the proposal and associated collection instruments, please write to the Center for Naval Analyses, ATTN: Mr. Jeffery Peterson, 4825 Mark Center Drive, Alexandria, VA 22311 or call Mr. Jeffery Peterson (703–824–2774) or Dr. Lauren Malone (703–824–2741).
In order to populate our focus groups, we will work with veteran organizations, such as the Veterans of Foreign Wars, American Legion, and Student Veterans of America in the metro-DC area, to find participants for our groups. We will ask the organizations to help us gather groups of veterans who are less than two years removed from active duty and who volunteer to participate.
Upon arrival, we will ask the focus group participants to fill out a voluntary intake information sheet that asks for age, gender, race, education level, marital status, number of children, service affiliation, officer vs. enlisted, rank, and length of time since last active duty. At no point will participants be asked to provide their names or any other individual-level information other than what is listed here. The demographic information will only be used to show how our focus group samples compare to the overall demographics of recently transitioned veterans, and will not be linked to any participants' replies. This is essential for determining the comparability of our findings. If, for example, our focus groups were to consist largely of females, we would find it important to caveat the implications of our findings to the overall military, which is largely male. In addition, the new TAP program, Transition GPS, has a goal of
We will audio tape these discussions so that transcription can occur after the discussions have been conducted. We will be certain that any introductions are made prior to the tape recorder being turned on, should the focus group members want to introduce themselves. Discussion topics will include:
.Office of Postsecondary Education (OPE), Department of Education (ED).
Notice.
In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. chapter 3501
Interested persons are invited to submit comments on or before September 23, 2013.
Comments submitted in response to this notice should be submitted electronically through the Federal eRulemaking Portal at
Electronically mail
The Department of Education (ED), in accordance with the Paperwork Reduction Act of 1995 (PRA) (44 U.S.C. 3506(c)(2)(A)), provides the general public and Federal agencies with an opportunity to comment on proposed, revised, and continuing collections of information. This helps the Department assess the impact of its information collection requirements and minimize the public's reporting burden. It also helps the public understand the Department's information collection requirements and provide the requested data in the desired format. ED is soliciting comments on the proposed information collection request (ICR) that is described below. The Department of Education is especially interested in public comment addressing the following issues: (1) Is this collection necessary to the proper functions of the Department; (2) will this information be processed and used in a timely manner; (3) is the estimate of burden accurate; (4) how might the Department enhance the quality, utility, and clarity of the information to be collected; and (5) how might the Department minimize the burden of this collection on the respondents, including through the use of information technology. Please note that written comments received in response to this notice will be considered public records.
Department of Education (ED), Institute of Education Sciences/National Center for Education Statistics (IES).
Notice.
In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. chapter 3501
Interested persons are invited to submit comments on or before September 23, 2013.
Comments submitted in response to this notice should be submitted electronically through the Federal eRulemaking Portal at
Electronically mail
The Department of Education (ED), in accordance with the Paperwork Reduction Act of 1995 (PRA) (44 U.S.C. 3506(c)(2)(A)), provides the general public and Federal agencies with an opportunity to comment on proposed, revised, and continuing collections of information. This helps the Department assess the impact of its information collection requirements and minimize the public's reporting burden. It also helps the public understand the Department's information collection requirements and provide the requested data in the desired format. ED is soliciting comments on the proposed information collection request (ICR) that is described below. The Department of Education is especially interested in public comment addressing the following issues: (1) Is this collection necessary to the proper functions of the Department; (2) will this information be processed and used in a timely manner; (3) is the estimate of burden accurate; (4) how might the Department enhance the quality, utility, and clarity of the information to be collected; and (5) how might the Department minimize the burden of this collection on the respondents, including through the use of information technology. Please note that written comments received in response to this notice will be considered public records.
Office of Elementary and Secondary Education (OESE), Department of Education (ED).
Notice.
In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. chapter 3501
Interested persons are invited to submit comments on or before August 23, 2013.
Comments submitted in response to this notice should be submitted electronically through the Federal eRulemaking Portal at
Electronically mail
The Department of Education (ED), in accordance with the Paperwork Reduction Act of 1995 (PRA) (44 U.S.C. 3506(c)(2)(A)), provides the general public and Federal agencies with an opportunity to comment on proposed, revised, and continuing collections of information. This helps the Department assess the impact of its information collection requirements and minimize the public's reporting burden. It also helps the public understand the Department's information collection requirements and provide the requested data in the desired format. ED is soliciting comments on the proposed information collection request (ICR) that is described below. The Department of Education is especially interested in public comment addressing the following issues: (1) Is this collection necessary to the proper functions of the Department; (2) will this information be processed and used in a timely manner; (3) is the estimate of burden accurate; (4) how might the Department enhance the quality, utility, and clarity of the information to be collected; and (5) how might the Department minimize the burden of this collection on the respondents, including through the use of information technology. Please note that written comments received in response to this notice will be considered public records.
Take notice that the following hydroelectric application has been filed with the Commission and is available for public inspection:
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All documents may be filed electronically via the Internet. See, 18 CFR 385.2001(a)(1)(iii) and the instructions on the Commission's Web site at
The Commission's Rules of Practice and Procedure require all intervenors filing documents with the Commission to serve a copy of that document on each person whose name appears on the official service list for the project. Further, if an intervenor files comments or documents with the Commission relating to the merits of an issue that may affect the responsibilities of a particular resource agency, they must also serve a copy of the document on that resource agency.
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m. Individuals desiring to be included on the Commission's mailing list should so indicate by writing to the Secretary of the Commission.
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Take notice that the Commission received the following electric corporate filings:
Description: Supplement adding MidAmerican Energy Holdings
Take notice that the Commission received the following electric rate filings:
Description: Rocky Ridge Wind Project, LLC submits tariff filing per 35: Rocky Ridge Wind Project MBR Tariff Amendment to be effective 9/15/2013.
Description: Southwest Power Pool, Inc. submits tariff filing per 35.13(a)(2)(iii: Attachment T Revisions—Balanced Portfolio Reallocation to be effective 9/30/2013.
The filings are accessible in the Commission's eLibrary system by clicking on the links or querying the docket number.
Any person desiring to intervene or protest in any of the above proceedings must file in accordance with Rules 211 and 214 of the Commission's Regulations (18 CFR 385.211 and 385.214) on or before 5:00 p.m. Eastern time on the specified comment date. Protests may be considered, but intervention is necessary to become a party to the proceeding.
eFiling is encouraged. More detailed information relating to filing requirements, interventions, protests, service, and qualifying facilities filings can be found at:
Take notice that the Commission received the following electric rate filings:
The filings are accessible in the Commission's eLibrary system by clicking on the links or querying the docket number.
Any person desiring to intervene or protest in any of the above proceedings must file in accordance with Rules 211 and 214 of the Commission's Regulations (18 CFR 385.211 and 385.214) on or before 5:00 p.m. Eastern time on the specified comment date. Protests may be considered, but intervention is necessary to become a party to the proceeding.
eFiling is encouraged. More detailed information relating to filing requirements, interventions, protests, service, and qualifying facilities filings can be found at:
Take notice that on July 17, 2013, pursuant to sections 4 and 5 of the Natural Gas Act, 15 U.S.C. 717c and 717d, and Rule 206 of the Rules of Practice and Procedures of the Federal Energy Regulatory Commission (Commission), 18 CFR 385.206, Chesapeake Energy Marketing, Inc. (CEMI or Complainant), filed a complaint against Midcontinent Express Pipeline LLC (MEP or Respondent), alleging that (1) the interpretation and application of the existing language of MEP's FERC Gas tariff is incorrect, unjust, and unreasonable, and (2) request the Commission to require MEP to provide CEMI with the reservation charge credits, as more fully described in the complaint.
The Complainant certify that copies of the complaint were served on the contacts for the Respondent as listed on the Commission's list of Corporate Officials and on parties of the regulatory agencies the Complainants reasonably expect to be affected by this complaint.
Any person desiring to intervene or to protest this filing must file in accordance with Rules 211 and 214 of the Commission's Rules of Practice and Procedure (18 CFR 385.211, 385.214). Protests will be considered by the Commission in determining the appropriate action to be taken, but will not serve to make protestants parties to the proceeding. Any person wishing to become a party must file a notice of intervention or motion to intervene, as appropriate. The Respondent's answer and all interventions, or protests must be filed on or before the comment date. The Respondent's answer, motions to intervene, and protests must be served on the Complainants.
The Commission encourages electronic submission of protests and interventions in lieu of paper using the “eFiling” link at
This filing is accessible on-line at
Take notice that on July 12, 2013, the North American Electric Reliability Corporation (NERC), pursuant to Order No. 777
Any person desiring to intervene or to protest this filing must file in accordance with Rules 211 and 214 of the Commission's Rules of Practice and Procedure (18 CFR 385.211, 385.214). Protests will be considered by the Commission in determining the appropriate action to be taken, but will not serve to make protestants parties to the proceeding. Any person wishing to become a party must file a notice of intervention or motion to intervene, as appropriate. Such notices, motions, or protests must be filed on or before the comment date. Anyone filing a motion to intervene or protest must serve a copy of that document on the Applicant and all the parties in this proceeding.
The Commission encourages electronic submission of protests and interventions in lieu of paper using the “eFiling” link at h
This filing is accessible on-line at
This is a supplemental notice in the above-referenced proceeding, of Guttman Energy Inc.'s application for market-based rate authority, with an accompanying rate schedule, noting that such application includes a request for blanket authorization, under 18 CFR Part 34, of future issuances of securities and assumptions of liability.
Any person desiring to intervene or to protest should file with the Federal Energy Regulatory Commission, 888 First Street NE., Washington, DC 20426, in accordance with Rules 211 and 214 of the Commission's Rules of Practice and Procedure (18 CFR 385.211 and 385.214). Anyone filing a motion to intervene or protest must serve a copy of that document on the Applicant.
Notice is hereby given that the deadline for filing protests with regard to the applicant's request for blanket authorization, under 18 CFR part 34, of future issuances of securities and assumptions of liability is August 7, 2013.
The Commission encourages electronic submission of protests and interventions in lieu of paper, using the FERC Online links at
Persons unable to file electronically should submit an original and 5 copies of the intervention or protest to the Federal Energy Regulatory Commission, 888 First Street NE., Washington, DC 20426.
The filings in the above-referenced proceeding(s) are accessible in the Commission's eLibrary system by clicking on the appropriate link in the above list. They are also available for review in the Commission's Public Reference Room in Washington, DC. There is an eSubscription link on the Web site that enables subscribers to receive email notification when a document is added to a subscribed docket(s). For assistance with any FERC Online service, please email
On February 1, 2013, the Turnagain Arm Tidal Energy Corporation, filed an application for a preliminary permit, pursuant to section 4(f) of the Federal Power Act (FPA), proposing to study the feasibility of the Turnagain Arm Tidal Electric Generation Project (Turnagain Arm Project or project) to be located on the Turnagain Arm of Cook Inlet and adjacent lands of the Kenai Peninsula Borough and the Municipality of Anchorage, Alaska. The sole purpose of a preliminary permit, if issued, is to grant the permit holder priority to file a license application during the permit term. A preliminary permit does not authorize the permit holder to perform any land-disturbing activities or
The proposed project would consist of the following: (1) An 8-mile-long tidal fence situated between Fire Island near Anchorage and Point Possession in the Kenai Peninsula Borough, and consisting of 24, 10-megawatt (MW) Davis turbines with tidal-to-electrical energy generating units for a total installed capacity of 240 MW; (2) one control building/substation onshore near Anchorage and one near Point Possession; (3) an 18-mile-long, 230-kilovolt (kV) submerged transmission line connecting the tidal fence to the existing Chugach Electric Association substation at Point Woronzof in Anchorage and a new substation at Point Possession; (4) a 28-mile-long, 230-kV aboveground transmission line running parallel to an existing Homer Electric Association (HEA) transmission line corridor and extending from Point Possession to the existing HEA Nikiski substation; and (5) appurtenant facilities. The proposed project would have an estimated average annual generation of 1,271,950 megawatt-hours.
Deadline for filing comments, motions to intervene, competing applications (without notices of intent), or notices of intent to file competing applications: 60 days from the issuance of this notice. Competing applications and notices of intent must meet the requirements of 18 CFR 4.36. Comments, motions to intervene, notices of intent, and competing applications may be filed electronically via the Internet. See 18 CFR 385.2001(a)(1)(iii) and the instructions on the Commission's Web site
More information about this project, including a copy of the application, can be viewed or printed on the “eLibrary” link of Commission's Web site at
Take notice that on July 15, 2013, Duke Energy Kentucky, Inc. filed a petition for rate approval pursuant to Section 284.123(b)(2) of the Commission's regulations for approval of a new rate applicable to interstate natural gas transportation service rendered under its Order No. 63 blanket certificate and to revise its Statement of Operating Conditions, as more fully detailed in the petition.
Any person desiring to participate in this rate filing must file in accordance with Rules 211 and 214 of the Commission's Rules of Practice and Procedure (18 CFR 385.211 and 385.214). Protests will be considered by the Commission in determining the appropriate action to be taken, but will not serve to make protestants parties to the proceeding. Any person wishing to become a party must file a notice of intervention or motion to intervene, as appropriate. Such notices, motions, or protests must be filed on or before the date as indicated below. Anyone filing an intervention or protest must serve a copy of that document on the Applicant. Anyone filing an intervention or protest on or before the intervention or protest date need not serve motions to intervene or protests on persons other than the Applicant.
The Commission encourages electronic submission of protests and interventions in lieu of paper using the “eFiling” link at
This filing is accessible on-line at
Take notice that on July 3, 2013, Stingray Pipeline Company, L.L.C. (Stingray), 1100 Louisiana Street, Houston, Texas 77002, filed in Docket No. CP13–515–000, a prior notice request pursuant to sections 157.205 and 157.216 of the Federal Energy Regulatory Commission's regulations under the Natural Gas Act for authorization to abandon a lateral located in West Cameron Blocks 144, 173, 180, and 181 in the federal waters offshore Louisiana. Specifically, Stingray proposes to abandon, by sale, its 4.55 mile, 16-inch lateral (WC 181 Lateral) to the connected producer, Black Elk Energy Offshore Operations, LLC (Black Elk). Black Elk intends to operate the lateral as part of its non-jurisdictional production facilities, all as more fully set forth in the application which is on file with the Commission and open to public inspection. The filing may also be viewed on the web at
Any questions regarding this Application should be directed to Cynthia Hornstein Roney, Manager, Regulatory Compliance, Stingray Pipeline Company, L.L.C., 1100 Louisiana, Suite 3300, Houston, Texas 77002, or call (832) 214–9334, or by email
Any person may, within 60 days after the issuance of the instant notice by the Commission, file pursuant to Rule 214 of the Commission's Procedural Rules (18 CFR 385.214) a motion to intervene or notice of intervention. Any person filing to intervene or the Commission's staff may, pursuant to section 157.205 of the Commission's Regulations under the NGA (18 CFR 157.205) file a protest to the request. If no protest is filed within the time allowed therefore, the proposed activity shall be deemed to be authorized effective the day after the time allowed for protest. If a protest is filed and not withdrawn within 30 days after the time allowed for filing a protest, the instant request shall be treated as an application for authorization pursuant to section 7 of the NGA.
Pursuant to section 157.9 of the Commission's rules, 18 CFR 157.9, within 90 days of this Notice the Commission staff will either: Complete its environmental assessment (EA) and place it into the Commission's public record (eLibrary) for this proceeding; or issue a Notice of Schedule for Environmental Review. If a Notice of Schedule for Environmental Review is issued, it will indicate, among other milestones, the anticipated date for the Commission staff's issuance of the final environmental impact statement (FEIS) or EA for this proposal. The filing of the EA in the Commission's public record for this proceeding or the issuance of a Notice of Schedule for Environmental Review will serve to notify federal and state agencies of the timing for the completion of all necessary reviews, and the subsequent need to complete all federal authorizations within 90 days of the date of issuance of the Commission staff's FEIS or EA.
Persons who wish to comment only on the environmental review of this project should submit an original and two copies of their comments to the Secretary of the Commission. Environmental commenter's will be placed on the Commission's environmental mailing list, will receive copies of the environmental documents, and will be notified of meetings associated with he Commission's environmental review process. Environmental commenter's will not be required to serve copies of filed documents on all other parties. However, the non-party commentary, will not receive copies of all documents filed by other parties or issued by the Commission (except for the mailing of environmental documents issued by the Commission) and will not have the right to seek court review of the Commission's final order.
The Commission strongly encourages electronic filings of comments, protests, and interventions via the internet in lieu of paper. See 18 CFR 385.2001(a)(1)(iii) and the instructions on the Commission's Web site (
Federal Energy Regulatory Commission, DOE.
Notice.
This document establishes the effective date of the Revised Company Registration Requirements. The Commission issued a Notice in the
Effective on August 5, 2013.
Take notice that beginning on August 5, 2013, the Commission will implement the new company registration format for those filings requiring the use of a Company Identifier (CID) number. The company registration system currently applies only to electronic tariff (eTariff) and Electric Quarterly Report (EQR) filings and does not apply to, or change the procedures relating to, other filings made through the Commission's eFiling system.
After August 5, filings requiring the use of a CID number cannot be made until the filer either has registered using the new format or transitioned its existing company registration to the new format. Companies required to file using CIDs are urged to register or complete the transition process prior to making a filing to avoid the potential for registration problems on the day of the filing.
As explained in the Commission's February 7, 2013 order,
A detailed instruction manual for the new company registration system is posted at
For more information, please contact:
Environmental Protection Agency (EPA).
Notice.
In compliance with the Paperwork Reduction Act (PRA), this document announces that EPA is planning to submit an Information Collection Request (ICR) to the Office of Management and Budget (OMB). The ICR, entitled: “EPA's Design for the Environment (DfE) Logo Redesign Consultations” and identified by EPA ICR No. 2487.01 and OMB Control No. 2070-new, represents a new request. Before submitting the ICR to OMB for review and approval, EPA is soliciting comments on specific aspects of the proposed information collection that is summarized in this document. The ICR and accompanying material are available in the docket for public review and comment.
Comments must be received on or before September 23, 2013.
Submit your comments, identified by docket identification (ID) number EPA–HQ–OPPT–2013–0403, by one of the following methods:
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Pursuant to PRA section 3506(c)(2)(A) (44 U.S.C. 3506(c)(2)(A)), EPA specifically solicits comments and information to enable it to:
1. Evaluate whether the proposed collection of information is necessary for the proper performance of the functions of the Agency, including whether the information will have practical utility.
2. Evaluate the accuracy of the Agency's estimates of the burden of the proposed collection of information, including the validity of the methodology and assumptions used.
3. Enhance the quality, utility, and clarity of the information to be collected.
4. Minimize the burden of the collection of information on those who are to respond, including through the use of appropriate automated electronic, mechanical, or other technological collection techniques or other forms of information technology, e.g., permitting electronic submission of responses. In particular, EPA is requesting comments from very small businesses (those that employ less than 25) on examples of specific additional efforts that EPA could make to reduce the paperwork burden for very small businesses affected by this collection.
DfE's current logo has remained unchanged since the program began in 1992. The current DfE logo is dated and does not adequately convey and enable DfE's objective: To advance chemical-based products that are safer for people and the environment. A redesigned logo and messaging are needed to enhance communications and for the program to reach its potential. It is important for the redesign effort to be informed by consumers, manufacturing partners, retailers, and other key audiences.
To help ensure broad public participation in the redesign process and that EPA receives input from a diverse demographic, the Agency will conduct a number of focus group sessions to obtain feedback on several logo design concepts and associated wording. DfE will also sponsor two surveys, as discussed in Part B of the Supporting Statement, to gauge public awareness and understanding of the logo and its meaning before and after the redesign.
Responses to the collection of information are voluntary. Respondents may claim all or part of a notice confidential. EPA will disclose information that is covered by a claim of confidentiality only to the extent permitted by, and in accordance with, the procedures in TSCA section 14 and 40 CFR part 2.
The ICR, which is available in the docket along with other related materials, provides a detailed explanation of the collection activities and the burden estimate that is only briefly summarized here:
Because this is a new ICR, change in burden is not applicable.
EPA will consider the comments received and amend the ICR as appropriate. The final ICR package will then be submitted to OMB for review and approval pursuant to 5 CFR 1320.12. EPA will issue another
Environmental protection, Reporting and recordkeeping requirements.
Environmental Protection Agency (EPA).
Notice.
EPA has received a specific exemption request from the National Aeronautics and Space Administration (NASA) to use the pesticide ortho-phthalaldehyde (OPA) (CAS No. 643–79–8) to treat the International Space Station internal active thermal control system (IATCS) coolant including the United States (U.S.) Laboratory, the Japanese Experiment Module, the Columbus and Node with a total volume of 829 L with a maximum of 1,974 cm
Comments must be received on or before August 8, 2013.
Submit your comments, identified by docket identification (ID) number EPA–HQ–OPP–2013–0497, by one of the following methods:
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Additional instructions on commenting or visiting the docket, along with more information about dockets generally, is available at
Debra Rate, Registration Division (7505P), Office of Pesticide Programs, Environmental Protection Agency, 1200 Pennsylvania Ave. NW., Washington, DC 20460–0001; telephone number: (703) 306–0309; fax number: (703) 605–0781; email address:
You may be potentially affected by this action if you are an agricultural producer, food manufacturer, or pesticide manufacturer. The following list of North American Industrial Classification System (NAICS) codes is not intended to be exhaustive, but rather provides a guide to help readers determine whether this document applies to them. Potentially affected entities may include:
• Crop production (NAICS code 111).
• Animal production (NAICS code 112).
• Food manufacturing (NAICS code 311).
• Pesticide manufacturing (NAICS code 32532).
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i. Identify the document by docket ID number and other identifying information (subject heading,
ii. Follow directions. The Agency may ask you to respond to specific questions or organize comments by referencing a Code of Federal Regulations (CFR) part or section number.
iii. Explain why you agree or disagree; suggest alternatives and substitute language for your requested changes.
iv. Describe any assumptions and provide any technical information and/or data that you used.
v. If you estimate potential costs or burdens, explain how you arrived at your estimate in sufficient detail to allow for it to be reproduced.
vi. Provide specific examples to illustrate your concerns and suggest alternatives.
vii. Explain your views as clearly as possible, avoiding the use of profanity or personal threats.
viii. Make sure to submit your comments by the comment period deadline identified.
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Under section 18 of the Federal Insecticide, Fungicide, and Rodenticide Act (FIFRA) (7 U.S.C. 136p), at the discretion of the EPA Administrator, a Federal or State agency may be exempted from any provision of FIFRA if the EPA Administrator determines that emergency conditions exist which require the exemption. NASA has requested the EPA Administrator to issue a specific exemption for the use of OPA in the International Space Station IATCS coolant to control aerobic/microaerophilic water bacteria. Information in accordance with 40 CFR part 166 was submitted as part of this request.
As part of this request, the applicant asserts that OPA is the most effective biocide which meets the requisite criteria, including: the need for safe, non-intrusive implementation and operation in a functioning system; the ability to control existing planktonic and biofilm residing micro-organisms; a negligible impact on system-wetted materials of construction; and a negligible reactivity with existing coolant additives. Non-use of OPA in the requested manner would leave NASA's International Space Station without an adequate long-term solution for controlling the micro-organisms in the coolant systems.
The Applicant proposes to make no more than 1 application of OPA/loop in the International Space Station IATCS coolant including the U.S. Laboratory, the Japanese Experiment Module, the Columbus and Node with a total volume not to exceed 829 L with a maximum of 1,974 cm
This notice does not constitute a decision by EPA on the application itself. The regulations governing FIFRA section 18 require publication of a notice of receipt of an application for a specific exemption proposing use of a new chemical (i.e., an active ingredient) which has not been registered by EPA. The notice provides an opportunity for public comment on the application.
The Agency, will review and consider all comments received during the comment period in determining whether to issue the specific exemption requested by the NASA.
Environmental protection, Pesticides and pests.
Export-Import Bank of the United States.
Notice.
This Notice is to inform the public, in accordance with Section 3(c)(10) of the Charter of the Export-Import Bank of the United States (“Ex-Im Bank”), that Ex-Im Bank has received an application for final commitment for a long-term loan or financial guarantee in excess of $100 million (as calculated in accordance with Section 3(c)(10) of the Charter). Comments received within the comment period specified below will be presented to the Ex-Im Bank Board of Directors prior to final action on this transaction.
To support the export of U.S.-manufactured commercial aircraft to Norway.
To be used for medium-haul and long-haul air service between Norway/Sweden and destinations in Asia, United States and other countries.
To the extent that Ex-Im Bank is reasonably aware, the item(s) being exported may be used to produce exports or provide services in competition with the exportation of goods or provision of services by a United States industry.
Obligor: Norwegian Air Shuttle ASA.
Guarantor(s): N/A.
The items being exported are Boeing 787 aircraft.
Comments must be received on or before August 19, 2013 to be assured of consideration before final consideration of the transaction by the Board of Directors of Ex-Im Bank.
Comments may be submitted through Regulations.gov at
Federal Labor Relations Authority.
Notice.
The Federal Labor Relations Authority (FLRA) publishes the names of the persons selected to serve on its SES Performance Review Board (PRB). This notice supersedes all previous notices of the PRB membership.
Upon publication.
Sarah Whittle Spooner, Executive Director, Federal Labor Relations Authority; 1400 K Street NW., Washington, DC 20424–0001; (202) 218–7791.
Section 4314(c) of Title 5, U.S.C. requires each agency to establish, in accordance with regulations prescribed by the Office of Personnel Management, one or more PRBs. The PRB shall review and evaluate the initial appraisal of a senior executive's performance by the supervisor, along with any response by the senior executive, and make recommendations to the final rating authority relative to the performance of the senior executive.
The persons named below have been selected to serve on the FLRA's PRB.
Susan D. McCluskey, Chief Counsel; H. Joseph Schimansky, Executive Director, Federal Service Impasses Panel; James E. Petrucci, Director, Dallas Regional Office; Peter A. Sutton, Acting Deputy General Counsel; Sarah Whittle Spooner, Executive Director.
The Commission hereby gives notice of the filing of the following agreement under the Shipping Act of 1984. Interested parties may submit comments on the agreement to the Secretary, Federal Maritime Commission, Washington, DC 20573, within ten days of the date this notice appears in the
In compliance with the requirement of Section 3506(c)(2)(A) of the Paperwork Reduction Act of 1995 for opportunity for public comment on proposed data collection projects, the Agency for Toxic Substances and Disease Registry (ATSDR) will publish periodic summaries of proposed projects. To request more information on the proposed projects or to obtain a copy of the data collection plans and instruments, call 404–639–7570 or send comments to LeRoy Richardson, 1600 Clifton Road, MS–D74, Atlanta, GA 30333 or send an email to
Comments are invited on: (a) Whether the proposed collection of information is necessary for the proper performance of the functions of the agency, including whether the information shall have practical utility; (b) the accuracy of the agency's estimate of the burden of the proposed collection of information; (c) ways to enhance the quality, utility, and clarity of the information to be collected; and (d) ways to minimize the burden of the collection of information on respondents, including through the use of automated collection techniques or other forms of information technology. Written comments should be received within 60 days of this notice.
Chemical Emergencies Audience Analysis—New—Agency for Toxic Substances and Disease Registry (ATSDR).
The National Center for Environmental Health (NCEH) and the Agency for Toxic Substances and Disease Registry (ATSDR) play a vital role in mitigating chemical-related risks to public health. As part of that role, both agencies are responsible for assessing, minimizing, and monitoring
The Office of Communications is seeking a one-year Office of Management and Budget (OMB)-approval for an initiative to increase the effectiveness of the agencies' communications related to both unintentional and intentional chemical releases. In order to inform the development of messages and materials, the Office of Communications would like to understand the knowledge, attitudes, and behaviors (KAB) of key professional audiences who are involved in the immediate aftermath of chemical emergencies. In consultation with Subject Matter Experts, the Office of Communications prioritized the following professional audiences for this research:
This information collection seeks approval to obtain data using two qualitative data collection methods. The first method includes focus groups to explore the KAB of members of these key professions in a group setting, allowing for dialogue between participants to provide the Office of Communications with in-depth information about this complex topic. Focus groups will take place remotely using Webinar technology, and participants will join the discussion by telephone. Although the Recruitment Screeners vary by respondent type, the same Moderator's Guide will be used for all focus groups. The second part of this information collection will include individual interviews with state-level environmental health professionals and Poison Control Center directors. Individual interviews will allow the agencies to gather in-depth information about state-level response structures and Poison Control Centers. Interviews will take place by telephone. To help ensure that participants have some experience responding to chemical emergencies, participants will be recruited from five states with the highest number of chemical emergencies, and within those states, from the areas where the highest number of incidents have occurred.
There are no costs to respondents other than their time. The total burden hours requested is 138 hours.
In compliance with the requirement of Section 3506(c)(2)(A) of the Paperwork Reduction Act of 1995 for opportunity for public comment on proposed data collection projects, the Centers for Disease Control and Prevention (CDC) will publish periodic summaries of proposed projects. To request more information on the proposed projects or to obtain a copy of the data collection plans and instruments, call 404–639–7570 or send comments to Leroy Richardson, 1600 Clifton Road, MS D–74, Atlanta, GA 30333 or send an email to
Comments are invited on: (a) Whether the proposed collection of information is necessary for the proper performance of the functions of the agency, including whether the information shall have practical utility; (b) the accuracy of the agency's estimate of the burden of the proposed collection of information; (c) ways to enhance the quality, utility, and clarity of the information to be
CDC Work@Health Program: Phase 2 Training and Technical Assistance Evaluation—New—National Center for Chronic Disease Prevention and Health Promotion (NCCDPHP), Centers for Disease Control and Prevention (CDC).
In the United States, chronic diseases such as heart disease, obesity and diabetes are among the leading causes of death and disability. Although chronic diseases are among the most common and costly health problems, they are also among the most preventable. Adopting healthy behaviors—such as eating nutritious foods, being physically active and avoiding tobacco use—can prevent the devastating effects and reduce the rates of these diseases.
Employers are recognizing the role they can play in creating healthy work environments and providing employees with opportunities to make healthy lifestyle choices. To support these efforts, the Centers for Disease Control and Prevention (CDC) plans to offer a comprehensive workplace health program called Work@Health. The Work@Health Program is authorized by the Public Health Service Act and funded through the Prevention and Public Health Fund of the Patient Protection and Affordable Care Act (ACA). The Work@Health curriculum will be based on a problem-solving approach to improving employer knowledge and skills related to effective, science-based workplace health programs, and supporting the adoption of these programs in the workplace. Topics to be covered in the Work@Health curriculum include principles, strategies, and tools for leadership engagement; how to make a business case for workplace health programs; how to assess the needs of organizations and individual employees; how to plan, implement, and evaluate sustainable workplace health programs; and how to partner with community organizations for additional support.
The Work@Health Program will be implemented in two phases. In Phase 1, CDC will conduct an employer needs assessment, develop training models, and conduct pilot training and evaluation with approximately 60 employers and other organizations. In Phase 2, CDC will transition to full-scale program implementation and evaluation involving approximately 540 employers, as well as approximately 60 individuals with training and experience in workplace health who are interested in becoming trained/certified instructors for the Work@Health Program.
CDC will offer training in four models (formats): (1) A “Hands-on” instructor-led workshop model (T1); (2) a self-paced “Online” model (T2); (3) a combination or “Blended” model (T3); and (4) a “Train-the-Trainer” model (T4) designed to prepare qualified individuals to train other employers using the Work@Health curricula. Employers who complete the T1–T3 training will be invited to participate in peer learning networks and receive technical assistance from coaches to support their efforts to implement or enhance their workplace health programs. Technical assistance will also be provided to the individuals who complete the T4 model to help prepare them to provide the Work@Health training to employers.
To be eligible for the T1–T3 trainings, employers must have a minimum of 30 employees, a valid business license, and have been in business for at least one year. In addition, they must offer health insurance to their employees and have at least minimal workplace health program knowledge and experience. Applicants for the T4 training model must have previous knowledge, training and experience with workplace health programs and an interest in becoming instructors for the Work@Health program. They may be referred by employers, health departments, business coalitions, trade associations, or other organizations.
CDC is requesting OMB approval to initiate Phase 2 information collection in December 2013. CDC plans to collect information needed to select the employers who will participate in the T1–T3 trainings and the individuals who will participate in the T4 Train-the-Trainer model; to describe the implementation of the Work@Health program; to obtain reactions to the training and technical assistance from trainees, instructors, and coaches; to assess changes in trainees' knowledge, awareness, behavior and skill level before and after participation in Work@Health; and to evaluate the impact of Work@Health on the adoption of workplace health programs, policies and environmental supports among participating employers. In addition, for one year after the implementation period, CDC will continue to collect information to assess the sustainability of organizational level changes in workplace health programs and policies.
OMB approval is requested for two years for Phase 2 information collection. Information will be used to evaluate the effectiveness of the Work@Health program and to identify the best way(s) to deliver skill-based workplace health training and technical support to employers.
Participation in Work@Health is voluntary and there are no costs to participants other than their time and cost of travel.
The Centers for Disease Control and Prevention (CDC) publishes a list of information collection requests under review by the Office of Management and Budget (OMB) in compliance with the Paperwork Reduction Act (44 U.S.C. Chapter 35). To request a copy of these requests, call the CDC Reports Clearance Officer at (404) 639–7570 or send an email to
CDC Work@Health Program: Phase 1 Needs Assessment and Pilot Training Evaluation—New—National Center for Chronic Disease Prevention and Health Promotion (NCCDPHP), Centers for Disease Control and Prevention (CDC).
The Centers for Disease Control and Prevention (CDC) is establishing the Work@Health Program, a comprehensive workplace health promotion training program, to support employers' efforts to create healthy work environments and provide employees with opportunities to make healthy lifestyle choices. The Work@Health curriculum will be based on a problem-solving approach to improving employer knowledge and skills related to effective, science-based workplace health programs, and supporting the adoption of these programs in the workplace.
The Work@Health Program will train and support small, mid-size, and large employers with three primary goals: (1) Increase understanding of the training needs of employers and the best way to deliver skill-based training to them; (2) Increase employers' level of knowledge and awareness of workplace health program concepts and principles as well as tools and resources to support the design, implementation, and evaluation of effective workplace health strategies and interventions; and (3) Increase the number of science-based workplace health programs, policies, and practices in place at participating employers' worksites and increase the access and opportunities for employees to participate in them.
The Work@Health Program will be implemented in two phases. In Phase 1, CDC will conduct an employer needs assessment, develop training models, and conduct pilot training and evaluation with approximately 60 employers and other organizations. In Phase 2, CDC will transition to full-scale program implementation and evaluation involving approximately 600 employers and other organizations. CDC is requesting OMB approval to initiate Phase 1 information collection in summer 2013.
A one-time Training Needs Assessment Survey will be administered electronically to 200 employers representing small, mid-size, and large businesses from various industry sectors and geographic locales. The needs assessment survey will allow CDC to assess employer preferences with respect to curriculum content, the types of support materials needed by employers and the appropriate level of detail for these materials, and the best approaches for providing technical assistance to employers.
CDC plans to pilot the training with 60 employers in four models (formats), with 15 employers participating in each: (1) A “Hands-on” instructor-led workshop model (T1), (2) a self-paced “Online” model (T2), (3) a combination or “Blended” model (T3), and (4) a “Train-the-Trainer” model (T4) designed to prepare qualified individuals to train employers through the Hands-on, Online, or Blended models. Upon completion of the pilot training, each participant will be asked to complete a 15–20 minute evaluation survey to allow CDC to assess respondent satisfaction with the procedures, methods, content and strategies employed in each Work@Health training model.
Participation in the Work@Health Program needs assessment and pilot training evaluation surveys is voluntary for employers. There are no costs to participants other than their time.
CDC will use the information collected in the needs assessment survey to inform the development of the Work@Health training curriculum and delivery methods. The information collected in the pilot training surveys will be used to assess respondent satisfaction with and suggestions for the procedures, methods, content and strategies employed in each Work@Health training model.
OMB approval is requested for one year. The total estimated annualized burden hours are 117.
In compliance with the requirement of Section 3506(c)(2)(A) of the Paperwork Reduction Act of 1995 for opportunity for public comment on proposed data collection projects, the Centers for Disease Control and Prevention (CDC) will publish periodic summaries of proposed projects. To request more information on the proposed projects or to obtain a copy of the data collection plans and instruments, call 404–639–7570 and send comments to LeRoy Richardson, at CDC 1600 Clifton Road, MS–D74, Atlanta, GA 30333 or send an email to
Comments are invited on: (a) Whether the proposed collection of information is necessary for the proper performance of the functions of the agency, including whether the information shall have practical utility; (b) the accuracy of the agency's estimate of the burden of the proposed collection of information; (c) ways to enhance the quality, utility, and clarity of the information to be collected; and (d) 2 ways to minimize the burden of the collection of information on respondents, including through the use of automated collection techniques or other forms of information technology. Written comments should be received within 60 days of this notice.
ROPS Attributes Identified by Distribution Channel Intermediaries—New—National Institute for Occupational Safety and Health (NIOSH), Centers for Disease Control and Prevention (CDC).
The mission of the National Institute for Occupational Safety and Health (NIOSH) is to promote safety and health at work for all people through research and prevention. The prevention of traumatic injury is within the purview of NIOSH, and elevated incidence and rates of traumatic injury are found in the farming community. High rates of traumatic injury are associated with the use of older tractors that are not equipped with rollover protective structures (ROPS), which have been proven to reduce tractor-rollovers, a leading cause of injury to agricultural workers. To reduce the incidence of traumatic injury among farm workers, NIOSH proposes to administer stated-preference questionnaires designed to assess preference among a group of tractor-parts dealers in Pennsylvania, New York, New Hampshire and Vermont, who have membership in the Northeast Equipment Dealers' Association (NEDA). NEDA is a trade group for tractor parts dealers and is active in 12 States in the Northeast and Mid-Atlantic States. This information will be used to assess the impediments and barriers to adoption, as well as the incentives, for the distribution and sale of ROPS.
ROPS are generally provided to end users by tractor parts dealers, who constitute distribution channel intermediaries between the manufacturer and the consumer. However, little is known about the decision processes that tractor parts dealers follow in deciding whether or not to provide ROPS to end users. The current project will generate ranking scores for the importance given to various items of concern to tractor parts dealers; these most-important items were previously developed through review of relevant research studies.
CDC proposes to collect customized information, from 520 NEDA establishments, over a one-month period. This information will be of three kinds: 1. General screening information as to the appropriateness of administering a survey to the respondent organization; 2. Limited respondent perception of the demographic characteristics on the client base served by the NEDA establishment, and 3. Importance ranking of attributes of the process of providing ROPS, or the ROPS configuration itself.
This information will allow CDC to compile a systematic, quantifiable inventory of preference data for a group that is considered representative of tractor parts dealers nationwide. It will also allow CDC to develop recommendations for overcoming the barriers that have compromised the effectiveness of occupational health and safety programs.
The total estimated burden for the one-time retrospective data collection is 39 hours which is based on a reduced response rate of 90% (468 respondents), as indicated in the table below. The average burden per response is 5 minutes. There are no costs to respondents other than their time.
The Centers for Disease Control and Prevention (CDC) publishes a list of information collection requests under review by the Office of Management and Budget (OMB) in compliance with the Paperwork Reduction Act (44 U.S.C. Chapter 35). To request a copy of these requests, call (404) 639–7570 or send an email to
Study to Explore Educational Children's Book in Pediatric Offices—NEW—National Center on Birth Defects and Developmental Disabilities (NCBDDD), Centers for Disease Control and Prevention (CDC).
Using a children's picture book format, CDC developed
Preliminary data gathered from a web survey of RoR clinic staff indicates that clinic staff are not only receptive to but supportive of the
To this end, CDC will identify and recruit three ROR pediatric practices and three non-ROR practices in the greater Atlanta, Georgia and greater Washington, DC areas to distribute copies of
Data will be gathered through a web survey of 900 parents/guardians who have received a copy of the
CDC will also conduct six follow-up focus groups with survey respondents to gather more in-depth information from parents about their experiences reading the Amazing Me book at home with their children and assessing their child's development using the book. We estimate that we will screen 60 parents/guardians to recruit 54 participants for the focus groups. These six focus groups will be conducted in greater Atlanta, Georgia (2) and greater Washington, DC (4).
This request is submitted to obtain OMB clearance for one year. The estimated annualized burden is 229 hours. There are no costs to the respondents other than their time.
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Notice.
The Centers for Medicare & Medicaid Services (CMS) is announcing an opportunity for the public to comment on CMS' intention to collect information from the public. Under the Paperwork Reduction Act of 1995 (PRA), Federal agencies are required to publish notice in the
Comments on the collection(s) of information must be received by the OMB desk officer by August 23, 2013.
When commenting on the proposed information collections, please reference the document identifier or OMB control number. To be assured consideration, comments and recommendations must be received by the OMB desk officer via one of the following transmissions: OMB, Office of Information and Regulatory Affairs, Attention: CMS Desk Officer, Fax Number: (202) 395–6974, or Email:
To obtain copies of a supporting statement and any related forms for the proposed collection(s) summarized in this notice, you may make your request using one of following:
1. Access CMS' Web site address at
2. Email your request, including your address, phone number, OMB number, and CMS document identifier, to
3. Call the Reports Clearance Office at (410) 786–1326.
Reports Clearance Office at (410) 786–1326.
Under the Paperwork Reduction Act of 1995 (PRA) (44 U.S.C. 3501–3520), Federal agencies must obtain approval from the Office of Management and Budget (OMB) for each collection of information they conduct or sponsor. The term “collection of information” is defined in 44 U.S.C. 3502(3) and 5 CFR 1320.3(c) and includes agency requests or requirements that members of the public submit reports, keep records, or provide information to a third party. Section 3506(c)(2)(A) of the PRA (44 U.S.C. 3506(c)(2)(A)) requires Federal agencies to publish a 30-day notice in the
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To encourage responsible and appropriate use of ICDs, we issued a “Decision Memo for Implantable Defibrillators” on January 27, 2005, indicating that ICDs will be covered for primary prevention of sudden cardiac death if the beneficiary is enrolled in either an FDA-approved category B IDE clinical trial (42 CFR 405.201), a trial under the CMS Clinical Trial Policy (NCD Manual § 310.1) or a qualifying prospective data collection system (either a practical clinical trial or prospective systematic data collection, which is sometimes referred to as a registry).
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The U.S. Department of Health and Human Services (HHS) released the Rate Review Grants Cycle I funding opportunity twice—first to states (and the District of Columbia) in June 2010 and then to the territories and the five states that did not apply during the first release, (
On May 8, 2013, CMS published the Cycle III Funding Opportunity Announcement, “Grants to Support States in Health Insurance Rate Review and Pricing Transparency”. On July 12, 2013, the Funding Opportunity Announcement for Cycle III of the Rate Review Grants Program was amended in order to extend the deadline for submission of Letters of Intent. Concurrent with the publication of the Funding Opportunity Announcement for Cycle III, CMS published associated grantee reporting requirements consisting of: (4) quarterly reports, (5) rate review transaction data reports (quarterly and annual), (1) annual report, and (1) final report from all grantees. This information collection is required for effective monitoring of grantees and to fulfill statutory requirements under section 2794(b)(1)(A) of the ACA that requires grantees, as a condition of receiving a grant authorized under section 2794(c) of the ACA, to report to the Secretary information about premium increases.
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We are requesting an extension of this package because this information is needed to assure that PCIP programs are established timely and effectively. This request is being made based on regulations and guidance that have been issued and contracts which have been executed by HHS with states or an entity on their behalf participating in the PCIP program. PCIP is also referred to as the temporary qualified high risk insurance pool program, as it is called in the Affordable Care Act, but we have adopted the term PCIP to better describe the program and avoid confusion with the existing state high risk pool programs.
Food and Drug Administration, HHS.
Notice.
The Food and Drug Administration (FDA) is announcing the availability of a draft guidance for industry entitled “Pre-Launch Activities Importation Requests (PLAIR).” This draft guidance describes FDA's policy regarding requests for the importation of unapproved finished dosage form drug products by applicants preparing products for market launch based on anticipated approval of a pending new drug application (NDA) or an abbreviated new drug application (ANDA). This draft guidance also applies to biologics licensing applications (BLAs) regulated by the Center for Drug Evaluation and Research. This draft guidance further describes the procedures for making these requests and the criteria that FDA will consider in granting such requests.
Although you can comment on any guidance at any time (see 21 CFR 10.115(g)(5)), to ensure that the Agency considers your comment on this draft guidance before it begins work on the final version of the guidance, submit either electronic or written comments on the draft guidance by September 23, 2013. Submit either electronic or written comments concerning the proposed collection of information by September 23, 2013.
Submit written requests for single copies of the draft guidance to the Division of Drug Information, Center for Drug Evaluation and Research, Food and Drug Administration, 10903 New Hampshire Ave., Bldg. 51, Rm. 2201, Silver Spring, MD 20993–0002. Send one self-addressed adhesive label to assist that office in processing your requests. See the
Submit electronic comments on the draft guidance to
Marybet Lopez, Center for Drug Evaluation and Research, Food and Drug Administration, 10903 New Hampshire Ave., Bldg. 51, Rm. 4286, Silver Spring, MD 20993–0002, 301–796–3110; or Stella Notzon, Office of Regulatory Affairs, Division of Import Operations, Food and Drug Administration, 12420 Parklawn Dr., Rockville, MD 20857, 301–796–6678.
FDA is announcing the availability of a draft guidance for industry entitled “Pre-Launch Activities Importation Requests (PLAIR).” Historically, when applicants sought to import unapproved finished dosage form drug products in preparation for market launch, FDA considered such requests, informally referred to as PLAIRs, on a case-by-case basis. FDA has decided to create a more formal program, and this guidance outlines what information should be submitted to FDA in a PLAIR, when and how a PLAIR can be submitted, and the circumstances under which the Agency intends to grant a PLAIR.
An applicant who has an NDA, ANDA, or a BLA pending that is nearing an FDA application decision can submit a PLAIR request to FDA regarding the importation of the unapproved finished dosage form drug product that is the subject of the application to prepare the product for market launch. If FDA grants the PLAIR request, when the product is then offered for import, FDA intends to detain the unapproved finished dosage form drug product. FDA will, however, regard the PLAIR request to mean that the owner or consignee has requested to recondition the drug, as specified in the PLAIR request FDA has granted. FDA will thus detain the drug for up to 6 months pending a decision on the underlying application. The Agency will release the drug product when and if FDA approves the underlying NDA or ANDA within 6 months and the conditions of the PLAIR are otherwise met.
This draft guidance is being issued consistent with FDA's good guidance practices regulation (21 CFR 10.115). The draft guidance, when finalized, will represent the Agency's current thinking on PLAIRs. It does not create or confer any rights for or on any person and does not operate to bind FDA or the public. An alternative approach may be used if such approach satisfies the requirements of the applicable statutes and regulations.
Under the Paperwork Reduction Act (44 U.S.C. 3501–3520) (the PRA), Federal Agencies must obtain approval from the Office of Management and Budget (OMB) for each collection of information they conduct or sponsor. “Collection of information” is defined in 44 U.S.C. 3502(3) and 5 CFR 1320.3(c) and includes Agency requests or requirements that members of the public submit reports, keep records, or provide information to a third party. Section 3506(c)(2)(A) of the PRA (44 U.S.C. 3506(c)(2)(A)) requires Federal Agencies to provide a 60-day notice in the
With respect to the following collection of information, FDA invites comment on these topics: (1) Whether the proposed collection of information is necessary for the proper performance of FDA's functions, including whether the information will have practical utility; (2) the accuracy of FDA's estimate of the burden of the proposed collection of information, including the validity of the methodology and assumptions used; (3) ways to enhance the quality, utility, and clarity of the information to be collected; and (4) ways to minimize the burden of the collection on respondents, including through the use of automated collection techniques, when appropriate, and other forms of information technology.
FDA requests comments on this information collection:
In accordance with the PRA, prior to publication of any final guidance document, FDA intends to solicit public comment and obtain OMB approval for any additional information collections recommended in this guidance that are new or that would represent material modifications to those previously approved collections of information found in FDA regulations or guidances.
Interested persons may submit either electronic comments regarding this document to
Persons with access to the Internet may obtain the document at either
Food and Drug Administration, HHS.
Notice.
The Food and Drug Administration (FDA) is announcing the availability of a guidance to industry entitled “Providing Submissions in Electronic Format—Postmarket Non-Expedited ICSRs; Technical Questions and Answers.” The guidance provides firms with information on the appropriate electronic file format to use when electronically submitting to FDA postmarket non-expedited individual case safety reports (ICSRs) on adverse drug experiences.
Submit either electronic or written comments on Agency guidances at any time.
Submit written requests for single copies of this guidance to the Division of Drug Information, Center for Drug Evaluation and Research, Food and Drug Administration, 10903 New Hampshire Ave., Bldg. 51, Rm. 2201, Silver Spring, MD 20993–0002, or Office of Communication, Outreach and Development (HFM–40), Center for Biologics Evaluation and Research, Food and Drug Administration, 1401 Rockville Pike, Suite 200N, Rockville, MD 20852–1448. Send one self-addressed adhesive label to assist that office in processing your requests. See the
Submit electronic comments on the guidance to
Jeffrey Trunzo, Center for Drug Evaluation and Research, Food and Drug Administration, 10903 New Hampshire Ave., Bldg. 22, Rm. 4447, Silver Spring, MD 20993–0002, 301–796–2029, email:
FDA is announcing the availability of a guidance entitled “Providing Submissions in Electronic Format—Postmarket Non-Expedited ICSRs; Technical Questions and Answers.” The guidance provides firms with information on the appropriate electronic file format to use when electronically submitting to FDA postmarket non-expedited ICSRs for adverse drug experiences. The guidance explains that firms that had previously submitted non-expedited ICSRs in an electronic format that is not supported by FDA should contact CDER or CBER and resubmit their non-expedited ICSRs in a compatible electronic format.
FDA regulations at §§ 314.80(c)(2) and 600.80(c)(2) (21 CFR 314.80(c)(2) and 600.80(c)(2)) require applicants to submit postmarket periodic safety reports at prescribed intervals. Each periodic safety report must contain a descriptive portion and the non-expedited ICSRs
Non-expedited ICSRs can be submitted on paper or electronically. When submitted electronically, the non-expedited ICSRs should be submitted in XML format. This is because FDA is currently able to process electronic submissions of non-expedited ICSRs only in XML, prepared according to International Conference on Harmonisation (ICH) standards for database-to-database transmission of information.
We have become aware that some firms have submitted non-expedited ICSRs to the electronic Common Technical Document (eCTD) in a portable document file (pdf) format together with the descriptive portion of the periodic safety report.
FDA does not have a systematic method to identify non-expedited ICSRs that are submitted to the eCTD in pdf format together with the descriptive portion of the periodic safety report. In addition, non-expedited ICSRs submitted to the eCTD in pdf format cannot be downloaded into the FAERS database. Lack of access to non-expedited ICSRs in FAERS hinders FDA's ability to monitor product safety and public health. Furthermore, submission in pdf format prevents public access to the non-expedited ICSRs through FAERS.
FDA is issuing this guidance as level 2 guidance consistent with FDA's good guidance practices regulation (21 CFR 10.115). The guidance represents the Agency's current thinking on the submission of non-expedited ICSRs in an electronic format supported by FDA. It does not create or confer any rights for or on any person and does not operate to bind FDA or the public. An alternative approach may be used if such approach satisfies the requirements of the applicable statutes and regulations.
Interested persons may submit either electronic comments regarding this document to
This guidance refers to previously approved collections of information found in FDA regulations that are subject to review by the Office of Management and Budget (OMB) under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501–3520). The collections of information in § 314.80 have been approved under OMB control number 0910–0230. The collections of information in § 600.80 have been approved under OMB control number 0910–0308.
Persons with access to the Internet may obtain the document at either
Food and Drug Administration, HHS.
Notice of conference.
The Food and Drug Administration (FDA) is announcing a conference for representatives of Health Professional Organizations. Topics on the agenda include FDA Updates, an overview of FDA's Network of Experts (public/private partnerships), and a FDA Town Hall. The FDA Town Hall will feature FDA senior executives including Jeffrey Shuren, M.D., J.D., Director of the Center for Devices and Radiological Health; Douglas C. Throckmorton, M.D., Deputy Director for Regulatory Programs of the Center for Drug Evaluation and Research; and Michael R. Taylor, Deputy Commissioner for Foods and Veterinary Medicine.
The aim of the conference is to further the public health mission of the FDA through training, collaboration, and structured discussion between health professional organizations and FDA staff. The Office of Health and Constituent Affairs serves as a liaison between the FDA Centers and the public on matters that involve medical product safety.
Please indicate during your registration a question of greatest interest to you for the FDA Town Hall.
If you need special accommodations due to a disability, please contact Brenda Rose at
Health Resources and Services Administration (HRSA), Department of Health and Human Services (HHS).
Request for Class Deviation for Non-Competitive Extension: Sickle Cell Disease Treatment Demonstration Program (U1E) Awards to Three Currently Funded Grantees.
HRSA currently has nine programs that are funded through competitive grant awards under the Sickle Cell Disease Treatment Demonstration Program. Three of these awards will end on August 31, 2013, prior to the end of the other six awards. HRSA intends to implement a non-competitive extension of the project period for the three grants that will end in 2013. This will allow improved data gathering from each of the grantees in the program, which will be used in a report for Congress that is mandated by the legislation authorizing the grant. In addition, the program will benefit from cost savings realized from having the program completed in a consolidated funding cycle.
Section 712(c) of the American Jobs Creation Act of 2004, Pub. L. 108–357.
Edward Donnell Ivy, M.D., M.P.H, Genetic Services Branch, Division of Services for Children with Special Health Needs, Maternal and Child Health Bureau, Health Resources and Services Administration, 5600 Fishers Lane, Room 18A–19, Rockville, MD 20857; 301.443.9775;
Pursuant to section 10(d) of the Federal Advisory Committee Act, as amended (5 U.S.C. Appendix 2), notice is hereby given of the meeting of the Council of Councils.
The meeting will be held via teleconference and is open to the public as indicated below. Individuals who need special assistance, such as sign language interpretation or other reasonable accommodations, should notify the Contact Person listed below in advance of the meeting.
A portion of the meeting will be closed to the public in accordance with the provisions set forth in sections 552b(c)(4), and 552b(c)(6), Title 5 U.S.C., as amended. The grant applications and the discussions could disclose confidential trade secrets or commercial property such as patentable material, and personal information concerning individuals associated with the grant applications, the disclosure of which would constitute a clearly unwarranted invasion of personal privacy.
Any interested person may file written comments with the committee by forwarding the statement to the Contact Person listed on this notice. The statement should include the name, address, telephone number and when applicable, the business or professional affiliation of the interested person. Information is also available on the Council of Council's home page at
Pursuant to section 10(d) of the Federal Advisory Committee Act, as amended (5 U.S.C. App.), notice is hereby given of the following meeting.
The meeting will be closed to the public in accordance with the provisions set forth in sections 552b(c)(4) and 552b(c)(6), Title 5 U.S.C., as amended. The contract proposals and the discussions could disclose confidential trade secrets or commercial property such as patentable material, and personal information concerning individuals associated with the contract proposals, the disclosure of which would constitute a clearly unwarranted invasion of personal privacy.
This notice is being published less than 15 days prior to the meeting due to the timing limitations imposed by the review and funding cycle.
Notice is hereby given of a change in the meeting of the Center for Scientific Review Special Emphasis Panel, July 22, 2013, 8:00 a.m. to July 23, 2013, 5:00 p.m., National Institutes of Health, 6701 Rockledge Drive, Bethesda, MD, 20892 which was published in the
The meeting will be held on August 7–8 2013 instead of July 22–23 2013 at 8:00 a.m. and will end at 5:00 p.m. The meeting location remains the same. The meeting is closed to the public.
Pursuant to section 10(d) of the Federal Advisory Committee Act, as amended (5 U.S.C. App.), notice is hereby given of the following meeting.
The meeting will be closed to the public in accordance with the provisions set forth in sections 552b(c)(4) and 552b(c)(6), Title 5 U.S.C., as amended. The grant applications and the discussions could disclose confidential trade secrets or commercial property such as patentable material, and personal information concerning individuals associated with the grant applications, the disclosure of which would constitute a clearly unwarranted invasion of personal privacy.
Pursuant to section 10(d) of the Federal Advisory Committee Act, as amended (5 U.S.C. App.), notice is hereby given of the following meeting.
The meeting will be closed to the public in accordance with the provisions set forth in sections 552b(c)(4) and 552b(c)(6), Title 5 U.S.C., as amended. The grant applications and the discussions could disclose confidential trade secrets or commercial property such as patentable material, and personal information concerning individuals associated with the grant applications, the disclosure of which
Pursuant to section 10(a) of the Federal Advisory Committee Act, as amended (5 U.S.C. App.), notice is hereby given of a meeting of the National Cancer Institute Board of Scientific Advisors
The meeting will be held via teleconference and is open to the public. Individuals who need special assistance, such as sign language interpretation or other reasonable accommodations, should notify the Contact Person listed below in advance of the meeting.
Any interested person may file written comments with the committee by forwarding the statement to the Contact Person listed on this notice. The statement should include the name, address, telephone number and when applicable, the business or professional affiliation of the interested person.
In the interest of security, NIH has instituted stringent procedures for entrance onto the NIH campus. All visitor vehicles, including taxicabs, hotel, and airport shuttles will be inspected before being allowed on campus. Visitors will be asked to show one form of identification (for example, a government-issued photo ID, driver's license, or passport) and to state the purpose of their visit.
Information is also available on the Institute's/Center's home page:
Office of the Secretary, DHS.
Notice of
This notice announces the appointment of the members of the Senior Executive Service Performance Review Boards for the Department of Homeland Security. The purpose of the Performance Review Board is to view and make recommendations concerning proposed performance appraisals, ratings, bonuses, pay adjustments, and other appropriate personnel actions for incumbents of Senior Executive Service, Senior Level and Senior Professional positions of the Department.
Elizabeth Haefeli, Office of the Chief Human Capital Officer, telephone (202) 357–8164.
Each federal agency is required to establish one or more performance review boards (PRB) to make recommendations, as necessary, in regard to the performance of senior executives within the agency. 5 U.S.C. 4314(c). This notice announces the appointment of the members of the PRB for the Department of Homeland Security (DHS). The purpose of the PRB is to review and make recommendations concerning proposed performance appraisals, ratings, bonuses, pay adjustments, and other appropriate personnel actions for incumbents of SES positions within DHS.
The Board shall consist of at least three members. In the case of an appraisal of a career appointee, more than half of the members shall consist of career appointees. Composition of the specific PRBs will be determined on an ad hoc basis from among the individuals listed below:
This notice does not constitute a significant regulatory action under section 3(f) of Executive Order 12866. Therefore, DHS has not submitted this notice to the Office of Management and Budget. Further, because this notice is a matter of agency organization, procedure and practice, DHS is not required to follow the rulemaking requirements under the Administrative Procedure Act (5 U.S.C. 553).
Office of the Chief Information Officer, HUD.
Notice.
HUD has submitted the proposed information collection requirement described below to the Office of Management and Budget (OMB) for review, in accordance with the Paperwork Reduction Act. The purpose of this notice is to allow for an additional 30 days of public comment.
Interested persons are invited to submit comments regarding this proposal. Comments should refer to the proposal by name and/or OMB Control Number and should be sent to: HUD Desk Officer, Office of Management and Budget, New Executive Office Building, Washington, DC 20503; fax: 202–395–5806. Email:
Colette Pollard, Reports Management Officer, QDAM, Department of Housing and Urban Development, 451 7th Street SW., Washington, DC 20410; email Colette Pollard at
This notice informs the public that HUD has submitted to OMB a request for approval of the information collection described in Section A. The
This notice is soliciting comments from members of the public and affected parties concerning the collection of information described in Section A on the following:
(1) Whether the proposed collection of information is necessary for the proper performance of the functions of the agency, including whether the information will have practical utility;
(2) The accuracy of the agency's estimate of the burden of the proposed collection of information;
(3) Ways to enhance the quality, utility, and clarity of the information to be collected; and
(4) Ways to minimize the burden of the collection of information on those who are to respond; including through the use of appropriate automated collection techniques or other forms of information technology, e.g., permitting electronic submission of responses.
HUD encourages interested parties to submit comment in response to these questions.
Section 3507 of the Paperwork Reduction Act of 1995, 44 U.S.C. chapter 35.
Office of the Assistant Secretary for Housing—Federal Housing Commissioner, HUD.
Notice.
This notice announces changes in the interest rates to be paid on debentures issued with respect to a loan or mortgage insured by the Federal Housing Administration under the provisions of the National Housing Act (the Act). The interest rate for debentures issued under section 221(g)(4) of the Act during the 6-month period beginning July 1, 2013, is 1
Yong Sun, Department of Housing and Urban Development, 451 Seventh Street SW., Room 5148, Washington, DC 20410–8000; telephone (202) 402–4778 (this is not a toll-free number). Individuals with speech or hearing impairments may access this number through TTY by calling the toll-free Federal Information Relay Service at (800) 877–8339.
Section 224 of the National Housing Act (12 U.S.C. 1715o) provides that debentures issued under the Act with respect to an insured loan or mortgage (except for debentures issued pursuant to section 221(g)(4) of the Act) will bear interest at the rate in effect on the date the commitment to insure the loan or mortgage was issued, or the date the loan or mortgage was endorsed (or initially endorsed if there are two or more endorsements) for insurance, whichever rate is higher. This provision is implemented in HUD's regulations at 24 CFR 203.405, 203.479, 207.259(e)(6), and 220.830. These regulatory provisions state that the applicable rates of interest will be published twice each year as a notice in the
Section 224 further provides that the interest rate on these debentures will be set from time to time by the Secretary of HUD, with the approval of the Secretary of the Treasury, in an amount not in excess of the annual interest rate determined by the Secretary of the Treasury pursuant to a statutory formula based on the average yield of all outstanding marketable Treasury obligations of maturities of 15 or more years.
The Secretary of the Treasury (1) has determined, in accordance with the provisions of section 224, that the statutory maximum interest rate for the period beginning July 1, 2013, is 2
For convenience of reference, HUD is publishing the following chart of debenture interest rates applicable to mortgages committed or endorsed since January 1, 1980:
Section 215 of Division G, Title II of Pub. L. 108–199, enacted January 23, 2004 (HUD's 2004 Appropriations Act) amended section 224 of the Act, to change the debenture interest rate for purposes of calculating certain insurance claim payments made in cash. Therefore, for all claims paid in cash on mortgages insured under section 203 or 234 of the National Housing Act and endorsed for insurance after January 23, 2004, the debenture interest rate will be the monthly average yield, for the month in which the default on the mortgage occurred, on United States Treasury Securities adjusted to a constant maturity of 10 years, as found in Federal Reserve Statistical Release H–15. The Federal Housing Administration has codified this provision in HUD regulations at 24 CFR 203.405(b) and 24 CFR 203.479(b).
Section 221(g)(4) of the Act provides that debentures issued pursuant to that paragraph (with respect to the assignment of an insured mortgage to the Secretary) will bear interest at the “going Federal rate” in effect at the time the debentures are issued. The term “going Federal rate” is defined to mean the interest rate that the Secretary of the Treasury determines, pursuant to a statutory formula based on the average
The Secretary of the Treasury has determined that the interest rate to be borne by debentures issued pursuant to section 221(g)(4) during the 6-month period beginning July 1, 2013, is 1
The subject matter of this notice falls within the categorical exemption from HUD's environmental clearance procedures set forth in 24 CFR 50.19(c)(6). For that reason, no environmental finding has been prepared for this notice.
Sections 211, 221, 224, National Housing Act, 12 U.S.C. 1715b, 1715l, 1715o; Section 7(d), Department of HUD Act, 42 U.S.C. 3535(d).
Office of the Assistant Secretary for Housing—Federal Housing Commissioner, HUD.
Notice of sale of mortgage loans.
This notice announces HUD's intention to sell certain unsubsidized multifamily and healthcare mortgage loans, without Federal Housing Administration (FHA) insurance, in a competitive auction (MHLS 2013–2) on July 31, 2013. This notice also describes generally the bidding process for the sale and certain persons who are ineligible to bid.
A Bidder's Information Package (BIP) will be made available on July 1, 2013. Bids for the loans must be submitted on the bid date of July 31, 2013. HUD anticipates that awards will be made on or before August 5th, 2013. Closings are expected to take place between August 13, 2013 and August 20, 2013.
To become a qualified bidder and receive the BIP, prospective bidders must complete, execute, and submit a Confidentiality Agreement and a Qualification Statement acceptable to HUD. Both documents will be available on the HUD Web site at
J.S. Watkins Realty Partners, LLC, c/o The Debt Exchange, 133 Federal Street, 10th Floor, Boston, MA 02111, Attention: MHLS 2013–2 Sale Coordinator, Fax: 1–978–967–8607.
John Lucey, Deputy Director, Asset Sales Office, Room 3136, U.S. Department of Housing and Urban Development, 451 Seventh Street SW., Washington, DC 20410–8000; telephone 202–708–2625, extension 3927. Hearing- or speech-impaired individuals may call 202–708–4594 (TTY). These are not toll-free numbers.
HUD announces its intention to sell, in MHLS 2013–2, certain unsubsidized multifamily and healthcare mortgage loans (Mortgage Loans) secured by four (4) healthcare properties located in Texas and Florida and six (6) multifamily properties located Texas, Michigan, Florida, North Carolina and Tennessee. The Mortgage Loans are non-performing mortgage loans. The listing of the Mortgage Loans is included in the BIP. The Mortgage Loans will be sold without FHA insurance and with HUD servicing released. HUD will offer qualified bidders an opportunity to bid competitively on the Mortgage Loans.
Qualified bidders may submit bids on all Mortgage Loans or may bid on individual loans. A mortgagor of one or more Mortgage Loans who is a qualified bidder may submit an individual bid on its own Mortgage Loan. Interested mortgagors should review the Qualification Statement to determine whether they may be eligible to qualify to submit bids on one or more pools of Mortgage Loans or on individual loans in MHLS 2013–2.
The BIP describes in detail the procedure for bidding MHLS 2013–2. The BIP also includes a standardized non-negotiable loan sale agreement (Loan Sale Agreement).
As part of its bid, each bidder must submit a minimum deposit of the greater of 10% of the total bid or $100,000. HUD will evaluate the bids submitted and determine the successful bid(s) in its sole and absolute discretion. If a bidder is successful, the bidder's deposit will be non-refundable and will be applied toward the purchase price, with any amount beyond the purchase price being returned to the bidder. Deposits will be returned to unsuccessful bidders. Closings are expected to take place between August 13, 2013 and August 20, 2013.
These are the essential terms of sale. The Loan Sale Agreement, which is included in the BIP, contains additional terms and details. To ensure a competitive bidding process, the terms of the bidding process and the Loan Sale Agreement are not subject to negotiation.
The BIP describes the due diligence process for reviewing loan files in MHLS 2013–2. Qualified bidders will be able to access loan information remotely via a high-speed Internet connection. Further information on performing due diligence review of the Mortgage Loans is provided in the BIP.
HUD reserves the right to add Mortgage Loans to or delete Mortgage Loans from MHLS 2013–2 at any time prior to the Award Date. HUD also reserves the right to reject any and all bids, in whole or in part, without prejudice to HUD's right to include any Mortgage Loans in a later sale. Mortgage Loans will not be withdrawn after the Award Date except as is specifically provided in the Loan Sale Agreement.
This is a sale of unsubsidized mortgage loans, pursuant to Section 204(a) of the Departments of Veterans Affairs and Housing and Urban Development, and Independent Agencies Appropriations Act of 1997, (12 U.S.C. 1715z–11a(a)).
HUD selected a competitive sale as the method to sell the Mortgage Loans. This method of sale optimizes HUD's return on the sale of these Mortgage Loans, affords the greatest opportunity for all qualified bidders to bid on the Mortgage Loans, and provides the quickest and most efficient vehicle for HUD to dispose of the Mortgage Loans. Depending on the bids received from the competitive closed auction of the healthcare notes, HUD reserves the option to conduct a second tier of bidding utilizing an open English auction for these notes. Specific details of the auction process are provided in the BIP.
In order to bid in the sale, a prospective bidder must complete, execute and submit both a Confidentiality Agreement and a Qualification Statement acceptable to HUD. The following individuals and
1. Any employee of HUD, a member of such employee's household, or an entity owned or controlled by any such employee or member of such an employee's household;
2. Any individual or entity that is debarred, suspended, or excluded from doing business with HUD pursuant to Title 24 of the Code of Federal Regulations, Part 24, and Title 2 of the Code of Federal Regulations, Part 24;
3. Any contractor, subcontractor and/or consultant or advisor (including any agent, employee, partner, director, principal or affiliate of any of the foregoing) who performed services for, or on behalf of, HUD in connection with MHLS 2013–2;
4. Any individual who was a principal, partner, director, agent or employee of any entity or individual described in subparagraph 3 above, at any time during which the entity or individual performed services for or on behalf of HUD in connection with MHLS 2013–2;
5. Any individual or entity that uses the services, directly or indirectly, of any person or entity ineligible under subparagraphs 1 through 4 above to assist in preparing any of its bids on the Mortgage Loans;
6. Any individual or entity which employs or uses the services of an employee of HUD (other than in such employee's official capacity) who is involved in MHLS 2013–2;
7. Any affiliate, principal or employee of any person or entity that, within the two-year period prior to July 1, 2013, serviced any of the Mortgage Loans or performed other services for or on behalf of HUD;
8. Any contractor or subcontractor to HUD that otherwise had access to information concerning the Mortgage Loans on behalf of HUD or provided services to any person or entity which, within the two-year period prior to July 1, 2013, had access to information with respect to the Mortgage Loans on behalf of HUD;
9. Any employee, officer, director or any other person that provides or will provide services to the potential bidder with respect to such Mortgage Loans during any warranty period established for the Loan Sale, that serviced any of the Mortgage Loans or performed other services for or on behalf of HUD or within the two-year period prior to July 1, 2013, provided services to any person or entity which serviced, performed services or otherwise had access to information with respect to the Mortgage Loans for or on behalf of HUD;
10. Any mortgagor or operator that failed to submit to HUD on, or before July 15th, 2013 audited financial statements for fiscal years 2010 through 2012 (for such time as the project has been in operation or the prospective bidder served as operator, if less than three (3) years) for a project securing a Mortgage Loan;
11. Any individual or entity, and any Related Party (as such term is defined in the Qualification Statement) of such individual or entity, that is a mortgagor in any of HUD's multifamily and/or healthcare housing programs and that is in default under such mortgage loan or is in violation of any regulatory or business agreements with HUD and fails to cure such default or violation by no later than July 15, 2013.
The Qualification Statement provides further details pertaining to eligibility requirements. Prospective bidders should carefully review the Qualification Statement to determine whether they are eligible to submit bids on the Mortgage Loans in MHLS 2013–2.
HUD reserves the right, in its sole and absolute discretion, to disclose information regarding MHLS 2013–2, including, but not limited to, the identity of any successful bidder and its bid price or bid percentage for any pool of loans or individual loan, upon the closing of the sale of all the Mortgage Loans. Even if HUD elects not to publicly disclose any information relating to MHLS 2013–2, HUD will have the right to disclose any information that HUD is obligated to disclose pursuant to the Freedom of Information Act and all regulations promulgated thereunder.
This notice applies to MHLS 2013–2 and does not establish HUD's policy for the sale of other mortgage loans.
Office of the Chief Information Officer, HUD.
Notice Modification and Termination.
Pursuant to the Privacy Act of 1974 (U.S.C. 552a(e)(4)), as amended, and Office of Management and Budget (OMB), Circular No. A–130, the Department of Housing and Urban Development (HUD), Office of Assets Sales provides notice that it wishes to alter the “Delinquent/Default/Assigned/Temporary Mortgage Assistance Payments Program” system of records publication. Subsequent modifications include a system name change to “Federal Housing Administration Loan Sale File”, the removal and addition of new data disclosure requirements, and refinement to the categories of: “Individuals Covered by the System” and “Records Maintained by the System”. Consequent changes meet the threshold requirements for filing a report with OMB and Congress. All revisions are conducted to reflect the present status of the information contained in this system. This notice supersedes and terminates the “Delinquent/Default/Assigned/Temporary Mortgage Assistance Payments Program” system of records. The record system will continue to be utilized in the marketing of housing assets, to identify qualified potential purchasers, and to solicit bids for assets.
This system supports HUD's FHA Single Family Asset Sales liquidation functions. As such, potential investors will be granted preview rights to sample mortgage records pursuant to an executed agreement. A more detailed description of the purpose of the system is contained in the purpose section of this notice.
Donna Robinson-Staton, Chief Privacy Officer, 451 Seventh Street SW., Washington, DC 20410 (Attention: Capitol View Building, 4th Floor), telephone number: (202) 402–8073. [The
5 U.S.C. 552a; 88 Stat. 1896; 42 U.S.C. 3535(d).
Federal Housing Administration Loan Sale File—Replacement for the Delinquent/Default/Assigned/Temporary Mortgage Assistance Payments Program.
451 Seventh Street SW., Washington, DC 20410. Debt Exchange, Inc., 133 Federal Street, 10th Floor, Boston, MA 02110 will maintain some records on the loan sale program, and NARA for archival purposes.
Mortgagors with HUD/FHA insured single-family mortgages that are delinquent or in default; mortgagors seeking assistance to prevent foreclosures; and mortgagors whose mortgages are held by HUD.
Records in this system consist of the following information which is provided to HUD by mortgage servicing entities that include: Mortgage loan origination information and servicing histories, loss mitigation and payment histories, notices of delinquent mortgages, FHA case numbers, current unpaid principal balance, current scheduled principal and interest payment, current interest rate, day month and year through which the mortgage is paid, date of last payment, amount of last payment, payments in last 12 months, escrow balance, mortgage rate, origination date, original balance, first payment date, maturity date, original term, remaining months to maturity, payment frequency, date of last modification, manner in which title held, subordinate liens and lien priority, original appraised value, original loan to value ratio, borrower credit scores and date of credit report, borrowers' current income, mortgage debt to income ratios, borrower employment status, date foreclosure initiated, borrower bankruptcies, date loan referred for foreclosure, date of complaint or petition for foreclosure, date of foreclosure sales, deeds of trust; and related correspondence. In addition, records in the system will include loan payment performance information and information pertaining to the history of the servicing of the loan, which include the number of default episodes, the length of the between loan origination and the first default episode, and information pertaining to prior loan modifications files.
The authority for maintenance of the system: Sec. 204(g) of the National Housing Act 12 U.S.C. 1710(g).
The Federal Housing Administration (“FHA”) Loan Sale File is used to make financial information available to prospective investors purchasing defaulted FHA-insured loans. The FHA insures mortgages on single-family homes and pays insurance claims to lenders upon the mortgagor's default. After paying an insurance claim submitted by a lender on a defaulted mortgage loan, the FHA must utilize various disposition strategies to reduce claim costs and maximize recoveries to the mortgage insurance funds. One such disposition strategy is the FHA Loan Sale Program, which offers pools of defaulted single-family loan for competitive bid at auction. Investors purchase the loans based on their determination of potential returns following acquisition. In order to maximize recovery to FHA and enable prospective purchasers to calculate pricing, FHA makes due diligence information available to prospective bidders. This information consists of detailed loan-level information, which is reviewed by bidders to evaluate investment potential. The availability of this due diligence information enhances pricing, improves returns, reduces claim costs and maximizes recovery to the FHA insurance funds.
In addition to those disclosures generally permitted under 5 U.S.C. 552a(b) of the Privacy Act. In addition to those disclosures generally permitted under 5 U.S.C. 552a(b) of the Privacy Act, HUD may disclose information contained in this system of records without the consent of the subject individual in accordance with its discretionary disclosures, when such disclosure is compatible with the purpose for which the record was collected providing that approval is obtained from the HUD's system manager, only after satisfactory justification has been provided to the system manager, records may be disclosed. Please refer to HUD discretionary blanket routine uses
(a) To the Internal Revenue Service for the purpose of administering tax reporting requirements.
(b) To General Accounting Office for the purpose of performing audit for investigations, or oversight of operations as authorized by law, but only such information as is necessary and relevant to such audit or oversight function.
(c) To HUD loan sale contractors to assist in the marketing and sale of loans, real estate, or other assets held by the HUD; due diligence information provided by prospective bidders will be granted pursuant to an executed confidentiality agreement.
(d) To prospective purchasers (or any other individual or entities) who have signed an executed confidentiality agreement.
(e) To consumer reporting agencies: Disclosure pursuant to 5 U.S.C. 552a(b)(12). Pursuant to 5 U.S.C. 552a(b)(12), disclosures may be made to a consumer reporting agency as defined in the Fair Reporting Act (15 U.S.C. 1681a(f) or the Federal Claims Collection Act of 1966 31 U.S.C. 3701(a)(3).
In file folders, desks and on computer server, magnetic tapes, drums, and discs, and NARA for archival purposes.
Name; case file number, property address.
Records are maintained in lockable file cabinets; access to automated systems is by passwords and code identification cards access limited to authorized personnel. Access to due diligence information by prospective purchasers is subject to execution of a Confidentiality Agreement including specific requirements for the safeguarding of Personally Identifiable Information.
All electronic due diligence files received and posted by FHA contractors are returned to FHA's Asset Sales Office
Director, Asset Sales Office, Department of Housing and Urban Development, 451 Seventh Street SW., insert room number, Washington, DC 20410.
For information, assistance, or inquiry about the existence of records, contact the Chief Privacy Officer, Department of Housing and Urban Development, 451 Seventh Street SW., Room 4156, Washington, DC 20410. (Attention: Capitol View Building, 4th Floor). Provide verification of your identity by providing two proofs of official identification. Your verification of identity must include your original signature and must be notarized. The Department's rules for providing access to records to the individual concerned appear in 24 CFR Part 16.
The Department's rules for contesting the contents of records and appealing initial denials, by the individual concerned, appear in 24 CFR Part 16. If additional information or assistance is needed, it may be obtained by contacting:
(i) In relation to contesting contents of records, the Privacy Act Officer at the appropriate location.
(ii) In relation to appeals of initial denials, the HUD Departmental Privacy Appeals Officer, Office of General Counsel, Department of Housing and Urban Development, 451 Seventh Street SW., Washington, DC 20410.
The source of records are subject individual; other individuals; current or previous employers; credit bureaus; financial institutions; other corporations or firms; Federal Government agencies; non-federal government (including foreign, state and local) agencies; law enforcement agencies.
None.
Fish and Wildlife Service, Interior.
Notice of availability; request for comments.
We, the U.S. Fish and Wildlife Service, invite the public to comment on the following application for a recovery permit to conduct activities with the purpose of enhancing the survival of an endangered species. The Endangered Species Act of 1973, as amended (Act), prohibits certain activities with endangered species unless a Federal permit allows such activity. The Act also requires that we invite public comment before issuing such permits.
To ensure consideration, please send your written comments by August 23, 2013.
Endangered Species Program Manager, Ecological Services, U.S. Fish and Wildlife Service, Pacific Regional Office, 911 NE 11th Avenue, Portland, OR 97232–4181. Please refer to the permit number for the application when submitting comments.
Colleen Henson, Fish and Wildlife Biologist, at the above address or by telephone (503–231–6131) or fax (503–231–6243).
The Act (16 U.S.C. 1531
A permit granted by us under section 10(a)(1)(A) of the Act authorizes the permittee to conduct activities (including take or interstate commerce) with respect to U.S. endangered or threatened species for scientific purposes or enhancement of propagation or survival. Our regulations implementing section 10(a)(1)(A) of the Act for these permits are found at 50 CFR 17.22 for endangered wildlife species, 50 CFR 17.32 for threatened wildlife species, 50 CFR 17.62 for endangered plant species, and 50 CFR 17.72 for threatened plant species.
We invite local, State, and Federal agencies, and the public to comment on the following application. Please refer to the appropriate permit number for the application when submitting comments.
Documents and other information submitted with this application are available for review by request from the Endangered Species Program Manager at the address listed in the
The applicant requests a permit to take (harass by survey; locate and monitor nests of; capture, band, weigh, and measure; collect blood samples for; attach radio transmitters to; and track) the Mariana crow (
All comments and materials we receive in response to this request will be available for public inspection, by appointment, during normal business hours at the address listed in the
Before including your address, phone number, email address, or other personal identifying information in your comment, you should be aware that your entire comment—including your personal identifying information—may be made publicly available at any time. While you can ask us in your comment to withhold your personal identifying information from public review, we cannot guarantee that we will be able to do so.
We provide this notice under section 10 of the Act (16 U.S.C. 1531
Fish and Wildlife Service, Interior.
Notice of availability; receipt of permit application, draft environmental assessment, proposed habitat conservation plan: request for comments.
We, the U.S. Fish and Wildlife Service (Service), have prepared a draft environmental assessment (EA) under the National Environmental Policy Act of 1969, as amended (NEPA), in response to an application from Southern California Edison (the Applicant) for an incidental take permit (ITP) pursuant to section 10(a)(1)(B) of the Endangered Species Act of 1973, as amended (Act). The application addresses the proposed incidental take (take) of 13 proposed Covered Species within a 3,385-acre Permit Area during a proposed permit term of 30 years. The Applicant has prepared the draft Cross Valley Transmission Line Habitat Conservation Plan (Cross Valley Line HCP) (HCP) to describe and implement a conservation plan that will minimize and mitigate environmental effects associated with the construction, operation, and maintenance of the Cross Valley Loop Transmission Line, an electrical transmission project in central Tulare County, California. We also announce a 45-day public comment period on the permit application, including the draft EA and the proposed HCP. We request data, comments, new information, or suggestions from the public, other concerned governmental agencies, the scientific community, Tribes, industry, or any other interested party.
To ensure consideration, please send your written comments by September 9, 2013.
Please address written comments to Nina Bicknese, Senior Fish and Wildlife Biologist, Sacramento Fish and Wildlife Office, 2800 Cottage Way, W–2605, Sacramento, CA 95825. Alternatively, you may send comments by facsimile to (916) 414–6713.
Mike Thomas, Chief, Conservation Planning Division, or Eric Tattersall, Deputy Assistant Field Supervisor, at the address shown above or at (916) 414–6600 (telephone). If you use a telecommunications device for the deaf, please call the Federal Information Relay Service at (800) 877–8339.
We publish this notice under the National Environmental Policy Act of 1969, as amended (42 U.S.C. 4321–4347
You may obtain copies of the draft EA, the draft HCP, and the permit application from the individuals in
Section 9 of the Act (16 U.S.C. 1531–1544
1. The taking will be incidental;
2. The applicants will, to the maximum extent practicable, minimize and mitigate the impact of such taking;
3. The applicants will develop a proposed HCP and ensure that adequate funding for the HCP will be provided;
4. The taking will not appreciably reduce the likelihood of the survival and recovery of the species in the wild; and
5. The applicants will carry out any other measures that the Service may require as being necessary or appropriate for the purposes of the HCP.
The draft HCP addresses, and the Applicant seeks incidental take authorization for, 13 species, including 10 animal species (4 federally endangered, 3 federally threatened, and 3 unlisted) and 3 plant species (2 federally threatened, 1 unlisted). The proposed permit would provide take authorization for all species identified in the draft HCP as a Covered Species. Take authorized for listed Covered Species would be effective upon permit issuance. Take authorization for currently unlisted Covered Species would become effective concurrent with listing, should the species be listed under the Act during the proposed 30-year Permit Term.
The proposed ITP would include the following nine federally listed species: the threatened vernal pool fairy shrimp (
Implementation of Covered Activities described in the proposed HCP would
Specifically, the Applicant is requesting coverage for incidental take resulting from the following seven categories of construction Covered Activities:
(1) operation and restoration of existing laydown yards;
(2) construction of new dirt access roads;
(3) improvement and repair of existing access roads;
(4) construction of transmission line structures (TSPs and LSTs);
(5) stringing of electrical conductors (electrical wires) and the optical ground wire on the transmission line structures;
(6) installation of Storm Water Pollution Prevention Plan best management practices; and
(7) implementation of avoidance and minimization measures.
In addition, the Applicant is also requesting coverage for incidental take resulting from the following 13 categories of operation and maintenance Covered Activities that will be implemented over the proposed 30-year Permit term:
(1) the aerial inspections of the operational Cross Valley Loop Transmission Line using helicopters or fixed-wing aircraft;
(2) routine transmission line ground patrols;
(3) optical ground wire testing;
(4) minor and major repairs to TSPs and LSTs;
(5) minor and major repairs or replacement of conductors and the optical ground wire;
(6) insulator washing;
(7) replacement of one TSP or one LST structure;
(8) repair/replacement of bird flight diverters;
(9) access road maintenance;
(10) access road drainage-structure maintenance or replacement;
(11) installation of Storm Water Pollution Prevention Plan best management practices during maintenance actions;
(12) tree pruning for vegetation management; and
(13) brush and weed abatement for vegetation management.
The proposed Covered Activities would result in the permanent or temporary disturbance of up to 199 acres of existing landcover within the proposed 3,385-acre Permit Area. The proposed Permit Area comprises natural and anthropomorphic landcover types, including annual grassland, vernal pools, riparian woodland, agricultural fields, orchards, vineyards, irrigated pastures, urban developments, and rural residential developments. Covered Activity impacts to existing landcover types were used as a surrogate to identify maximum potential impacts to species-suitable habitat and the potential take of each Covered Species. The proposed HCP conservation strategy prescribes conditions for implementing each Covered Activity that avoid or minimize potential take of the Covered Species, and identifies compensatory mitigation for species effects that cannot be avoided.
Our proposed permit issuance decision triggers compliance with NEPA, which requires that environmental information be available to public officials and citizens before Federal decisions are made and before Federal actions are taken. We prepared the draft EA to inform the public of the proposed HCP; our proposed permit action; alternatives to that action; the environmental impacts of the alternatives including the proposed action; any adverse environmental effects that cannot be avoided; any irreversible commitments of resources, and to address comments received during early public scoping efforts.
The Service is providing notice of the availability of our draft EA, which evaluates the impacts of the Proposed Action Alternative as well as a No Action Alternative.
We request data, comments, new information, or suggestions from the public, other concerned governmental agencies, the scientific community, Tribes, industry, or any other interested party on this notice. We particularly seek comments on the following:
1. Biological information concerning the species;
2. Relevant data concerning the species;
3. Additional information concerning the range, distribution, population size, and population trends of the species;
4. Current or planned activities in the subject area and their possible impacts on the species;
5. The presence of archeological sites, buildings and structures, historic events, sacred and traditional areas, and other historic preservation concerns, which are required to be considered in project planning by the National Historic Preservation Act; and
6. Identification of any other environmental issues that should be considered with regard to the proposed transmission line and permit action.
You may submit your comments and materials by one of the methods listed above in
Before including your address, phone number, or other personal identifying information in your comment, you should be aware that your entire
We provide this notice pursuant to section 10(c) of the Act and the NEPA public-involvement regulations (40 CFR 1500.1(b), 1500.2(d), and 1506.6).
We will evaluate the permit application, including the Applicant's HCP, and comments we receive to determine whether the application meets the requirements of section 10(a) of the Act. If the requirements are met, we will issue a permit to the Applicant for the incidental take of the 13 Covered Species from the implementation of the Covered Activities described in the Cross Valley Line HCP. We will make the final permit decision no sooner than September 23, 2013.
Fish and Wildlife Service, Interior.
Notice of availability.
We, the U.S. Fish and Wildlife Service, announce the availability of the final environmental impact statement (Final EIS) for experimental removal of barred owls to benefit threatened northern spotted owls. The barred owl, a species recently established in western North America, is displacing the northern spotted owl and threatening its viability. The Final EIS analyzes a no-action alternative and eight action alternatives to experimentally determine if removing barred owls will benefit northern spotted owl populations and to test the feasibility and efficiency of barred owl removal as a management tool. The action alternatives vary by the number and location of study areas, the type of experimental design, duration of study, and method of barred owl removal.
The Final EIS is available at:
• U.S. Fish and Wildlife Service, Oregon Fish and Wildlife Office, 2600 SE 98th Ave., Suite 100, Portland, OR 97266; telephone 503–231–6179.
•
Paul Henson, State Supervisor, Oregon Fish and Wildlife Office, at 503–231–6179. If you use a telecommunications device for the deaf, please call the Federal Information Relay Service at 800–877–8339.
We, the U.S. Fish and Wildlife Service (Service), announce the availability of the Final EIS for experimental removal of barred owls to benefit threatened northern spotted owls. We are publishing this notice in compliance with the National Environmental Policy Act of 1969, as amended (42 U.S.C. 4321
The northern spotted owl (
The Service listed the northern spotted owl as a threatened species under the Act in 1990, based primarily on habitat loss and degradation (55 FR 26114). As a result, conservation efforts for the northern spotted owl have been largely focused on habitat protection. While our listing rule noted that the long-term impact of barred owls on the spotted owl was of considerable concern, the scope and severity of this threat was largely unknown at that time (55 FR 26114, p. 26190). The Recovery Plan summarized information available since our listing rule and found that competition from barred owls now poses a significant and immediate threat to the northern spotted owl throughout its range (USFWS 2011, pp. B–10 through B–12).
Historically, the barred owl and northern spotted owl did not co-occur. In the past century, barred owls have expanded their range westward, reaching the range of the northern spotted owl in British Columbia by about 1959. Barred owl populations continue to expand southward within the range of the northern spotted owl, the population of barred owls behind the expansion-front continues to increase, and barred owls now outnumber spotted owls in many portions of the northern spotted owl's range (Pearson and Livezey 2003, p. 272).
There is strong evidence to indicate that barred owls are negatively affecting northern spotted owl populations. Barred owls displace spotted owls from high-quality habitat (Kelley
On December 10, 2009, the Service published a notice of intent to prepare an environmental impact statement related to experimental removal of barred owls for the conservation benefit of threatened northern spotted owls (notice of intent) in the
In accordance with the NEPA, the Draft EIS was circulated for public review and comment. The public review period was initiated with the publication of the notice of availability (NOA) in the
The alternatives vary by the number and location of study areas, the method of barred owl removal (lethal, or a combination of lethal and nonlethal), and the type of experimental design (demography vs. occupancy). All action alternatives are based on a simple treatment and control study approach. Under this approach, study areas are divided into two comparable segments. Barred owls are removed from the treatment area but not from the control area. Spotted owl populations are measured using the same methodology on both areas, and the population measures (occupancy, survival, reproduction, and population trend) are compared between the control and treatment areas.
The removal of barred owls under the experiment would occur over a period of 3 to 10 years, depending on the alternative. The action alternatives include from 1 to 11 study areas, including from 0.31 to 6.55 percent of the northern spotted owl's habitat. A brief description of each alternative follows.
Under the No-action Alternative, the Service would not conduct experimental removal of barred owls, thus not implementing one of the recovery actions set forth in the Recovery Plan (USFWS 2001, p. III–65). Data that would inform future barred owl management strategies would not be gathered.
Alternative 1 consists of a demography study in a single study area with existing pre-treatment spotted owl demography data. The study area would be located within an existing spotted owl demography study area where long-term monitoring of northern spotted owl populations has occurred (Lint
Alternative 2 consists of a demography study in three study areas, which would be located within existing spotted owl demography study areas and distributed across the range of the northern spotted owl. A combination of lethal and nonlethal removal methods would be used.
Alternative 3 consists of a demography study in two study areas. Barred owl removal would occur outside of existing spotted owl demography study areas, but within areas that have adequate data to conduct pre-removal demography analyses. A combination of lethal and nonlethal removal methods would be used.
Alternative 4 includes two subalternatives, 4a and 4b. Each subalternative consists of a demography study in two study areas outside existing spotted owl demography study areas. Each subalternative uses a combination of lethal and nonlethal removal methods. Subalternatives 4a and 4b differ in that 4a delays barred owl removal to collect pre-treatment data for comparison with treatment data, whereas 4b starts removal immediately and foregoes pre-treatment data collection.
Alternative 5 consists of an occupancy study approach in three study areas. Barred owl removal would occur on areas outside of existing spotted owl demography study areas. Only lethal removal methods would be applied in this alternative.
Alternative 6 includes two subalternatives, 6a and 6b. Each subalternative consists of an occupancy study in three study areas. Barred owl removal would occur on areas outside of existing spotted owl demography study areas. Each subalternative uses a combination of lethal and nonlethal removal methods. Subalternatives 6a and 6b differ in that 6a delays removal to collect pre-treatment data for comparison with treatment data, whereas 6b starts removal immediately and foregoes pre-treatment data collection.
Alternative 7 consists of a combination of demography and occupancy analyses across 11 study areas, some of which have current data. Three existing spotted owl demographic study areas would be included within these study areas. A combination of lethal and nonlethal removal methods would be used.
Following public review of the Draft EIS, the Service developed a Preferred Alternative based on a combination of the features of Alternatives 2 and 3. The Preferred Alternative consists of a demography study in four study areas as in both draft alternatives. Barred owl removal would occur on the Cle Elum Study Area in Washington and the Hoopa (Willow Creek) Study Area in California from Alternative 2, the Union/Myrtle (Klamath) Study Area in southern Oregon from Alternative 3, and one half of the combined Oregon Coast Ranges and Veneta Study Areas in northern Oregon. This last study area is a combination of study areas from Alternative 2 and 3. A combination of lethal and non-lethal removal methods would be used from Alternative 3.
A complete list of references cited in this notice is available upon request from our Oregon Fish and Wildlife Office (see
We will make a decision no sooner than 30 days after the publication of the Final EIS. We anticipate issuing a Record of Decision in the summer of 2013.
We provide this notice under the National Environmental Policy Act of 1969, as amended (42 U.S.C. 4321
Bureau of Indian Affairs, Interior.
Notice.
This notice publishes the amendment to the Salt River Pima-Maricopa Indian Community Alcoholic Beverage Control Ordinance, Chapter 14, Salt River Pima-Maricopa Indian Community Code of Ordinances to provide consistency with newly amended Arizona State Liquor Law and to enact certain technical amendments. The amended Salt River Pima-Maricopa Indian Alcohol Beverage Control Ordinance, Chapter 14 of the Salt River Pima-Maricopa Indian Community Code of Ordinances was last published in the
Sharlot Johnson, Tribal Government Services Officer, Western Regional Office, Bureau of Indian Affairs, 2600 North Central Avenue, Phoenix, AZ 85004, Phone: (602) 379–6786; Fax: (602) 379–379–4100: or De Springer, Office of Indian Services, Bureau of Indian Affairs, 1849 C Street NW., MS–4513–MIB, Washington, DC 20240; Telephone (202) 513–7641.
Pursuant to the Act of August 15, 1953, Public Law 83–277, 67 Stat. 586, 18 U.S.C. 1161, as interpreted by the Supreme Court in
This notice is published in accordance with the authority delegated by the Secretary of the Interior to the Assistant Secretary—Indian Affairs. I certify that the Community Council duly adopted this amendment to the Salt River Pima-Maricopa Indian Alcohol Beverage Control Ordinance, Chapter 14 of the Salt River Pima-Maricopa Indian Community Code of Ordinances on December 5, 2012.
The amendment to the Salt River Pima-Maricopa Indian Alcohol Beverage Control Ordinance, Chapter 14 of the Salt River Pima-Maricopa Indian Community Code of Ordinances reads as follows:
Sections 14–5(c)(4), 14–9(g), 14–18(o) and (t) of the Salt River Pima-Maricopa Indian Community Code of Ordinances shall be repealed and replaced in their entirety with the following, and a new Section 14–12 shall added:
4. The office or the Salt River Police Department may cite a Licensee to appear before the office or the hearing officer for a hearing upon allegations of violations of articles II and III or any relevant law or regulation issued pursuant to this chapter 14.
In lieu of or in addition to any suspension, revocation or refusal to renew a license, the director may impose a civil penalty of not less than two hundred dollars ($200.00) and no more than three thousand dollars ($3,000.00) for each violation and/or require the licensee and its employees to attend certain training.
In order to effectively enforce the regulatory and law enforcement provisions of this chapter, any report of violence or disorderly conduct occurring at an licensed premises that is received by either the office or the Salt River Police Department shall be immediately reported by the receiving department to the other department. In addition to the reporting of the incident, the department receiving the report of violence or disorderly conduct shall also share any relevant information with the other department unless the sharing of such information is prohibited by Community law or policy.
(o) It shall be unlawful for an on-sale retailer or employee of the licensee to conduct drinking contests, to sell or deliver to a person an unlimited number of alcoholic beverages during any set period of time for a fixed price, to deliver more than forty (40) ounces of beer, one (1) liter of wine or four (4) ounces of distilled spirits in any alcoholic beverage drink to one person at one time for that person's consumption or to advertise any practice prohibited by this paragraph.
(t) It shall be unlawful for a licensee or an employee of the licensee to fail or refuse to make the licensed premises or records available for inspection and examination or as to comply with a lawful subpoena issued under this chapter.
Bureau of Land Management, Interior.
Notice of Public Meeting.
In accordance with the Federal Land Policy and Management Act and the Federal Advisory Committee Act, the Bureau of Land Management's (BLM) Las Cruces District Resource Advisory Council (RAC) will meet as indicated below.
The RAC will meet on August 22, 2013, at the BLM Las Cruces District Office Main Conference Room from 9 a.m.–4 p.m. The public may send written comments to the RAC at the BLM Las Cruces District Office, 1800 Marquess Street, Las Cruces, NM 88005.
Rena Gutierrez, BLM Las Cruces District, 1800 Marquess Street, Las Cruces, NM, 88005, 575–525–4338. Persons who use a telecommunications device for the deaf (TDD) may call the Federal Information Relay Service (FIRS) at 1–800–877–8229 to contact the above individual during normal business hours. The FIRS is available 24 hours a day, 7 days a week, to leave a message or question with the above individual. You will receive a reply during normal business hours.
The 10-member Las Cruces District RAC advises the Secretary of the Interior, through the BLM, on a variety of planning and management issues associated with public land management in New Mexico. Planned agenda items include
Bureau of Land Management, Interior.
Notice of Public Meeting.
In accordance with the Federal Land Policy and Management Act of 1976 and the Federal Advisory Committee Act of 1972, the U.S. Department of the Interior, Bureau of Land Management (BLM) Wyoming Resource Advisory Council (RAC) will meet as indicated below.
The meeting will be held August 21, 2013, (1:30 p.m. to 5:00 p.m.), August 22, (8:00 a.m. to 5:00 p.m.) and August 23, (8:00 a.m. to noon) 2013.
The meeting will be at the Buffalo Field Office, 1425 Fort Street, Buffalo, Wyoming.
Cindy Wertz, Wyoming Resource Advisory Council Coordinator, Wyoming State Office, 5353 Yellowstone, Cheyenne, WY 82009; telephone 307–775–6014; email
Persons who use a telecommunications device for the deaf (TDD) may call the Federal Information Relay Service (FIRS) at 1–800–877–8339 to contact the above individual during normal business hours. The FIRS is available 24 hours a day, 7 days a week, to leave a message or question with the above individual. You will receive a reply during normal business hours.
This 10-member RAC advises the Secretary of the Interior on a variety of management issues associated with public land management in Wyoming.
Planned agenda topics include discussions on uranium, cultural, NEPA cooperating agency issues, recreation, land acquisitions and follow-up to previous meetings.
On Wednesday, August 21, the meeting will begin at 1:00 p.m. at the Buffalo Field Office. On Thursday, August 22 at 2:45 p.m., there will be a field tour of Welch Ranch. The public may attend the field tour portion of the agenda, but must provide their own transportation. High clearance vehicles are recommended.
All RAC meetings are open to the public with time allocated for hearing public comments. On Friday, August 23, there will be public comment period beginning at 8:00 a.m. The public may also submit written comments to the RAC. Depending on the number of persons wishing to comment and time available, the time for individual oral comments may be limited. If there are no members of the public interested in speaking, the meeting will move promptly to the next agenda item.
Bureau of Land Management, Interior.
Notice of Filing of Plats of Survey; Arizona.
The plats of survey of the described lands were officially filed in the Arizona State Office, Bureau of Land Management, Phoenix, Arizona, on dates indicated.
The plat representing the survey of a portion of the Ninth Standard Parallel North (south boundary), a portion of the north boundary, a portion of the subdivisional lines and the subdivision of certain sections, Township 37 North, Range 7 East, accepted June 19, 2013, and officially filed June 21, 2013, for Group 1107, Arizona.
This plat was prepared at the request of the Bureau of Indian Affairs.
The plat representing the subdivision of certain sections, Township 34 North, Range 8 East, accepted May 9, 2013, and officially filed May 10, 2013, for Group 1107, Arizona.
This plat was prepared at the request of the Bureau of Indian Affairs.
The plat representing the subdivision of certain sections, Township 35 North, Range 8 East, accepted May 9, 2013, and officially filed May 10, 2013, for Group 1107, Arizona.
This plat was prepared at the request of the Bureau of Indian Affairs.
The plat representing the dependent resurvey of a portion of the south boundary, the survey of a portion of the north boundary, a portion of the subdivisional lines and the subdivision of certain sections, Township 30 North, Range 9 East, accepted May 31, 2013, and officially filed June 4, 2013, for Group 1107, Arizona.
This plat was prepared at the request of the Bureau of Indian Affairs.
The plat representing the survey of portions of the east and north boundaries, a portion of the subdivisional lines and the subdivision of certain sections, Township 31 North, Range 9 East, accepted May 31, 2013, and officially filed June 4, 2013, for Group 1107, Arizona.
This plat was prepared at the request of the Bureau of Indian Affairs.
The plat representing the survey of a portion of the subdivisional lines and the subdivision of certain sections, Township 32 North, Range 9 East, accepted May 9, 2013, and officially filed May 10, 2013, for Group 1107, Arizona.
This plat was prepared at the request of the Bureau of Indian Affairs.
The plat representing the survey of a portion of the north boundary, portions of the subdivisional lines and the subdivision of certain sections, Township 33 North, Range 9 East, accepted May 9, 2013, and officially filed May 10, 2013, for Group 1107, Arizona.
This plat was prepared at the request of the Bureau of Indian Affairs.
The plat representing the survey of a portion of the north boundary, portions of the subdivisional lines and the subdivision of sections 32 and 33, Township 33
This plat was prepared at the request of the Bureau of Indian Affairs.
The plat representing the survey of a portion of the south boundary, portions of the subdivisional lines and the
This plat was prepared at the request of the Bureau of Indian Affairs.
The plat representing the survey of the Ninth Standard Parallel North (south boundary), the west and north boundaries, the subdivisional lines and the subdivision of certain sections, Township 37 North, Range 11 East, accepted April 22, 2013, and officially filed April 24, 2013, for Group 1105, Arizona.
This plat was prepared at the request of the Bureau of Indian Affairs.
The plat representing the establishment of the northeast township corner, the survey of the west boundary, a portion of the north boundary, a portion of the subdivisional lines and the subdivision of certain sections, Township 38 North, Range 11 East, accepted April 22, 2013, and officially filed April 24, 2013, for Group 1106, Arizona.
This plat was prepared at the request of the Bureau of Indian Affairs.
The plat (in 6 sheets) representing the dependent resurvey of a portion of the south and east boundaries, a portion of the subdivisional lines and portions of certain mineral surveys, Township 18 South, Range 15 East, accepted April 5, 2013, and officially filed April 9, 2013, for Group 1101, Arizona.
This plat was prepared at the request of the United States Forest Service.
The plat representing the dependent resurvey of a portion of the east boundary, a portion of the subdivisional lines and portions of Mineral Survey Numbers 1299, 1301 and 1302, Township 19 South, Range 15 East, accepted April 5, 2013, and officially filed April 9, 2013, for Group 1101, Arizona.
This plat was prepared at the request of the United States Forest Service.
The plat (in 4 sheets) representing the dependent resurvey of a portion of the subdivisional lines and portions of certain mineral surveys, Township 18 South, Range 16 East, accepted April 5, 2013, and officially filed April 9, 2013, for Group 1101, Arizona.
This plat was prepared at the request of the United States Forest Service.
The plat representing the dependent resurvey of a portion of the north boundary and a portion of the subdivisional lines, Township 19 South, Range 16 East, accepted April 5, 2013, and officially filed April 9, 2013, for Group 1101, Arizona.
This plat was prepared at the request of the United States Forest Service.
A person or party who wishes to protest against any of these surveys must file a written protest with the Arizona State Director, Bureau of Land Management, stating that they wish to protest.
A statement of reasons for a protest may be filed with the notice of protest to the State Director, or the statement of reasons must be filed with the State Director within thirty (30) days after the protest is filed.
These plats will be available for inspection in the Arizona State Office, Bureau of Land Management, One North Central Avenue, Suite 800, Phoenix, Arizona, 85004–4427. Persons who use a telecommunications device for the deaf (TDD) may call the Federal Information Relay Service (FIRS) at 1–800–877–8339 to contact the above individual during normal business hours. The FIRS is available 24 hours a day, 7 days a week, to leave a message or question with the above individual. You will receive a reply during normal business hours.
National Park Service, Interior.
Notice of Availability.
Pursuant to Section 102 (2) (C) of the National Environmental Policy Act of 1969, 42 U.S.C. 4332(2)(C), the National Park Service (NPS) announces the availability of a Final Environmental Impact Statement for the General Management Plan and Wilderness Study (Final EIS/GMP/WS) for Fort Pulaski National Monument (national monument), Georgia. Consistent with NPS laws, regulations, and policies and the purpose of the national monument, the Final EIS/GMP/WS will guide the management of the national monument over the next 20+ years.
The NPS will execute a Record of Decision (ROD) no sooner than 30 days following publication of the Environmental Protection Agency's Notice of Availability of the Final EIS/GMP/WS in the
Electronic copies of the Final EIS/GMP/WS will be available online at
David Libman, National Park Service, 100 Alabama Street, 1924 Building, Atlanta, Georgia 30303; telephone (404) 507–5701.
The Final EIS/GMP/WS responds to, and incorporates agency and public comments received on the Draft EIS, which was available for public review from May 11, 2012, through July 9, 2012. Two public meetings were held on June 13, 2012, and June 14, 2012, and a total of 29 comments were received. The NPS responses to substantive agency and public comments are provided in Chapter 5, Consultation and Coordination section, of the Final EIS/GMP/WS.
The Final EIS/GMP/WS evaluates three alternatives for managing use and development of the national monument:
• Alternative A, the No Action alternative represents the continuation of current management action and direction into the future.
• Alternative B, the NPS preferred alternative, focuses management of the national monument on the April 1862 period of significance in terms of the landscape and interpretive programs. This alternative would emphasize the restoration, preservation, and interpretation of historic landscapes and viewsheds of the site for the purpose of providing visitors a greater understanding of the siege and reduction of Fort Pulaski in 1862.
• Alternative C which focuses management on a broader interpretive mandate than Alternative B. Alternative C would include a wider range of themes and historic periods as well as natural resource themes.
When approved, the plan will guide the management of the national monument over the next 20+ years.
The responsible official for this Final EIS/GMP/WS is the Regional Director, NPS Southeast Region, 100 Alabama Street SW., 1924 Building, Atlanta, Georgia 30303.
National Park Service, Interior.
Notice.
The Washington State Parks and Recreation Commission has completed an inventory of human remains in consultation with the appropriate Indian tribes or Native Hawaiian organizations, and has determined that there is a cultural affiliation between the human remains and present-day Indian tribes or Native Hawaiian organizations. Lineal descendants or representatives of any Indian tribe or Native Hawaiian organization not identified in this notice that wish to request transfer of control of these human remains should submit a written request to the Washington State Parks and Recreation Commission. If no additional requestors come forward, transfer of control of the human remains to the lineal descendants, Indian tribes, or Native Hawaiian organizations stated in this notice may proceed.
Lineal descendants or representatives of any Indian tribe or Native Hawaiian organization not identified in this notice that wish to request transfer of control of these human remains should submit a written request with information in support of the request to the Washington State Parks and Recreation Commission at the address in this notice by August 23, 2013.
Alicia Woods, Washington State Parks and Recreation Commission, PO Box 42650, Olympia, WA 98504–2650, telephone (360) 902–0939, email
Notice is here given in accordance with the Native American Graves Protection and Repatriation Act (NAGPRA), 25 U.S.C. 3003, of the completion of an inventory of human remains in the control of the Washington State Parks and Recreation Commission, Olympia, WA, and in the physical custody of the Burke Museum of Natural History and Culture, University of Washington (Burke Museum), Seattle, WA. The human remains were removed from Sucia Island State Park, San Juan County, WA.
This notice is published as part of the National Park Service's administrative responsibilities under NAGPRA, 25 U.S.C. 3003(d)(3). The determinations in this notice are the sole responsibility of the museum, institution, or Federal agency that has control of the Native American human remains. The National Park Service is not responsible for the determinations in this notice.
A detailed assessment of the human remains was made by the Washington State Parks and Recreation Commission and the Burke Museum professional staff in consultation with representatives of the Lummi Tribe of the Lummi Reservation; Samish Indian Nation (previously listed as the Samish Indian Tribe, Washington); and the Swinomish Indians of the Swinomish Reservation of Washington.
In August 1960, human remains representing, at minimum, one individual were removed by Robert Kidd, a student working under the supervision of R. E. Greengo, of the Department of Anthropology, University of Washington, during the excavation of site 45–SJ–105 on Sucia Island. Kidd does not indicate the discovery of a burial site or human remains in his report, but Kidd specifically notes Sucia Island as “historic Lummi territory.” Staff at the Burke Museum identified the remains in unmodified level bags in the collection prior to 1996. Washington State Parks and Recreation Commission believes Kidd inadvertently and unknowingly removed these human remains from the site. No known individuals were identified. No associated funerary objects are present.
In July 1971, human remains representing, at minimum, two individuals were removed by a park visitor who inadvertently discovered a burial on Sucia Island at site 45–SJ–306. The remains were exposed by natural erosion. The San Juan County Sheriff's Department sent the remains to the Department of Anthropology, University of Idaho, Moscow, ID, for identification. Prior to 1993, this collection was released back into the custody of Washington State Parks and Recreation Commission. Anthropologists that reviewed the human remains indicated there was an extended postmortem interval and the human remains are consistent with archaeological material. No known individuals were identified. No associated funerary objects are present.
Ethnographic and archaeological evidence suggests Native American groups, specifically the Lummi people, occupied Sucia Island prior to European contact (Amos 1978; McDonald 1990; Stern 1934, Stolpe 1972, Suttles 1951, 1954, 1990). The Lummi Tribal Historic Preservation Officer confirmed Sucia Island as one among many islands in the San Juan archipelago that was occupied by the Lummi people prior to and during the early stages of European contact and settlement in the area. Washington State Parks and Recreation Commission staff believes there is sufficient evidence Sucia Island was occupied by Native Americans, specifically the Lummi people, and has determine there is a relationship of shared group identity between the Native American human remains and the Lummi Tribe of the Lummi Reservation.
Officials of the Washington State Parks and Recreation Commission have determined that:
• Pursuant to 25 U.S.C. 3001(9), the human remains described in this notice represent the physical remains of a minimum of three individuals of Native American ancestry.
• Pursuant to 25 U.S.C. 3001(2), there is a relationship of shared group identity that can be reasonably traced between the Native American human remains and the Lummi Tribe of the Lummi Reservation.
Lineal descendants or representatives of any Indian tribe or Native Hawaiian organization not identified in this notice that wish to request transfer of control of these human remains should submit a written request with information in support of the request to Alicia Woods, Washington State Parks and Recreation Commission, PO Box 42650, Olympia, WA 98504–2650, telephone (360) 902–0939, email
The Washington State Parks and Recreation Commission is responsible for notifying the Lummi Tribe of the Lummi Reservation; Samish Indian Nation (previously listed as the Samish Indian Tribe, Washington); and the Swinomish Indians of the Swinomish
National Park Service, Interior.
Notice.
The Washington State Parks and Recreation Commission has completed an inventory of human remains, in consultation with the appropriate Indian tribes or Native Hawaiian organizations, and has determined that there is a cultural affiliation between the human remains and present-day Indian tribes or Native Hawaiian organizations. Lineal descendants or representatives of any Indian tribe or Native Hawaiian organization not identified in this notice that wish to request transfer of control of these human remains should submit a written request to the Washington State Parks and Recreation Commission. If no additional requestors come forward, transfer of control of the human remains to the lineal descendants, Indian tribes, or Native Hawaiian organizations stated in this notice may proceed.
Lineal descendants or representatives of any Indian tribe or Native Hawaiian organization not identified in this notice that wish to request transfer of control of these human remains should submit a written request with information in support of the request to the Washington State Parks and Recreation Commission at the address in this notice by August 23, 2013.
Alicia Woods, Washington State Parks and Recreation Commission, PO Box 42650, Olympia, WA 98504–2650, telephone (360) 902–0939, email
Notice is here given in accordance with the Native American Graves Protection and Repatriation Act (NAGPRA), 25 U.S.C. 3003, of the completion of an inventory of human remains under the control of the Washington State Parks and Recreation Commission, Olympia, WA. The human remains were removed from Birch Bay State Park, Whatcom County, WA.
This notice is published as part of the National Park Service's administrative responsibilities under NAGPRA, 25 U.S.C. 3003(d)(3). The determinations in this notice are the sole responsibility of the museum, institution, or Federal agency that has control of the Native American human remains. The National Park Service is not responsible for the determinations in this notice.
A detailed assessment of the human remains was made by the Washington State Parks and Recreation Commission professional staff in consultation with representatives of the Lummi Tribe of the Lummi Reservation. The following additional tribes were contacted but did not participate in the consultation and deferred to the Lummi Tribe of the Lummi Reservation: Nooksack Indian Tribe and Upper Skagit Indian Tribe.
On May 13, 1999, human remains representing, at minimum, one individual were removed from a recorded site in Whatcom County, WA. During the monitoring of an expansion of the parking lot inside Birch Bay State Park boundaries, fragments of bone were inadvertently discovered. At the time, these fragments were believed to be faunal. The fragments were subsequently delivered to Washington State Parks and Recreation Commission headquarters and stored in collections. In 2001, the fragments were reviewed by an anthropologist and were determined to be human remains and to be consistent with an extended postmortem interval, but no cultural, gender, or age specific characteristics could be determined. No known individuals were identified. No associated funerary objects are present.
The site is a known prehistoric archaeological site that consists of material from Native American permanent and seasonal villages, occupied predominantly by the Semiahmoo, Lummi, and Nooksack people until the time of European settlement in the 1870s. The age of the site is dated to a minimum of 2,000 years ago and numerous burials have been excavated from within and below a shell midden on this site. Because of the location from which the human remains were removed and the condition of the human remains, Washington State Parks and Recreation Commission staff has determined that the human remains are of Native American descent. A representative from the Lummi Tribe, in consultation, confirmed the Lummi people occupied and utilized the area of Birch Bay. Additionally, ethnographic (Jeffcot, 1945; Suttles, 1990; Tremaine, 1975) and archaeological evidence (Baldwin, 2008 and 2010; Gaston & Grabert, 1975; Grabert & Spear, 1976; Reid, 1996) supports on a relationship of shared group identity between the human remains and the Lummi Tribe of the Lummi Reservation and the Nooksack Indian Tribe.
Officials of the Washington State Parks and Recreation Commission have determined that:
• Pursuant to 25 U.S.C. 3001(9), the human remains described in this notice represent the physical remains of one individual of Native American ancestry.
• Pursuant to 25 U.S.C. 3001(2), there is a relationship of shared group identity that can be reasonably traced between the Native American human remains and the Lummi Tribe of the Lummi Reservation and the Nooksack Indian Tribe.
Lineal descendants or representatives of any Indian tribe or Native Hawaiian organization not identified in this notice that wish to request transfer of control of these human remains should submit a written request with information in support of the request to Alicia Woods, Washington State Parks and Recreation Commission, PO Box 42650, Olympia, WA 98504–2650, telephone (360) 902–0939, email
The Washington State Parks and Recreation Commission is responsible for notifying the Lummi Tribe of the Lummi Reservation; Nooksack Indian Tribe; and the Upper Skagit Indian Tribe that this notice has been published.
National Park Service, Interior.
Notice.
The Thomas Burke Memorial Washington State Museum, University of Washington (Burke Museum), has completed an inventory of human remains and associated funerary objects in consultation with the appropriate Indian tribes or Native Hawaiian organizations, and has determined that there is a cultural affiliation between the human remains and associated funerary objects and present-day Indian tribes or Native Hawaiian organizations. Lineal descendants or representatives of any Indian tribe or Native Hawaiian organization not identified in this notice that wish to request transfer of control of these human remains and associated funerary objects should submit a written request to the Burke Museum. If no additional requestors come forward, transfer of control of the human remains and associated funerary objects to the lineal descendants, Indian tribes, or Native Hawaiian organizations stated in this notice may proceed.
Lineal descendants or representatives of any Indian tribe or Native Hawaiian organization not identified in this notice that wish to request transfer of control of these human remains and associated funerary objects should submit a written request with information in support of the request to the Burke Museum at the address in this notice by August 23, 2013.
Peter Lape, Burke Museum, University of Washington, Box 35101, Seattle, WA 98195, telephone (206) 685–3849, email
Notice is here given in accordance with the Native American Graves Protection and Repatriation Act (NAGPRA), 25 U.S.C. 3003, of the completion of an inventory of human remains and associated funerary objects under the control of the Burke Museum. The human remains and associated funerary objects were most likely removed from the upper Columbia River Plateau, WA.
This notice is published as part of the National Park Service's administrative responsibilities under NAGPRA, 25 U.S.C. 3003(d)(3). The determinations in this notice are the sole responsibility of the museum, institution, or Federal agency that has control of the Native American human remains and associated funerary objects. The National Park Service is not responsible for the determinations in this notice.
A detailed assessment of the human remains and associated funerary objects was made by the Burke Museum professional staff in consultation with representatives of the Confederated Tribes and Bands of the Yakama Nation; Confederated Tribes of the Colville Reservation; Confederated Tribes of the Umatilla Indian Reservation (previously listed as the Confederated Tribes of the Umatilla Reservation, Oregon); Confederated Tribes of the Warm Springs Reservation of Oregon; Nez Perce Tribe (previously listed as the Nez Perce Tribe of Idaho); and the Wanapum Band, a non-federally recognized Indian group (hereafter referred to as “The Tribes and The Indian Group”).
At an unknown date, human remains representing, at minimum, one individual were most likely removed from the upper Columbia River Plateau, WA. The human remains and associated funerary objects were found in an unlabeled bag in the Burke Museum's Ethnology collection in 1996. No known individuals were identified. The one associated funerary object is a bag containing copper fragments (including rolled copper, thin hammered fragments, beads, buttons, a necklace and blanket pin, melted glass beads, and one projectile point).
The associated funerary objects described in this notice are consistent with burial materials found in archaeological sites in Benton and Grant Counties, WA. The human remains in this notice have been determined to be Native American based on archaeological evidence.
Early and late published ethnographic documentation indicates that the upper Columbia River Plateau was the aboriginal territory of the Moses-Columbia or Sinkiuse, and the Yakima (Daugherty 1973, Miller 1998, Mooney 1896, Ray 1936, Spier 1936) whose descendants are represented today by the Confederated Tribes of the Colville Reservation and the Confederated Tribes and Bands of the Yakama Nation. Furthermore, information provided by the tribes during consultation indicates that the aboriginal ancestors occupying this area were highly mobile and traveled the landscape for gathering resources as well as trade. Descendants of these Plateau communities are now widely dispersed and enrolled as members of The Tribes and The Indian Group.
Officials of the Burke Museum have determined that:
• Based on archaeological evidence, the human remains have been determined to be Native American.
• Pursuant to 25 U.S.C. 3001(9), the human remains described in this notice represent the physical remains of one individual of Native American ancestry.
• Pursuant to 25 U.S.C. 3001(3)(A), the one object described in this notice are reasonably believed to have been placed with or near individual human remains at the time of death or later as part of the death rite or ceremony.
• Pursuant to 25 U.S.C. 3001(2), there is a relationship of shared group identity that can be reasonably traced between the Native American human remains and The Tribes and The Indian Group.
Lineal descendants or representatives of any Indian tribe or Native Hawaiian organization not identified in this notice that wish to request transfer of control of these human remains and associated funerary objects should submit a written request with information in support of the request to Peter Lape, Burke Museum, University of Washington, Box 35101, Seattle, WA 98195, telephone (206) 685–3849, email
The Burke Museum is responsible for notifying The Tribes and The Indian Group that this notice has been published.
National Park Service, Interior.
Notice.
The State Historical Society of Wisconsin has completed an inventory of human remains and associated funerary objects, in consultation with the appropriate Indian tribes or Native Hawaiian organizations, and has determined that there is no cultural affiliation between the human remains and associated funerary objects and any present-day Indian tribes or Native Hawaiian organizations. Representatives of any Indian tribe or Native Hawaiian organization not identified in this notice that wish to request transfer of control of these human remains and associated funerary objects should submit a written request to the State Historical Society of Wisconsin. If no additional requestors come forward, transfer of control of the human remains and associated funerary objects to the Indian tribes or Native Hawaiian organizations stated in this notice may proceed.
Representatives of any Indian tribe or Native Hawaiian organization not identified in this notice that wish to request transfer of control of these human remains and associated funerary objects should submit a written request with information in support of the request to the State Historical Society of Wisconsin at the address in this notice by August 23, 2013.
Jennifer Kolb, Wisconsin Historical Museum, 30 North Carroll Street, Madison, WI 53703, telephone (608) 261–2461, email
Notice is here given in accordance with the Native American Graves Protection and Repatriation Act (NAGPRA), 25 U.S.C. 3003, of the completion of an inventory of human remains and associated funerary objects under the control of the State Historical Society of Wisconsin, Madison, WI. The human remains and associated funerary objects were removed from Waupaca County, WI.
This notice is published as part of the National Park Service's administrative responsibilities under NAGPRA, 25 U.S.C. 3003(d)(3) and 43 CFR 10.11(d). The determinations in this notice are the sole responsibility of the museum, institution, or Federal agency that has control of the Native American human remains and associated funerary objects. The National Park Service is not responsible for the determinations in this notice.
A detailed assessment of the human remains was made by the State Historical Society of Wisconsin professional staff in consultation with representatives of the Forest County Potawatomi Community, Wisconsin; Ho-Chunk Nation of Wisconsin; and the Menominee Indian Tribe of Wisconsin.
In1963, human remains representing, at minimum, one individual were removed from a burial located just below the plow zone at Riverbend 1 Site in Waupaca County, WI. The fragmentary human remains were excavated by the State Historical Society of Wisconsin and the Wisconsin Department of Transportation. As the burial had been partially disturbed by plowing, some of the remains were recovered during a surface survey prior to the excavation. The human remains were determined to be those of an adult Native American female. No known individuals were identified. The two associated funerary objects are a quartz shatter and a quartzite flake.
Officials of the State Historical Society of Wisconsin have determined that:
• Pursuant to 25 U.S.C. 3001(9), the human remains described in this notice are Native American based on skeletal analysis.
• Pursuant to 25 U.S.C. 3001(9), the human remains described in this notice represent the physical remains of one individual of Native American ancestry.
• Treaties, Acts of Congress, or Executive Orders, indicate that the land from which the Native American human remains were removed is the aboriginal land of the Menominee Indian Tribe of Wisconsin.
• Pursuant to 43 CFR 10.11(c)(1), the disposition of the human remains may be to the Menominee Indian Tribe of Wisconsin.
Representatives of any Indian tribe or Native Hawaiian organization not identified in this notice that wish to request transfer of control of these human remains should submit a written request with information in support of the request to Jennifer Kolb, Wisconsin Historical Museum, 30 North Carroll Street, Madison, WI 53703, telephone (608) 261–2461, email
The State Historical Society of Wisconsin is responsible for notifying the Forest County Potawatomi Community, Wisconsin; Ho-Chunk Nation of Wisconsin; and the Menominee Tribe of Wisconsin that this notice has been published.
National Park Service, Interior.
Notification of Boundary Revision.
The boundary of Yosemite National Park is modified to include 80 acres of land. Fee simple interest in the land will be donated to the United States. The land is located in Mariposa County, California, immediately adjacent to the current western boundary of Yosemite National Park.
The effective date of this boundary revision is July 24, 2013.
The map depicting this boundary revision is available for inspection at the following locations: National Park Service, Land Resources Program Center, Pacific West Region, 333 Bush Street, Suite 500, San Francisco, California 94104, and National Park Service, Department of the Interior, 1849 C Street NW., Washington, DC 20240.
Chief Realty Officer Greg Gress, National Park Service, Land Resources Program Center, Pacific West Region, Suite 500, San Francisco, California 94104, telephone (415) 623–2120.
Notice is hereby given that, pursuant to 16 U.S.C. § 460
16 U.S.C. 460
National Park Service, Interior.
Notice of Record of Decision.
Pursuant to § 102(2)(C) of the National Environmental Policy Act of 1969 (Pub. L. 91–190, as amended) and the regulations promulgated by the Council on Environmental Quality (40 CFR part 1505.2), the Department of the Interior, National Park Service (NPS), in collaboration with the Federal Highway Administration, prepared the Final Environmental Impact Statement (Final EIS) for the Stehekin River Corridor Implementation Plan (CIP). The requisite no-action “wait period” was initiated on October 12, 2012, with the Environmental Protection Agency's
Four other alternatives were evaluated, the full range of foreseeable environmental consequences was assessed, and appropriate mitigation measures were identified. The selected alternative was deemed to be the “environmentally preferred” course of action.
Interested parties desiring to review the Record of Decision may obtain a copy by contacting the Superintendent, North Cascades National Park Service Complex, 810 State Route 20, Sedro-Woolley, WA 94123 or via telephone request at (360) 854–7200.
Office of Surface Mining Reclamation and Enforcement, Department of the Interior.
Notice and request for comments.
In compliance with the Paperwork Reduction Act of 1995, the Office of Surface Mining Reclamation and Enforcement (OSM) is announcing its intention to request renewed approval from the Office of Management and Budget (OMB) to continue the collection of information for the Revisions; Renewals; and Transfer, Assignment, or Sale of Permit Rights.
Comments on the proposed information collection must be received by September 23, 2013, to be assured of consideration.
Comments may be mailed to John Trelease, Office of Surface Mining Reclamation and Enforcement, 1951 Constitution Ave. NW., Room 203–SIB, Washington, DC 20240. Comments may also be submitted electronically to
To receive a copy of the information collection request contact John Trelease, at (202) 208–2783 or by email to
OMB regulations at 5 CFR 1320, which implement provisions of the Paperwork Reduction Act of 1995 (Pub. L. 104–13), require that interested members of the public and affected agencies have an opportunity to comment on information collection and recordkeeping activities [see 5 CFR 1320.8(d)]. This notice identifies an information collection that OSM will be submitting to OMB for renewal. The collection is contained in 30 CFR Part 774—Revision; Renewal; and Transfer, Assignment, or Sale of Permit Rights.
OSM has revised burden estimates, where appropriate, to reflect current reporting levels or adjustments based on reestimates of burden or respondents. OSM will request a 3-year term of approval for this information collection activity.
Comments are invited on: (1) The need for the collection of information for the performance of the functions of the agency; (2) the accuracy of the agency's burden estimates; (3) ways to enhance the quality, utility and clarity of the information collection; and (4) ways to minimize the information collection burden on respondents, such as use of automated means of collection of the information. A summary of the public comments will be included in OSM's submission of the information collection request to OMB.
Before including your address, phone number, email address, or other personal identifying information in your comment, you should be aware that your entire comment—including your personal identifying information—may be made publicly available at any time. While you can ask us in your comment to withhold your personal identifying information from public review, we cannot guarantee that we will be able to do so.
This notice provides the public with 60 days in which to comment on the following information collection activity:
On July 18, 2013, the Department of Justice lodged a proposed Consent Decree with the United States District Court for the Southern District of Illinois in the lawsuit entitled
The proposed Consent Decree would regulate the sale and reprocessing of slag and other metal-bearing materials at the Chemetco Site under an Asset Purchase and Processing Agreement between the Estate and Paradigm (the “Processing Agreement”). Work under that Processing Agreement—which was approved by a set of Bankruptcy Court Orders—would decrease the volume of material that needs to be contained or remediated as a waste, thereby reducing the potential cost of any final remedy for the Chemetco Site under the Comprehensive Environmental Response, Compensation, and Liability Act. The Processing Agreement also requires that a fixed portion of the revenue from the reprocessing operation be deposited in a specially-established environmental escrow account and used for remediation of the Site. The Consent Decree would require that the work at the Site by Paradigm and the Estate conform to a detailed set of EPA-approved work plans appended to the Decree. The Decree also requires Paradigm to post financial assurance as backing for its commitment to assure the clean closure of the reprocessing area after its work is completed. All EPA costs of overseeing the sale and reprocessing activities would be reimbursed under the settlement.
In addition, the proposed Consent Decree would resolve claims against the Estate under the Resource Conservation and Recovery Act (“RCRA”) and the Clean Water Act in exchange for: (i) $471,000 to be transferred from a RCRA Financial Assurance Trust Fund established by Chemetco to a Superfund Special Account that can be used to fund cleanup work at the Site; (ii) a $500,000 allowed claim for civil penalties against the Estate; and (iii) conditions limiting the sale of a parking lot area that was created by filling a portion of a wetland with slag.
The publication of this notice opens a period for public comment on the proposed Consent Decree. Comments should be addressed to the Assistant Attorney General, Environment and Natural Resources Division, and should refer to
The United States also intends to hold a public meeting on the proposed Consent Decree pursuant to section 7003(d) of RCRA. The meeting will be held at 6:30 p.m. on August 6, 2013, at the Hartford Community Center, located at 715 N. Delmar Avenue in Hartford, Illinois.
During the public comment period, the Consent Decree may be examined and downloaded at this Justice Department Web site:
Please enclose a check or money order for $147.25 (25 cents per page reproduction cost) payable to the United States Treasury. For a paper copy without the exhibits, the cost is $28.50.
On June 26, 2013, the Department of Justice lodged a proposed Consent Decree with the United States District Court for the Southern District of Illinois in the lawsuit entitled
The United States, on behalf of the U.S. Environmental Protection Agency, has filed a complaint under the Clean Air Act asserting claims relating to two Midwestern heat recovery coking facilities, one of which is located in Granite City, Illinois (the “Gateway Facility”), and the other of which is located in Franklin Furnace, Ohio (the “Haverhill Facility”). The United States seeks civil penalties and injunctive relief against the owners and operators of the Gateway and Haverhill Facilities. The Haverhill Coke Company, LLC, formerly known as the Haverhill North Coke Company, is an owner and operator of the Haverhill Facility along with SunCoke Energy, Inc. (“SunCoke”) (together “the Haverhill Defendants”). The Gateway Energy & Coke Company, LLC is an owner and operator of the Gateway Facility along with SunCoke (together “the Gateway Defendants”).
The States of Illinois and Ohio are co-plaintiffs in this action. The State of Illinois asserts claims in this action relating to the Gateway Facility under the Illinois Environmental Protection
The Consent Decree would require (1) installation of process equipment to provide redundancy that will allow hot coking gases to be routed to a pollution control device instead of vented directly to the atmosphere in the event of equipment downtime; (2) installation of continuous emissions monitoring systems for sulfur dioxide, at one bypass vent per process unit (two at the Haverhill Facility and one at the Gateway Facility); (3) payment of a civil penalty of $1.995 million, of which $1.27 million will go to the United States, $575,000 to the State of Illinois, and $150,000 to the State of Ohio; and (4) performance of a lead hazard abatement supplemental environmental project at a cost of $255,000 at the Gateway Facility.
In a
During the public comment period, the Consent Decree may be examined and downloaded at this Justice Department Web site:
Please enclose a check or money order for $29.75 (25 cents per page reproduction cost) payable to the United States Treasury. For a paper copy without the exhibits and signature pages, the cost is $16.25.
On July 15, 2013, the Department of Justice lodged a proposed consent decree with the United States District Court for the Western District of Arkansas in the lawsuit entitled
The United States filed this lawsuit under the Clean Water Act. The United States' complaint seeks injunctive relief and civil penalties for discharges of pollutants, in violation of Section 301 of the Clean Water Act, at property located southwest of the city of El Dorado, Arkansas. The consent decree requires the defendant to perform injunctive relief and pay a $504,000 penalty.
The publication of the notice opens a period for public comment on the consent decree. Comments should be addressed to the Assistant Attorney General, Environment and Natural Resources Division, and should refer to
During the public comment period, the consent decree may be examined and downloaded at this Justice Department Web site:
Please enclose a check or money order for $9.50 (25 cents per page reproduction cost) payable to the United States Treasury.
On July 18, 2013, the Department of Justice lodged a proposed Consent Decree (“Decree”) with the United States District Court for the Middle District of Pennsylvania in the lawsuit entitled
In this action the United States, on behalf of the Environmental Protection Agency (“EPA”), filed a complaint against Defendant seeking permanent injunctive relief and civil penalties under the Clean Water Act (“CWA”), 33 U.S.C. 1251–1387, resulting from unauthorized discharges of flowback fluid and produced fluid into waters of the United States from tanks and valves associated with Defendant's hydraulic fracturing operations at Defendant's well pad and storage facility located at 301 Marquardt Road, in Penn Township, Lycoming County, Pennsylvania. Produced fluid and flowback fluid contain contaminants such as barium, calcium, iron, magnesium, manganese, potassium, sodium, strontium, bromide, chloride,
The publication of this notice opens a period for public comment on the Decree. Comments should be addressed to the Acting Assistant Attorney General, Environment and Natural Resources Division and should refer to
During the public comment period, the Decree may be examined on the following Department of Justice Web site:
Please enclose a check or money order in the amount of $10.00 (.25 cents per page reproduction cost) payable to the U.S. Treasury.
Pursuant to the authority contained in Section 512 of the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. 1142, the 167th open meeting of the Advisory Council on Employee Welfare and Pension Benefit Plans (also known as the ERISA Advisory Council) will be held on August 27–29, 2013.
The three-day meeting will take place at the U.S. Department of Labor, 200 Constitution Avenue NW., Washington, DC 20210 in C5521 Room 4. The meeting will run from 9:00 a.m. to approximately 5:30 p.m. on August 27–28 and from 8:30 a.m. to 5 p.m. on August 29, with a one hour break for lunch each day. The purpose of the open meeting is for Advisory Council members to hear testimony from invited witnesses and to receive an update from the Employee Benefits Security Administration (EBSA). The EBSA update is scheduled for the morning of August 28, subject to change.
The Advisory Council will study the following issues: (1) Successful Retirement Plan Communications for Various Population Segments, (2), Locating Missing and Lost Participants, and (3) Private Sector Pension De-risking and Participant Protections. The schedule for testimony and discussion of these issues generally will be one issue per day in the order noted above. Descriptions of these topics are available on the Advisory Council page of the EBSA Web site, at
Organizations or members of the public wishing to submit a written statement may do so by submitting 30 copies on or before August 20, 2013 to Larry Good, Executive Secretary, ERISA Advisory Council, U.S. Department of Labor, Suite N–5623, 200 Constitution Avenue NW., Washington, DC 20210. Statements also may be submitted as email attachments in text or pdf format transmitted to
Individuals or representatives of organizations wishing to address the Advisory Council should forward their requests to the Executive Secretary or telephone (202) 693–8668. Oral presentations will be limited to 10 minutes, time permitting, but an extended statement may be submitted for the record. Individuals with disabilities who need special accommodations should contact the Executive Secretary by August 20.
Employment and Training Administration (ETA), Labor.
Notice.
The Department of Labor (Department), as part of its continuing effort to reduce paperwork and respondent burden, conducts a preclearance consultation program to provide the public and Federal agencies with an opportunity to comment on proposed and/or continuing collections of information in accordance with the Paperwork Reduction Act (PRA) of 1995 [44 U.S.C. 3506(c)(2)(A)]. This program helps ensure that requested data can be provided in the desired format, reporting burden (time and financial resources) is minimized, collection instruments are clearly understood, and the impact of collection requirements on respondents can be properly assessed.
Currently, ETA is soliciting comments concerning the collection of data about “Veterans Retraining Assistance Program Participant Outreach Reporting” which is a request for an extension without changes to the data collection from State Workforce
Written comments must be submitted to the office listed in the addresses section below on or before September 23, 2013.
Submit written comments to Andrew Ridgeway, Office of Workforce Investment, Room S–4203, Employment and Training Administration, U.S. Department of Labor, 200 Constitution Avenue NW., Washington, DC 20210. Telephone number: 202–693–3536 (this is not a toll-free number). Individuals with hearing or speech impairments may access the telephone number above via TTY by calling the toll-free Federal Information Relay Service at 1–877–889–5627 (TTY/TDD). Fax: 202–693–3817. Email:
ETA seeks extension without changes for its approval (OMB Control Number: 1205–0511) of the collection of quarterly outreach reports from SWA on VRAP, which is part of the VOW to Hire Heroes Act of 2011 (Pub. L. 112–56). VRAP is a new training program for eligible veterans funded by the Department of Veterans Affairs (VA). The program requires DOL to offer employment placement services to each veteran who participated in the VRAP within 30 days of their completion or termination. VA, in collaboration with DOL, is required to submit a report to Congress by July 1, 2014, on the outcomes of the program. The statutorily required report must include the total number of eligible veterans who participated, the associates degrees or certificates awarded (or other similar evidence of the completion of the program of education or training earned), and data related to the employment status of eligible veterans who participated in the program. The program was authorized to enroll up to 45,000 veterans in Fiscal Year 2012, from July 1, 2012 through September 30, 2012, and up to 54,000 additional veterans from October 1, 2012, through October 1, 2013, with all training to conclude no later than March 31, 2014.
VRAP provides up to 12 months of full-time retraining assistance (currently $1,564 per month) in a “high demand” occupation to eligible veterans at a VA approved community college or technical school. VRAP provides the benefit to veterans who fulfill the following eligibility criteria: as of date of application, is at least 35 years old and less than 60; discharged from active duty under conditions other than dishonorable; is unemployed as of date of application; is not eligible to receive other educational assistance from the VA; is not in receipt of compensation for a service-connected disability rated totally disabling by reason of unemployability; was not and is not enrolled in any Federal or State job training program within the previous 180 days; and, the application must be submitted not later than October 1, 2013.
Once the veteran has terminated or completed the VRAP, the VA transmits a secure participant report to DOL so that employment services can be offered to the participant and program outcomes can be reported. DOL will transmit a report to each State on VRAP participants within that State who terminated or completed VRAP. DOL will transmit each State's file on a weekly basis using a secure File Transfer Protocol site. Each State will be able to access only its file so that it can disseminate the participant information securely to the appropriate American Job Center (AJC) staff in the participant's local area enabling the AJC to offer employment services to the veteran.
To ensure employment services are being offered and outcomes are being tracked for all participants, ETA is proposing to collect quarterly reports from the States, with a 45-day reporting period following each quarter, on the outreach offered to VRAP participants. In order to reduce the amount of participant information being transferred, ETA is proposing to add two data fields to the participant report it sends to the States. The report will be in Microsoft Excel format and will include a “unique identifier” field (not personally identifiable information), assigned by ETA and an “Employment Assistance” field which will be blank. The collection instrument is included as an attachment in the ICR package. The SWA tracking the outreach offered to each VRAP participant will complete the “Employment Assistance” field. ETA is seeking an extension without changes of its approval from OMB to collect from each State the “unique identifier” field and the “Employment Assistance” field on a quarterly basis.
This information collection is subject to PRA. A Federal agency generally cannot conduct or sponsor a collection of information, and the public is generally not required to respond to an information collection, unless it is approved by the OMB under the PRA and displays a currently valid OMB Control Number. In addition, notwithstanding any other provisions of law, no person shall generally be subject to penalty for failing to comply with a collection of information if the collection of information does not display a valid OMB Control Number. See 5 CFR 1320.5(a) and 1320.6.
The Department is particularly interested in comments which:
• Evaluate whether the proposed collection of information is necessary for the proper performance of the functions of the agency, including whether the information will have practical utility;
• Evaluate the accuracy of the agency's estimate of the burden of the proposed collection of information, including the validity of the methodology and assumptions used;
• Enhance the quality, utility, and clarity of the information to be collected; and
• Minimize the burden of the collection of information on those who are to respond, including through the use of appropriate automated, electronic, mechanical, or other technological collection techniques or other forms of information technology, e.g., permitting electronic submissions of responses.
Comments submitted in response to this comment request will be summarized and/or included in the request for OMB extension of approval of the ICR; they will also become a matter of public record.
National Labor Relations Board.
Notice of administrative change in status of the following offices of the National Labor Relations Board.
• Puerto Rico Regional Office (Region 24) to be designated as Subregional Office (Subregion 24) of the Tampa Regional Office (Region 12)
• Milwaukee Regional Office (Region 30) to be designated as Subregional Office (Subregion 30) of the Minneapolis Regional Office (Region 18)
The National Labor Relations Board is restructuring its Regional Offices in Puerto Rico and Milwaukee to designate them as Subregional Offices assigned to the supervision of the Tampa and Minneapolis Regional Offices, respectively. Concurrent with this Notice, the National Labor Relations Board is revising its Statement of Organization and Functions accordingly.
These changes are prompted by a decline in unfair labor practice and representation case filings in each of the Regional Offices subject to this restructuring and a desire to equalize caseload and case management responsibilities in all affected Offices. The revisions are nonsubstantive or merely procedural in nature.
Gary Shinners, Executive Secretary, 1099 14th Street NW., Room 11600, Washington, DC 20570. Telephone: (202) 273–1067.
The National Labor Relations Board has decided to restructure the status of the Agency's Regional Offices in Puerto Rico and Milwaukee to designate them as Subregional Offices of the Tampa and Minneapolis Regional Offices, respectively. The Puerto Rico office will be redesignated as Subregion 24; the Milwaukee office will be redesignated as Subregion 30. These changes are prompted by a decline in unfair labor practice and representation case filings in each of the Regional Offices subject to this restructuring and a desire to equalize caseload and case management responsibilities in all affected Offices.
The Puerto Rico and Milwaukee Regional Offices have been headed by a Regional Director, who had full authority for the processing of both unfair labor practice and representation cases. The newly-designated Subregional Offices will now be headed by an Officer-in-Charge, who will report to their respective Regional Directors in Tampa and Minneapolis. These changes will vest these Regional Directors with casehandling authority for the geographical area covered by their newly-designated Subregional Office. The geographical areas covered by the Subregional Offices will continue to be the same as when they were designated as Regional Offices.
The most recent list of Regional and Subregional Offices was published at 65 FR 53228–53229 on August 29, 2000, as amended at 77 FR 72886–01 on December 6, 2012.
Concurrent with this Notice, the NLRB is revising its Statement of Organization and Functions to reflect the addition of Subregions 24 and 30 supervised by their respective Regional Offices and the elimination of Regions 24 and 30 as Regional Offices. The revisions to the Board's Statement of Organization and Functions are attached hereto.
Since April 2013, the NLRB has solicited and received feedback on the proposed restructuring of these offices. The decision to restructure the Agency's operations in the manner set forth herein was informed by comments from stakeholders, members of Congress and Agency employees. Because this is a general notice that is related to the organization of the NLRB, it is not a regulation or rule subject to Executive Order 12866.
Pursuant to the changes set forth herein, the National Labor Relations Board is amending its Statement of Organization and Functions as follows:
(A) Section 203 is amended to read as follows:
Sec. 203
(B) “Appendix—Regional and Subregional Offices” is amended to read as follows:
Alphabetical list of States showing location in relation to Regions and Subregions. (Note that respective Region number follows Subregion number to facilitate locating areas serviced.)
(C) “Areas Served by Regional and Subregional Offices” is amended in following manner:
(1) Delete Reference to Region 24
(2) Region 12 is amended to read as follows:
Persons may also obtain service at the Resident Offices located in Miami and Jacksonville, Florida.
(3) Delete reference to Region 30
(4) Region 18 is amended to read as follows:
Persons may also obtain service at the Resident Office located in Des Moines, Iowa.
By Direction of the Board.
Nuclear Regulatory Commission.
License renewal application; notice of docketing and opportunity to request a hearing and to petition for leave to intervene.
This is a notice of acceptance for docketing and notice of opportunity for hearing regarding the renewal of operating licenses for the Byron Nuclear Station (Byron), Units 1 and 2, and the Braidwood Nuclear Station (Braidwood), Units 1 and 2. The NRC is considering an application for the renewal of operating licenses NPF–37, NPF–66, NPF–72, and NPF–77, which authorize Exelon Generation Company, LLC (Exelon), to operate Byron, Units 1 and 2, at 3586.6 megawatts thermal each, and Braidwood, Units 1 and 2, at 3586.6 megawatts thermal each. Byron, Units 1 and 2, are located near Byron, IL; Braidwood, Units 1 and 2, are located near Braidwood, IL. The renewed licenses would authorize the applicant to operate both Byron and Braidwood for an additional 20 years beyond the period specified in each of the respective current licenses. The current operating licenses for Byron expire as follows: Unit 1 (NPF–37) on October 31, 2024, and Unit 2 (NPF–66) on November 6, 2026. The current operating licenses for Braidwood expire as follows: Unit 1 (NPF–72) on October 17, 2026, and Unit 2 (NPF–77) on December 18, 2027.
Please refer to Docket ID NRC–2013–0126 when contacting the U.S. Nuclear Regulatory Commission (NRC) about the availability of information regarding this document.
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John Daily, Senior Project Manager, Projects Branch 1, Division of License Renewal, Office of Nuclear Reactor Regulation, U.S. Nuclear Regulatory
Exelon submitted the application dated May 29, 2013, pursuant to Part 54 of Title 10 of the
The Commission's staff has determined that Exelon has submitted sufficient information in accordance with 10 CFR 54.19, 54.21, 54.22, 54.23, 51.45, and 51.53(c), to enable the staff to undertake a review of the application, and that the application is therefore acceptable for docketing. The current Docket numbers, 50–454, 50–455, 50–456, and 50–457, for operating license numbers NPF–37, NPF–66, NPF–72, and NPF–77, respectively, will be retained. The determination to accept the LRA for docketing does not constitute a determination that a renewed license should be issued, and does not preclude the NRC staff from requesting additional information as the review proceeds.
Before issuance of the requested renewed licenses, the NRC will have made the findings required by the Atomic Energy Act of 1954, as amended (the Act), and the Commission's rules and regulations. In accordance with 10 CFR 54.29, the NRC may issue a renewed license on the basis of its review if it finds that actions have been identified and have been or will be taken with respect to: (1) Managing the effects of aging during the period of extended operation on the functionality of structures and components that have been identified as requiring aging management review; and (2) time-limited aging analyses that have been identified as requiring review, such that there is reasonable assurance that the activities authorized by the renewed license will continue to be conducted in accordance with the current licensing basis (CLB) and that any changes made to the plant's CLB will comply with the Act and the Commission's regulations.
Additionally, in accordance with 10 CFR 51.95(c), the NRC will prepare an environmental impact statement for each site as supplements to the Commission's NUREG–1437, “Generic Environmental Impact Statement for License Renewal of Nuclear Power Plants,” dated May 1996. In considering the LRA, the Commission must find that the applicable requirements of Subpart A of 10 CFR part 51 have been satisfied, and that matters raised under 10 CFR 2.335 have been addressed. Pursuant to 10 CFR 51.26, and as part of the environmental scoping process, the staff intends to hold public scoping meetings. Detailed information regarding the environmental scoping meetings will be the subject of a separate
Within 60 days after the date of publication of this
As required by 10 CFR 2.309, a petition for leave to intervene shall set forth with particularity the interest of the petitioner in the proceeding, and how that interest may be affected by the results of the proceeding, taking into consideration the limited scope of matters that may be considered pursuant to 10 CFR parts 51 and 54. Pursuant to 10 CFR 2.309(d), the petition must provide the name, address, and telephone number of the petitioner; and specifically explain the reasons why intervention should be permitted with particular reference to the following factors for the Byron and/or Braidwood sites: (1) The nature of the requestor's/petitioner's right under the Act to be made a party to the proceeding; (2) the nature and extent of the requestor's/petitioner's property, financial, or other interest in the proceeding; and (3) the possible effect of any decision or order which may be entered in the proceeding on the requestor's/petitioner's interest. The petition must also set forth the specific contentions which the petitioner/requestor seeks to have litigated at the proceeding.
In accordance with 10 CFR 2.309(f), each contention must consist of a specific statement of the issue of law or fact to be raised or controverted. In addition, the requestor/petitioner shall provide a brief explanation of the basis for each contention and a concise statement of the alleged facts or the expert opinion that supports the contention on which the requestor/petitioner intends to rely in proving the contention at the hearing. The requestor/petitioner must also provide
Petitions filed after the deadline, amended petitions, and supplemental petitions will not be entertained absent a determination by the Commission, the Atomic Safety and Licensing Board Panel or a Presiding Officer that the filing demonstrates good cause by satisfying the following three factors in 10 CFR 2.309(c)(1): (i) The information upon which the filing is based was not previously available; (ii) The information upon which the filing is based is materially different from information previously available; and (iii) The filing has been submitted in a timely fashion based on the availability of the subsequent information.
A State, county, municipality, Federally-recognized Indian Tribe, or agencies thereof, may submit a petition to the Commission to participate as a party under 10 CFR 2.309(d)(2). The petition should state the nature and extent of the petitioner's interest in the proceeding. The petition should be submitted to the Commission by September 23, 2013. The petition must be filed in accordance with the filing instructions described above in this notice, and should meet the requirements for petitions for leave to intervene set forth in this section, except that State and Federally-recognized Indian tribes do not need to address the standing requirements in 10 CFR 2.309(d)(1) if the facility is located within its boundaries. The entities listed above could also seek to participate in a hearing as a nonparty pursuant to 10 CFR 2.315(c).
Any person who does not wish, or is not qualified, to become a party to this proceeding may request permission to make a limited appearance pursuant to the provisions of 10 CFR 2.315(a). A person making a limited appearance may make an oral or written statement of position on the issues, but may not otherwise participate in the proceeding. A limited appearance may be made at any session of the hearing or at any prehearing conference, subject to such limits and conditions as may be imposed by the Atomic Safety and Licensing Board. Persons desiring to make a limited appearance are requested to inform the Secretary of the Commission by September 23, 2013.
The Commission requests that each contention be given a separate numeric or alpha designation within one of the following groups: (1) Technical (primarily related to safety concerns); (2) environmental; or (3) miscellaneous.
As specified in 10 CFR 2.309, if two or more requestors/petitioners seek to co-sponsor a contention or propose substantially the same contention, the requestors/petitioners will be required to jointly designate a representative who shall have the authority to act for the requestors/petitioners with respect to that contention.
All documents filed in NRC adjudicatory proceedings, including a request for hearing, a petition for leave to intervene, any motion or other document filed in the proceeding prior to the submission of a request for hearing or petition to intervene, and documents filed by interested governmental entities participating under 10 CFR 2.315(c), must be filed in accordance with the NRC E-Filing rule (72 FR 49139, August 28, 2007). The E-Filing process requires participants to submit and serve all adjudicatory documents over the internet, or in some cases to mail copies on electronic storage media. Participants may not submit paper copies of their filings unless they seek an exemption in accordance with the procedures described below.
To comply with the procedural requirements of E-Filing, at least ten 10 days prior to the filing deadline, the participant should contact the Office of the Secretary by email at
Information about applying for a digital ID certificate is available on the NRC's public Web site at
If a participant is electronically submitting a document to the NRC in accordance with the E-Filing rule, the participant must file the document using the NRC's online, Web-based submission form. In order to serve documents through the Electronic Information Exchange System, users will be required to install a Web browser plug-in from the NRC's Web site. Further information on the Web-based submission form, including the installation of the Web browser plug-in, is available on the NRC's public Web site at
Once a participant has obtained a digital ID certificate and a docket has been created, the participant can then submit a request for hearing or petition for leave to intervene. Submissions should be in Portable Document Format (PDF) in accordance with NRC guidance available on the NRC's public Web site at
A person filing electronically using the NRC's adjudicatory E-Filing system may seek assistance by contacting the NRC Meta System Help Desk through the “Contact Us” link located on the NRC's public Web site at
Participants who believe that they have a good cause for not submitting documents electronically must file an exemption request, in accordance with 10 CFR 2.302(g), with their initial paper filing requesting authorization to continue to submit documents in paper format. Such filings must be submitted by: (1) First class mail addressed to the Office of the Secretary of the Commission, U.S. Nuclear Regulatory Commission, Washington, DC 20555–0001, Attention: Rulemaking and Adjudications Staff; or (2) courier, express mail, or expedited delivery service to the Office of the Secretary, Sixteenth Floor, One White Flint North, 11555 Rockville Pike, Rockville, Maryland 20852, Attention: Rulemaking and Adjudications Staff. Participants filing a document in this manner are responsible for serving the document on all other participants. Filing is considered complete by first-class mail as of the time of deposit in the mail, or by courier, express mail, or expedited delivery service upon depositing the document with the provider of the service. A presiding officer, having granted an exemption request from using E-Filing, may require a participant or party to use E-Filing if the presiding officer subsequently determines that the reason for granting the exemption from use of E-Filing no longer exists.
Documents submitted in adjudicatory proceedings will appear in the NRC's electronic hearing docket which is available to the public at
Detailed information about the license renewal process can be found under the Nuclear Reactors icon at
The NRC staff has verified that a copy of the license renewal application is also available to local residents near Byron at the Byron Public Library, 100 S. Washington Street, Byron, IL 61010, and near Braidwood at the Fossil Ridge (Braidwood) Public Library, 386 W. Kennedy Road, Braidwood, IL 60408.
For the Nuclear Regulatory Commission.
Notice is hereby given that, pursuant to the Paperwork Reduction Act of 1995 (44 U.S.C. 3501
Regulation A (17 CFR 230.251 through 230.263) provides an exemption from registration under the Securities Act of 1933 (15 U.S.C. 77a
An agency may conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a currently valid control number.
The public may view the background documentation for this information collection at the following Web site,
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the “Act”)
The MSRB is filing with the Commission a proposed rule change consisting of amendments to MSRB Rule A–3 to modify the standard of independence for public Board members (the “proposed rule change”).
The text of the proposed rule change is available on the MSRB's Web site at
In its filing with the Commission, the MSRB included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The MSRB has prepared summaries, set forth in Sections A, B, and C below, of the most significant aspects of such statements.
The MSRB is the self-regulatory organization created by Congress to establish rules governing the municipal securities activities of brokers, dealers and municipal securities dealers (collectively “dealers”) and the municipal advisory activities of municipal advisors (collectively “regulated entities”). It is governed by a 21-member board composed of eleven independent public members and ten regulated members.
The MSRB's mission is to protect municipal entities, investors and the public interest by promoting a fair and efficient municipal securities market. The MSRB fulfills this mission by regulating dealers and municipal advisors and providing market transparency through its Electronic Municipal Market Access (“EMMA®”) Web site.
Given the role of the board of directors in overseeing the municipal securities market, it is imperative that the board identify candidates for the board of directors who have the requisite knowledge and expertise about the municipal market and its operation.
The composition of the board of directors of the MSRB is set forth in the Act, and categorizes individuals into two broad groups: Regulated representatives and public representatives.
The public representatives must be independent of any regulated entity, and at least one of whom must be representative of institutional or retail investors, at least one of whom must be representative of municipal entities, and at least one of whom must be a member of the public with knowledge of or experience in the municipal industry.
While Congress, as part of the Dodd-Frank Act, revised the statutory composition of the board of directors, it did not specify the requirements for independence of public representatives. Rather, it delegated the obligation to the MSRB.
In 2010, in implementing this new standard, the MSRB amended Rule A–3 to define independent of any regulated entity to mean an individual who has “no material business relationship” with any regulated entity.
In practice, this standard has precluded consideration of otherwise viable candidates who are knowledgeable of matters related to the municipal securities market from serving as public representatives because such candidates are encompassed within the broad definition of “associated with” a regulated entity under the Act. This standard of independence disqualifies many individuals with the expertise and knowledge to represent investors because such persons have a regulated entity within their employer's corporate structure, even if the individual's nexus with such regulated entity is remote and cannot reasonably be seen as affecting his or her independent judgment or decision-making.
For example, a candidate whose only affiliation with a broker-dealer registered with the MSRB is due to the individual's service as an independent director on the board of directors of a company that is in the same corporate family as the broker-dealer would be disqualified from serving on the board as a public representative. Similarly, because many mutual fund and insurance companies have affiliated broker-dealers that engage in a municipal securities or municipal fund securities business, any non-clerical individual within such a company would be precluded from serving as a public representative even if the
To address this shortcoming, and consistent with the approach of the Financial Industry Regulatory Authority (“FINRA”),
The proposed rule change will, however, allow the MSRB to consider candidates who are associated with regulated entities solely by virtue of the corporate structure of their employer. Removing these limitations will allow the MSRB to consider a broader group of public representative board candidates, with an appropriate level of independence, and with the objective of maximizing the depth of municipal securities knowledge and experience on the board. Regardless of their status—public or regulated—all board members have a fiduciary duty to the MSRB and are bound by a duty of loyalty and duty of care and are obligated to act in the best interests of the organization and to avoid conflicts of interest.
The MSRB believes that the proposed rule change is consistent with the Act and, in particular, Section 15B(b) of the Act,
The proposed rule change broadens the existing independence standard and public representative board candidates would no longer be automatically disqualified solely by virtue of a tenuous corporate affiliation with a regulated entity. As noted above, the proposed rule change also makes the MSRB independence standard consistent with the standard utilized by FINRA for its public governors.
The MSRB does not believe that the proposed rule change will impose any burden on competition not necessary or appropriate in furtherance of the purposes of the Act since it broadens the potential pool of public board candidates and provides for fair representation by qualified members of the public on the board, consistent with the Act.
Written comments were neither solicited nor received on the proposed rule change.
Within 45 days of the date of publication of this notice in the
(A) By order approve or disapprove such proposed rule change, or
(B) institute proceedings to determine whether the proposed rule change should be disapproved.
Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods:
• Use the Commission's Internet comment form (
• Send an email to
• Send paper comments in triplicate to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090.
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.
Pursuant to Section 19(b)(1)
The Exchange proposes to list and trade shares of the following under NYSE Arca Equities Rule 8.600: SPDR SSgA Ultra Short Term Bond ETF; SPDR SSgA Conservative Ultra Short Term Bond ETF; and SPDR SSgA Aggressive Ultra Short Term Bond ETF. The text of the proposed rule change is available on the Exchange's Web site at
In its filing with the Commission, the self-regulatory organization included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposed rule change. The text of those statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant parts of such statements.
The Exchange proposes to list and trade shares of the following under NYSE Arca Equities Rule 8.600, which governs the listing and trading of Managed Fund Shares
Commentary .06 to Rule 8.600 provides that, if the investment adviser to the investment company issuing Managed Fund Shares is affiliated with a broker-dealer, such investment adviser shall erect a “fire wall” between the investment adviser and the broker-dealer with respect to access to information concerning the composition and/or changes to such investment company portfolio. In addition, Commentary .06 further requires that personnel who make decisions on the open-end fund's portfolio composition must be subject to procedures designed to prevent the use and dissemination of material nonpublic information regarding the open-end fund's portfolio.
According to the Registration Statement, the SPDR SSgA Ultra Short Term Bond ETF seeks to provide current income consistent with preservation of capital and daily liquidity through short duration high quality investments. Under normal circumstances,
The Adviser will invest, under normal circumstances, at least 80% of the Bond Portfolio's net assets (plus the amount of borrowings for investment purposes) in a diversified portfolio of U.S. dollar-denominated investment grade fixed income securities. The Bond Portfolio primarily will invest in investment grade fixed income securities that are rated a minimum of the lowest A rating by any Nationally Recognized Statistical Ratings Organization (“NRSRO”), or, if unrated, determined by the management team (who are employees of the Adviser) to be of equivalent quality.
According to the Registration Statement, the SPDR SSgA Conservative Ultra Short Term Bond ETF will seek to provide current income consistent with preservation of capital and daily liquidity through short duration high quality investments with the avoidance of excessive portfolio volatility.
Under normal circumstances, the Fund will invest all of its assets in the SSgA Conservative Ultra Short Term Bond Portfolio (the “Conservative Portfolio”), a separate series of the SSgA Master Trust with an identical investment objective as the Fund. As a result, the Fund will invest indirectly through the Conservative Portfolio.
The Adviser will invest, under normal circumstances, at least 80% of the Conservative Portfolio's net assets (plus the amount of borrowings for investment purposes) in a diversified portfolio of U.S. dollar-denominated investment grade fixed income securities. The Conservative Portfolio primarily will invest in investment grade fixed income securities that are rated a minimum of the lowest A rating by any NRSRO, or, if unrated, determined by the portfolio management team (who are employees of the Adviser) to be of equivalent quality, determined as described above.
Under normal circumstances, the effective duration of the Conservative Portfolio is expected to be four months or less. In addition, the Conservative Portfolio expects to maintain a weighted average maturity between six and eighteen months.
According to the Registration Statement, the SPDR SSgA Aggressive Ultra Short Term Bond ETF will seek to maximize income consistent with preservation of capital through short duration high quality investments.
Under normal circumstances, the Fund will invest all of its assets in the SSgA Aggressive Ultra Short Term Bond Portfolio (the “Aggressive Portfolio” and, together with the Bond Portfolio and the Conservative Portfolio, the “Portfolios”), a separate series of the SSgA Master Trust with an identical investment objective as the Fund. As a result, the Fund will invest indirectly through the Aggressive Portfolio.
The Adviser will invest, under normal circumstances, at least 80% of the Aggressive Portfolio's net assets (plus the amount of borrowings for investment purposes) in a diversified portfolio of U.S. dollar-denominated investment grade fixed income securities. The Aggressive Portfolio primarily will invest in investment grade fixed income securities that are rated a minimum of the lowest BBB rating by any NRSRO or, if unrated, determined by the portfolio management team (who are employees of the Adviser) to be of equivalent quality, determined as described above.
The Aggressive Portfolio will invest in fixed and floating rate securities of varying maturities, such as corporate obligations (including commercial paper of U.S. and foreign entities, master demand notes (subject to the 15% illiquid securities limit), and medium term notes); government bonds (including U.S. Treasury Bills, notes, and bonds); agency securities; privately-issued securities (which, for example, can be Rule 144A securities); asset-backed and mortgage-backed securities; and money market instruments (including U.S. and foreign bank time deposits, certificates of deposit, and banker acceptances).
Under normal circumstances, the effective duration of the Aggressive Portfolio is expected to be between six and twelve months.
According to the Registration Statement, each Portfolio will invest in bonds, including zero coupon bonds,
Each Portfolio may invest in collateralized loan obligations (“CLOs”) to the extent they meet the minimum NRSRO rating requirement described above for each Portfolio. A CLO is a financing company (generally called a Special Purpose Vehicle or “SPV”), created to reapportion the risk and return characteristics of a pool of assets. While the assets underlying CLOs are typically “Senior Loans”,
Each Portfolio may invest in sovereign debt which will be denominated in U.S. Dollars. Sovereign debt obligations are issued or guaranteed by foreign governments or their agencies. Sovereign debt may be in the form of conventional securities or other types of debt instruments such as loans or loan participations. Governmental entities responsible for repayment of the debt may be unable or unwilling to repay principal and pay interest when due, and may require renegotiation or reschedule of debt payments. In addition, prospects for repayment of principal and payment of interest may depend on political as well as economic factors. Although some sovereign debt, such as Brady Bonds, is collateralized by U.S. Government securities, repayment of principal and payment of
Each Portfolio may invest in U.S. Government obligations. U.S. Government obligations are a type of bond. U.S. Government obligations include securities issued or guaranteed as to principal and interest by the U.S. Government, its agencies or instrumentalities.
Other U.S. Government obligations are issued or guaranteed by agencies or instrumentalities of the U.S. Government including, but not limited to, Federal National Mortgage Association (“Fannie Mae”), the Government National Mortgage Association (“Ginnie Mae”), the Small Business Administration, the Federal Farm Credit Administration, the Federal Home Loan Mortgage Corporation (“Freddie Mac”), the Federal Home Loan Banks (“FHLB”), Banks for Cooperatives (including the Central Bank for Cooperatives), the Federal Land Banks, the Federal Intermediate Credit Banks, the Tennessee Valley Authority, the Export-Import Bank of the United States, the Commodity Credit Corporation, the Federal Financing Bank, the Student Loan Marketing Association, the National Credit Union Administration and the Federal Agricultural Mortgage Corporation (“Farmer Mac”).
The Portfolios may invest in asset-backed and commercial mortgaged-backed securities.
The Portfolios may each invest a substantial portion of its assets in U.S. agency mortgage pass-through securities. The term “U.S. agency mortgage pass-through security” refers to a category of pass-through securities backed by pools of mortgages and issued by one of several U.S. government-sponsored enterprises: Ginnie Mae, Fannie Mae or Freddie Mac. In the basic mortgage pass-through structure, mortgages with similar issuer, term and coupon characteristics are collected and aggregated into a “pool” consisting of multiple mortgage loans. The pool is assigned a CUSIP number and undivided interests in the pool are traded and sold as pass-through securities. The holder of the security is entitled to a pro rata share of principal and interest payments (including unscheduled prepayments) from the pool of mortgage loans. Each Portfolio may invest in restricted securities. Restricted securities are securities that are not registered under the Securities Act, but which can be offered and sold to “qualified institutional buyers” under Rule 144A under the Securities Act.
Each Portfolio may invest in short-term instruments, including money market instruments, repurchase agreements, cash and cash equivalents, on an ongoing basis to provide liquidity or for other reasons. Money market instruments are generally short-term investments that may include but are not limited to: (i) Shares of money market funds (including those advised by the Adviser); (ii) obligations issued or guaranteed by the U.S. government, its agencies or instrumentalities (including government-sponsored enterprises); (iii) negotiable certificates of deposit, bankers' acceptances, fixed time deposits and other obligations of U.S. and foreign banks (including foreign branches) and similar institutions; (iv) commercial paper rated at the date of purchase “Prime-1” by Moody's or “A–1” by S&P, or if unrated, of comparable quality as determined by the Adviser;
The Funds are actively-managed and not tied to an index. The Exchange notes, however, that each Fund's Portfolio will meet certain criteria for index-based, fixed income exchange-traded funds contained in NYSEArca Equities Rule 5.2(j)(3), Commentary .02.
The following are additional possible investments of each Portfolio that are not included under the 80% investment policies described above for each Fund.
Each Portfolio may invest in the securities of other investment companies, including money market funds and closed-end funds, subject to applicable limitations under Section 12(d)(1) of the 1940 Act. Each Portfolio may invest in exchange traded products (“ETPs”).
Each Portfolio may invest in one or more ETPs that are qualified publicly traded partnerships (“QPTPs”) and whose principal activities are the buying and selling of commodities or options, futures, or forwards with respect to commodities.
According to the Registration Statement, each Portfolio may invest in preferred securities. Preferred securities pay fixed or adjustable rate dividends to investors, and have “preference” over common stock in the payment of dividends and the liquidation of a company's assets. The market value of preferred securities may be affected by favorable and unfavorable changes impacting companies in the utilities and financial services sectors, which are prominent issuers of preferred securities, and by actual and anticipated changes in tax laws.
Each Portfolio may invest in convertible securities. Convertible securities are bonds, debentures, notes, preferred stocks or other securities that may be converted or exchanged (by the holder or by the issuer) into shares of the underlying common stock (or cash or securities of equivalent value) at a stated exchange ratio. A convertible security may also be called for redemption or conversion by the issuer after a particular date and under certain circumstances (including a specified price) established upon issue.
Each Portfolio may invest in high yield debt securities.
Each Portfolio may invest in Variable Rate Demand Obligations (“VRDO”). VRDOs are short-term tax exempt fixed income instruments whose yield is reset on a periodic basis. VRDO securities tend to be issued with long maturities of up to 30 or 40 years; however, they are considered short-term instruments because they include a put feature which coincides with the periodic yield reset.
The Portfolios may invest in inflation-protected public obligations, commonly known as “TIPS”, of the U.S. Treasury, as well as TIPS of major governments and emerging market countries, excluding the United States. TIPS are a type of security issued by a government that are designed to provide inflation protection to investors. TIPS are income-generating instruments whose interest and principal payments are adjusted for inflation. The inflation adjustment, which is typically applied monthly to the principal of the bond, follows a designated inflation index, such as the Consumer Price Index. A fixed coupon rate is applied to the inflation-adjusted principal so that as inflation rises or falls, both the principal value and the interest payments will increase or decrease.
Each Portfolio may invest a portion of its assets in Build America Bonds. Build America Bonds offer an alternative form of financing to state and local governments whose primary means for accessing the capital markets has historically been through the issuance of tax-free municipal bonds. The Build America Bond program allows state and local governments to issue taxable bonds for capital projects and to receive a direct federal subsidy payment from the Treasury Department for a portion of their borrowing costs.
The Portfolios may seek to obtain exposure to U.S. agency mortgage pass-through securities through the use of “to-be-announced” or “TBA transactions.” “TBA” refers to a commonly used mechanism for the forward settlement of U.S. agency mortgage pass-through securities, and not to a separate type of mortgage-backed security. Most transactions in mortgage pass-through securities occur through the use of TBA transactions.
Each Portfolio may invest in repurchase agreements with commercial banks, brokers or dealers to generate income from its excess cash balances. A repurchase agreement is an agreement under which a fund acquires a financial instrument (
Each Portfolio may invest in sovereign debt which may be denominated in local currencies. Sovereign debt obligations are issued or guaranteed by foreign governments or their agencies. Sovereign debt may be in the form of conventional securities or other types of debt instruments such as loans or loan participations. Governmental entities responsible for repayment of the debt may be unable or unwilling to repay principal and pay interest when due, and may require renegotiation or reschedule of debt payments. In addition, prospects for repayment of principal and payment of interest may depend on political as well as economic factors.
Each Portfolio may invest in foreign currency transactions on a spot (cash) basis and currency forwards for hedging or trade settlement purposes.
Each Portfolio may enter into reverse repurchase agreements, which involve the sale of securities with an agreement to repurchase the securities at an agreed-upon price, date and interest payment and have the characteristics of borrowing.
Each Portfolio may hold up to an aggregate amount of 15% of its net assets in illiquid securities (calculated at the time of investment), including Rule 144A securities deemed illiquid by the Adviser,
Each Portfolio will be classified as a “non-diversified” investment company under the 1940 Act
The Portfolios intend to qualify for and to elect treatment as a separate regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code.
In extreme situations or market conditions,
Except for ETPs that may hold non-U.S. equity issues, the Funds and the Portfolios will not otherwise invest in non-U.S equity issues. Neither the Funds nor the Portfolios will invest in options contracts, futures contracts, or swap agreements.
The Shares will conform to the initial and continued listing criteria under NYSE Arca Equities Rule 8.600. The Exchange represents that, for initial and/or continued listing, the Funds will be in compliance with Rule 10A–3
The Funds are intended to be managed in a “master-feeder” structure, under which each Fund invests substantially all of its assets in a corresponding Portfolio (
The Adviser will manage the investments of each Portfolio. Under the master-feeder arrangement, and pursuant to the Investment Advisory Agreement between the Adviser and the Trust, investment advisory fees charged at the Portfolio level are deducted from the advisory fees charged at the Fund level. This arrangement avoids a “layering” of fees,
According to the Registration Statement, each Fund will calculate net asset value (“NAV”) using the NAV of the respective Portfolio. NAV per Share for each Portfolio will be computed by dividing the value of the net assets of the Portfolio (
In calculating a Portfolio's NAV per Share, the Portfolio's investments are generally valued using market valuations. A market valuation generally means a valuation (i) obtained from an exchange, a pricing service, or a major market maker (or dealer), (ii) based on a price quotation or other equivalent indication of value supplied by an exchange, a pricing service, or a major market maker (or dealer) or (iii) based on amortized cost. In the case of shares of other funds (
In the event that current market valuations are not readily available or such valuations do not reflect current market value, the SSgA Master Trust's procedures require the Pricing and Investment Committee to determine a security's fair value if a market price is not readily available in accordance with the 1940 Act. In determining such value the Pricing and Investment Committee may consider, among other things, (i)
According to the Registration Statement, each Fund will issue and redeem Shares only in Creation Units at the NAV next determined after receipt of an order on a continuous basis every business day. The NAV of a Fund will be determined once each business day, normally as of the closing of the regular trading session on the NYSE (normally 4:00 p.m., E.T.). Creation Unit sizes are 50,000 Shares per Creation Unit. The Creation Unit size for a Fund may change.
The consideration for purchase of a Creation Unit of a Fund generally will consist of either (i) the in-kind deposit of a designated portfolio of securities (the “Deposit Securities”) per each Creation Unit and the Cash Component (defined below), computed as described below or (ii) the cash value of the Deposit Securities (“Deposit Cash”) and the “Cash Component,” computed as described below. When accepting purchases of Creation Units for cash, a Fund may incur additional costs associated with the acquisition of Deposit Securities that would otherwise be provided by an in-kind purchaser.
Together, the Deposit Securities or Deposit Cash, as applicable, and the Cash Component constitute the “Fund Deposit,” which represents the minimum initial and subsequent investment amount for a Creation Unit of any Fund. The “Cash Component” is an amount equal to the difference between the NAV of the Shares (per Creation Unit) and the market value of the Deposit Securities or Deposit Cash, as applicable. The Cash Component serves the function of compensating for any differences between the NAV per Creation Unit and the market value of the Deposit Securities or Deposit Cash, as applicable.
The Custodian, through the National Securities Clearing Corporation (“NSCC”), will make available on each business day, immediately prior to the opening of business on the Exchange (currently 9:30 a.m., E.T.), the list of the names and the required number of shares, if applicable, of each Deposit Security or the required amount of Deposit Cash, as applicable, to be included in the current Fund Deposit (based on information at the end of the previous business day) for a Fund. Such Fund Deposit is subject to any applicable adjustments as described below, in order to effect purchases of Creation Units of a Fund until such time as the next-announced composition of the Deposit Securities or the required amount of Deposit Cash, as applicable, is made available.
The Trust reserves the right to permit or require the substitution of an amount of cash (
Shares may be redeemed only in Creation Units at their NAV next determined after receipt of a redemption request in proper form by a Fund through the Transfer Agent and only on a business day.
With respect to each Fund, the Custodian, through the NSCC, will make available immediately prior to the opening of business on the Exchange on each business day, the list of the names and quantities of each Fund's portfolio securities that will be applicable (subject to possible amendment or correction) to redemption requests received in proper form on that day (“Fund Securities”). Fund Securities received on redemption may not be identical to Deposit Securities.
Redemption proceeds for a Creation Unit will be paid either in-kind or in cash or a combination thereof, as determined by the Trust. With respect to in-kind redemptions of a Fund, redemption proceeds for a Creation Unit will consist of Fund Securities as announced by the Custodian on the business day of the request for redemption received in proper form plus cash in an amount equal to the difference between the NAV of the Shares being redeemed, as next determined after a receipt of a request in proper form, and the value of the Fund Securities (the “Cash Redemption Amount”), less a fixed redemption transaction fee and any applicable additional variable charge as set forth below. In the event that the Fund Securities have a value greater than the NAV of the Shares, a compensating cash payment equal to the differential will be required to be made by or through an Authorized Participant by the redeeming shareholder. Notwithstanding the foregoing, at the Trust's discretion, an Authorized Participant may receive the corresponding cash value of the securities in lieu of the in-kind securities value representing one or more Fund Securities.
The Funds' Web site (
On a daily basis, the Adviser will disclose for each portfolio security and other financial instrument of the Funds and of the Portfolios the following information on the Funds' Web site: ticker symbol (if applicable), name of security and financial instrument, number of shares, if applicable, or dollar value of financial instruments and securities held in the portfolio, and percentage weighting of the security and financial instrument in the portfolio. The Web site information will be publicly available at no charge.
In addition, a basket composition file, which includes the security names and share quantities, if applicable, required to be delivered in exchange for a Fund's Shares, together with estimates and actual cash components, will be publicly disseminated daily prior to the opening of the NYSE via NSCC. The basket represents one Creation Unit of each Fund.
Investors can also obtain the Trust's Statement of Additional Information (“SAI”), the Funds' Shareholder Reports, and the Trust's Form N–CSR and Form N–SAR, filed twice a year. The Trust's SAI and Shareholder Reports are available free upon request from the Trust, and those documents and the Form N–CSR and Form N–SAR may be viewed on-screen or downloaded from the Commission's Web site at
Every fifteen seconds during NYSE Arca Core Trading Session, an indicative optimized portfolio value (“IOPV”) relating to each Fund will be widely disseminated by one or more major market data vendors.
Additional information regarding the Trust and the Shares, including investment strategies, risks, creation and redemption procedures, fees, portfolio holdings disclosure policies, distributions and taxes is included in the Registration Statement. All terms relating to the Funds that are referred to, but not defined in, this proposed rule change are defined in the Registration Statement.
With respect to trading halts, the Exchange may consider all relevant factors in exercising its discretion to halt or suspend trading in the Shares of the Funds.
The Exchange deems the Shares to be equity securities, thus rendering trading in the Shares subject to the Exchange's existing rules governing the trading of equity securities. Shares will trade on the NYSE Arca Marketplace from 4:00 a.m. to 8:00 p.m. E.T. in accordance with NYSE Arca Equities Rule 7.34 (Opening, Core, and Late Trading Sessions). The Exchange has appropriate rules to facilitate transactions in the Shares during all trading sessions. As provided in NYSE Arca Equities Rule 7.6, Commentary .03, the minimum price variation (“MPV”) for quoting and entry of orders in equity securities traded on the NYSE Arca Marketplace is $0.01, with the exception of securities that are priced less than $1.00 for which the MPV for order entry is $0.0001.
The Exchange represents that trading in the Shares will be subject to the existing trading surveillances, administered by the Financial Industry Regulatory Authority (“FINRA”) on behalf of the Exchange, which are designed to detect violations of Exchange rules and applicable federal securities laws.
The surveillances referred to above generally focus on detecting securities trading outside their normal patterns, which could be indicative of manipulative or other violative activity. When such situations are detected, surveillance analysis follows and investigations are opened, where appropriate, to review the behavior of all relevant parties for all relevant trading violations.
FINRA, on behalf of the Exchange, will communicate as needed regarding trading in the Shares with other markets and other entities that are members of the Intermarket Surveillance Group (“ISG”) and FINRA, on behalf of the Exchange, may obtain trading information regarding trading in the Shares from such markets and other entities. In addition, the Exchange may obtain information regarding trading in the Shares from markets and other
All equity securities held by the Funds or Portfolios, including shares of ETPs, will trade on U.S. national securities exchanges, all of which are members of ISG.
In addition, the Exchange also has a general policy prohibiting the distribution of material, non-public information by its employees.
Prior to the commencement of trading, the Exchange will inform its Equity Trading Permit Holders in an Information Bulletin (“Bulletin”) of the special characteristics and risks associated with trading the Shares. Specifically, the Bulletin will discuss the following: (1) The procedures for purchases and redemptions of Shares in Creation Units (and that Shares are not individually redeemable); (2) NYSE Arca Equities Rule 9.2(a), which imposes a duty of due diligence on its Equity Trading Permit Holders to learn the essential facts relating to every customer prior to trading the Shares; (3) the risks involved in trading the Shares during the Opening and Late Trading Sessions when an updated Portfolio Indicative Value will not be calculated or publicly disseminated; (4) how information regarding the Portfolio Indicative Value is disseminated; (5) the requirement that Equity Trading Permit Holders deliver a prospectus to investors purchasing newly issued Shares prior to or concurrently with the confirmation of a transaction; and (6) trading information.
In addition, the Bulletin will reference that the Funds are subject to various fees and expenses described in the Registration Statement. The Bulletin will discuss any exemptive, no-action, and interpretive relief granted by the Commission from any rules under the Act. The Bulletin will also disclose that the NAV for the Shares will be calculated after 4:00 p.m. E.T. each trading day.
The basis under the Act for this proposed rule change is the requirement under Section 6(b)(5)
The Exchange believes that the proposed rule change is designed to prevent fraudulent and manipulative acts and practices in that the Shares will be listed and traded on the Exchange pursuant to the initial and continued listing criteria in NYSE Arca Equities Rule 8.600. The Exchange has in place surveillance procedures that are adequate to properly monitor trading in the Shares in all trading sessions and to deter and detect violations of Exchange rules and applicable federal securities laws. FINRA, on behalf of the Exchange, will communicate as needed regarding trading in the Shares with other markets and other entities that are members of the ISG and FINRA, on behalf of the Exchange, may obtain trading information regarding trading in the Shares from such markets and other entities. In addition, the Exchange may obtain information regarding trading in the Shares from markets and other entities that are members of ISG or with which the Exchange has in place a comprehensive surveillance sharing agreement. The Adviser has implemented a “fire wall” with respect to its affiliated broker-dealer regarding access to information concerning the composition and/or changes to the Funds' portfolios. In addition, the Trust's Pricing and Investment Committee has implemented procedures designed to prevent the use and dissemination of material, non-public information regarding the Portfolios and the Funds. The Adviser will invest, under normal circumstances, at least 80% of the each Portfolio's net assets (plus the amount of borrowings for investment purposes) in a diversified portfolio of U.S. dollar-denominated investment grade fixed income securities. Non-agency residential mortgage-backed and commercial mortgage-backed investments each will be limited to 10% for each of the Portfolios. Each Fund's Portfolio will meet certain criteria for index-based, fixed income exchange-traded funds contained in NYSEArca Equities Rule 5.2(j)(3), Commentary .02, as described above. FINRA, on behalf of the Exchange, will communicate as needed regarding trading in the Shares with other markets and other entities that are members of the ISG and FINRA, on behalf of the Exchange, may obtain trading information regarding trading in the Shares from such markets and other entities. In addition, the Exchange may obtain information regarding trading in the Shares from markets and other entities that are members of ISG or with which the Exchange has in place a comprehensive surveillance sharing agreement. The ETPs held by the Funds will be traded on U.S. national securities exchanges and will be subject to the rules of such exchanges, as approved by the Commission. Except for ETPs that may hold non-U.S. equity issues, the Funds will not otherwise invest in non-U.S. equity issues. Neither the Funds nor the Portfolios will invest in options contracts, futures contracts, or swap agreements. Each Fund may hold up to an aggregate amount of 15% of its net assets in illiquid securities (calculated at the time of investment), including Rule 144A securities deemed illiquid by the Adviser, master demand notes, privately-issued securities, and loans and loan participations. Each Fund's investments will be consistent with its respective investment objective and will not be used to enhance leverage.
The proposed rule change is designed to promote just and equitable principles of trade and to protect investors and the public interest in that the Exchange will obtain a representation from the issuer of the Shares that the NAV per Share will be calculated daily and that the NAV and the Disclosed Portfolio will be made available to all market participants at the same time. In addition, a large amount of information is publicly available regarding the Funds and the Shares, thereby promoting market transparency. Moreover, the IOPV will be widely disseminated by one or more major market data vendors at least every 15 seconds during the Exchange's Core Trading Session. On each business day, before commencement of trading in Shares in the Core Trading Session on the Exchange, the Adviser will disclose on its Web site the Disclosed Portfolio that will form the basis for the Funds' calculation of NAV at the end of the business day. Information regarding market price and trading volume of the Shares will be continually available on a real-time basis throughout the day on brokers' computer screens and other electronic services, and quotation and last sale information will be available via the CTA high-speed line. The Web site for the Funds will include a form of the prospectus for the Funds and additional data relating to NAV and other applicable quantitative information. Moreover, prior to the commencement of trading, the Exchange
The proposed rule change is designed to perfect the mechanism of a free and open market and, in general, to protect investors and the public interest in that it will facilitate the listing and trading of additional types of actively-managed exchange-traded products that will enhance competition among market participants, to the benefit of investors and the marketplace. As noted above, the Exchange may obtain information regarding trading in the Shares from markets and other entities that are members of ISG or with which the Exchange has in place a comprehensive surveillance sharing agreement. In addition, as noted above, investors will have ready access to information regarding the Funds' holdings, the IOPV, the Disclosed Portfolio, and quotation and last sale information for the Shares.
The Exchange does not believe that the proposed rule change will impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. The Exchange notes that the proposed rule change will facilitate the listing and trading of additional types of actively-managed exchange-traded products that hold fixed income securities and will enhance competition among market participants, to the benefit of investors and the marketplace.
No written comments were solicited or received with respect to the proposed rule change.
Within 45 days of the date of publication of this notice in the
(A) by order approve or disapprove the proposed rule change, or
(B) institute proceedings to determine whether the proposed rule change should be disapproved.
Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods:
• Use the Commission's Internet comment form (
• Send an email to
• Send paper comments in triplicate to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090.
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.
By virtue of the authority vested in me as Secretary of State, including Section 1 of the State Department Basic Authorities Act, as amended (22 U.S.C. 2651a); the transfer provisions of the Foreign Affairs Reform and Restructuring Act of 1998, codified in 22 U.S.C. 6532; and pursuant to Executive Order 12048, as amended, I hereby delegate to the Assistant Secretary of State for European and Eurasian Affairs, to the extent authorized by law, the authority of the President under Section 102(a)(3) of the Mutual Educational and Cultural Exchange Act of 1961, Public Law 87–286, to provide for U.S. participation in the “Milan Expo 2015.”
Any act, executive order, regulation, or procedure subject to, or affected by, this delegation shall be deemed to be such act, executive order, regulation, or procedure as amended from time to time.
Notwithstanding this delegation of authority, the Secretary, the Deputy Secretary, the Deputy Secretary for Management and Resources, and the Under Secretary for Political Affairs may at any time exercise any authority or function delegated by this delegation of authority.
This delegation of authority does not rescind, supersede, or in any way affect the validity of any other delegation of authority. This includes Delegation of
This delegation of authority shall be published in the
Federal Aviation Administration (FAA), DOT.
Notice of Request for Comment
This notice announces the availability of additional draft Airman Certification Standards (ACS) documents developed by the ATSTWG for the authorized instructor certificate, the private pilot certificate and the instrument rating. These documents are available for public review, download, and comment.
Send comments on or before August 23, 2013.
Send comments identified by docket number FAA–2013–0649 using any of the following methods:
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Van L. Kerns, Manager, Regulatory Support Division, FAA Flight Standards Service, AFS 600, FAA Mike Monroney Aeronautical Center, P.O. Box 25082, Oklahoma City, OK 73125; telephone (405) 954–4431, email
On August 30, 2012, the ARAC Executive Committee accepted the FAA's assignment of a new task arising from recommendations of the Airman Testing Standards and Training Aviation Rulemaking Committee (ARC). The ARC recommended ways to ensure that the FAA's airman testing and training materials better support reduction of fatal general aviation accidents. The new task instructed the ARAC to integrate aeronautical knowledge and flight proficiency requirements for the private pilot and flight instructor certificates and the instrument rating into a single ACS document for each type of certificate and rating; to develop a detailed proposal to realign FAA training handbooks with the ACS documents; and to propose knowledge test item bank questions consistent with the integrated ACS documents and the principles set forth in the ARC's recommendations.
The FAA announced the ARAC's acceptance of this task through a
Consistent with the first part of this tasking, the ATSTWG developed draft ACS documents that align the aeronautical knowledge testing standards with the flight proficiency standards set out in the existing Practical Test Standards (PTS). In addition to supporting the FAA's effort to improve the relevance, reliability, validity, and effectiveness of aeronautical testing and training materials, the draft ACS documents support the FAA's goal of reducing fatal general aviation accidents by incorporating task-specific risk management considerations into each Area of Operation.
The ATSTWG completed its initial work on the ACS for the private pilot certificate and the instrument rating in April, 2013. At the request of the ATSTWG, the FAA made these documents available for public comment through docket number FAA–2013–0316. The comment period for the notice published on April 24, 2013 (78 FR 24289) closed May 24, 2013. Also at the request of the ATSTWG, the FAA reopened the comment period until July 8, 2013.
During these periods, the ATSTWG received more than 300 comments and questions on the draft ACS for the private pilot certificate and the instrument rating. The ATSTWG has used these comments to inform and refine its continuing work on this project, and has consequently asked the FAA to make the revised versions of these documents available for on additional period of public review and comment before it completes its work in September, 2013.
In addition, the ATSTWG has completed its initial draft of the authorized instructor ACS document. The purpose of the authorized instructor ACS is to define the acceptable performance standards for instructional knowledge and skill, including the Fundamentals of Instructing (FOI) concepts listed in 14 CFR part 61. Consistent with its desire for comments to help refine its work, the ATSTWG has asked the FAA to make this document available for public comment as well.
In making this document available, the ATSTWG wishes to note that while the draft authorized instructor ACS follows the overall conceptual framework developed for the private pilot ACS and the instrument rating ACS, its construction reflects fundamental differences between the family of pilot certificates/ratings and the instructor certificate. The core of the authorized instructor ACS addresses practical application of the instructional concepts and techniques presented in the traditional FOI. The authorized instructor ACS uses appendices to define the acceptable standards for knowledge, skill, and risk management in the aeronautical proficiency tasks unique to a particular instructor certificate or rating.
The ATSTWG also wishes to emphasize that the authorized instructor ACS is not intended to be a stand-alone document. Rather, it is intended to be used in conjunction with the pilot certificate level or rating ACS for which the instructor-applicant seeks authorization to provide instruction. Therefore, in addition to mastery of the knowledge and skills defined in the authorized instructor ACS, the instructor-applicant must demonstrate instructional competence for Tasks in the ACS for the appropriate certificate level or rating, to include analyzing and correcting common learner errors.
The ATSTWG continues work to complete its remaining assignments. These include developing a detailed proposal to realign and, as appropriate, streamline and consolidate existing FAA guidance material (e.g., handbooks) with each integrated ACS document; and to propose methodologies to ensure that knowledge test item bank questions are consistent with both the ACS documents and the test question development principles set forth in the ARC's recommendations.
The ACS documents are designed as the foundation for transitioning to a more integrated and systematic approach to airman certification testing and training. To accomplish this objective and achieve its overall safety goals, the ACS documents support the safety management system (SMS) framework. SMS methodology provides a systematic approach to achieving acceptable levels of safety risk. The ATSTWG is constructing ACS, associated guidance, and test item bank question components of the airman certification system around the four functional components of SMS:
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Time permitting, and given the foundational nature of the ACS documents and their importance in the ongoing evolution of the FAA's airman certification testing and training system, the ATSTWG wishes to make subsequent revised draft ACS documents for the private pilot certificate and the instrument rating, and of its current initial draft of the authorized instructor ACS, available to the public for one additional period of review and comment before it completes its work in September 2013. The ATSTWG would use the comments it receives to complete its work on this project and to develop its final report and recommendations.
National Highway Traffic Safety Administration, DOT.
Notice.
In compliance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.), this notice announces that the Information Collection Request (ICR) abstracted below will be forwarded to the Office of Management and Budget (OMB) for review and comment. The ICR describes the nature of the information collection and its expected burden. The
Comments must be submitted on or before August 23, 2013.
John Piazza, National Highway Traffic Safety Administration, Office of the Chief Counsel (NCC–111), (202) 366–9511, 1200 New Jersey Avenue SE., Washington, DC 20590.
Since nothing in this rule would require those persons who submit reports pursuant to this rule to keep copies of any records or reports submitted to us, the cost imposed to keep records would be zero hours and zero costs.
Send comments, within 30 days, to the Office of Information and Regulatory Affairs, Office of Management and Budget, 725 17th Street NW., Washington, DC 20503, Attention NHTSA Desk Officer.
Issued in Washington, DC under authority delegated in 49 CFR 1.95.
National Highway Traffic Safety Administration, DOT.
Notice of receipt of petition.
This document announces receipt by the National Highway Traffic Safety Administration (NHTSA) of a petition for a decision that nonconforming 2004 BMW 760I passenger cars that were not originally manufactured to comply with all applicable Federal Motor Vehicle Safety Standards (FMVSS) are eligible for importation into the United States because they are substantially similar to vehicles that were originally manufactured for sale in the United States and that were certified by their manufacturer as complying with the safety standards (the U.S.-certified version of the 2004 BMW 760I passenger car) and they are capable of being readily altered to conform to the standards.
The closing date for comments on the petition is August 23, 2013.
Comments should refer to the docket and notice numbers above and be submitted by any of the following methods:
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Coleman Sachs, Office of Vehicle Safety Compliance, NHTSA (202–366–3151).
Under 49 U.S.C. 30141(a)(1)(A), a motor vehicle that was not originally manufactured to conform to all applicable FMVSS shall be refused admission into the United States unless NHTSA has decided that the motor vehicle is substantially similar to a motor vehicle originally manufactured for importation into and sale in the United States, certified under 49 U.S.C. § 30115, and of the same model year as the model of the motor vehicle to be compared, and is capable of being readily altered to conform to all applicable FMVSS.
Petitions for eligibility decisions may be submitted by either manufacturers or importers who have registered with
U.S. Specs of Havre de Grace, Maryland (Registered Importer R–03–321) has petitioned NHTSA to decide whether nonconforming 2004 BMW 760I passenger cars are eligible for importation into the United States. The vehicles which U.S. Specs believes are substantially similar are 2004 BMW 760I passenger cars that were manufactured for sale in the United States and certified by their manufacturer as conforming to all applicable FMVSS.
The petitioner claims that it compared non-U.S. certified 2004 BMW 760I passenger cars to their U.S.-certified counterparts, and found the vehicles to be substantially similar with respect to compliance with most FMVSS.
U.S. Specs submitted information with its petition intended to demonstrate that non-U.S. certified 2004 BMW 760I passenger cars, as originally manufactured, conform to many FMVSS in the same manner as their U.S. certified counterparts, or are capable of being readily altered to conform to those standards. Specifically, the petitioner claims that non-U.S. certified 2004 BMW 760I passenger cars are identical to their U.S. certified counterparts with respect to compliance with Standard Nos. 102
The petitioner also contends that the vehicles are capable of being readily altered to meet the following standards, in the manner indicated:
Standard No. 101
Standard No. 108
Standard No. 110
Standard No. 111
Standard No. 114
Standard No. 118
Standard No. 201
Standard No. 206
Standard No. 208
Standard No. 209
Standard No. 225
Standard No. 301
Standard No. 401
The petitioner states that a vehicle identification plate must be affixed to the vehicles near the left windshield post if not already present to meet the requirements of 49 CFR Part 565.
All comments received before the close of business on the closing date indicated above will be considered, and will be available for examination in the docket at the above addresses both before and after that date. To the extent possible, comments filed after the closing date will also be considered. Notice of final action on the petition will be published in the
49 U.S.C. 30141(a)(1)(A), (a)(1)(B), and (b)(1); 49 CFR 593.7; delegation of authority at 49 CFR 1.95 and 501.8.
Research & Innovative Technology Administration (RITA), Bureau of Transportation Statistics (BTS), DOT.
Notice.
In compliance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3501
Written comments should be submitted by August 23, 2013.
Demetra V. Collia, Bureau of Transportation Statistics, Research and Innovative Technology Administration, U.S. Department of Transportation, Office of Advanced Studies, RTS–31, E324–302, 1200 New Jersey Avenue SE, Washington, DC 20590–0001; Phone No. (202) 366–1610; Fax No. (202) 366–3383; email:
A close call represents a situation in which an ongoing sequence of events was stopped from developing further, preventing the occurrence of potentially serious safety-related consequences. This might include the following: (1) Events that happen frequently, but have low safety consequences; (2) events that happen infrequently but have the potential for high consequences (e.g., a train in dark territory proceeds beyond its authority); (3) events that are below the FRA reporting threshold (e.g., an event that causes a minor injury); and (4) events that are reportable to FRA but have the potential for a far greater accident than the one reported (e.g., a slow speed collision with minor damage to the equipment and no injuries.)
Employees involved in a close call are asked to provide information about the reported event by filling out a C
The C
It is estimated that close call reporting will take no more than one (1) hour (average estimate of 20 minutes to complete the C
The agency seeks public comments on its proposed information collection. Comments should address whether the information will have practical utility; the accuracy of the agency's estimate of the burden of the proposed information collection; ways to enhance the quality, utility and clarity of the information to be collected; and ways to minimize the burden of the collection of information on respondents, including the use of automated collection techniques or other forms of information technology. Send comments to the Office of Information and Regulatory Affairs, Office of Management and Budget, 725–17th Street NW., Washington, DC 20503, Attention: BTS Desk Officer.
Internal Revenue Service (IRS), Treasury.
Notice and request for comments.
The Department of the Treasury, as part of its continuing effort to reduce paperwork and respondent burden, invites the general public and other Federal agencies to take this opportunity to comment on proposed and/or continuing information collections, as required by the Paperwork Reduction Act of 1995, Public Law 104–13 (44 U.S.C. 3506(c)(2)(A)). Currently, the IRS is soliciting comments concerning Automatic Data Processing.
Written comments should be received on or before September 23, 2013 to be assured of consideration.
Direct all written comments to Yvette Lawrence, Internal Revenue Service, Room 6129, 1111 Constitution Avenue NW., Washington, DC 20224.
Requests for additional information or
The following paragraph applies to all of the collections of information covered by this notice:
An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless the collection of information displays a valid OMB control number. Books or records relating to a collection of information must be retained as long as their contents may become material in the administration of any internal revenue law. Generally, tax returns and tax return information are confidential, as required by 26 U.S.C. 6103.
Office of Information and Technology, Department of Veterans Affairs.
Notice; correction.
The Department of Veterans Affairs (VA) published an information collection notice in a
Crystal Rennie, Enterprise Records Service (005R1B), Department of Veterans Affairs, 810 Vermont Avenue NW., Washington, DC 20420, at (202) 632–7492.
In FR Doc. 2013–16773, published on July 15, 2013, at 78FR42157, make the following corrections.
On page 42157, in the first column, at the
Veterans Health Administration, Department of Veterans Affairs.
Notice.
In compliance with the Paperwork Reduction Act (PRA) of 1995 (44 U.S.C. 3501–3521), this notice announces that the Veterans Health Administration, Department of Veterans Affairs, will submit the collection of information abstracted below to the Office of Management and Budget (OMB) for review and comment. The PRA submission describes the nature of the information collection and its expected cost and burden; it includes the actual data collection instrument.
Comments must be submitted on or before August 23, 2013.
Submit written comments on the collection of information through
Crystal Rennie, Enterprise Records Service (005R1B), Department of Veterans Affairs, 810 Vermont Avenue NW., Washington, DC 20420, (202) 632–7492 or email:
An agency may not conduct or sponsor, and a person is not required to respond to a collection of information unless it displays a currently valid OMB control number. The
By direction of the Secretary.
Veterans Health Administration, Department of Veterans Affairs.
Notice; Extension of Comment Period.
The Veterans Health Administration (VHA), Department of Veterans Affairs (VA), is extending the comment period for the notice published June 5, 2013 (78 FR 33894), and posting the draft questionnaire that was the subject of that notice, on the VA's Web site.
Written comments and recommendations on the proposed collection of information should be received on or before August 20, 2013.
Submit written comments on the collection of information through the Federal Docket Management System (FDMS) at
Please refer to “OMB Control No. 2900—NEW, Open Burn Pit Registry Airborne Hazard Self-Assessment Questionnaire,” in any correspondence. During the comment period, comments may be viewed online through FDMS.
Cynthia Harvey-Pryor at (202) 461–5870 or Fax (202) 495–5397.
On June 5, 2013, VA published a notice in the
In response to a suggestion from several Members of Congress, VA has decided to post the draft questionnaire on our Web site at
By direction of the Secretary.
Veterans Benefits Administration, Department of Veterans Affairs.
Notice; withdrawal.
The Department of Veterans Affairs (VA) published a notice in a
Written comments and recommendations on the proposed collection of information notice that published on June 17, 2013 (78 FR 36307) should be received on or before August 16, 2013.
Crystal Rennie, Enterprise Records Service (005R1B), Department of Veterans Affairs, 810 Vermont Avenue NW., Washington, DC 20420, at (202) 632–7492.
FR Doc. 2013–14412, published on June 18, 2011 (78 FR 36643), is withdrawn by this notice.
Office of the Assistant Secretary for Community Planning and Development, HUD.
Final rule.
HUD's HOME Investment Partnerships Program (HOME program or HOME) provides formula grants to states and units of local government to fund a wide range of activities directed to producing or maintaining affordable housing, including homebuyer and homeowner housing and rental housing. This final rule amends the HOME regulations to address many of the operational challenges facing participating jurisdictions, particularly challenges related to recent housing market conditions and the alignment of federal housing programs. The final rule also clarifies certain existing regulatory requirements and establishes new requirements designed to enhance accountability by States and units of local government in the use of HOME funds, strengthen performance standards and require more timely housing production. The final rule also updates property standards applicable to housing assisted by HOME funds.
Virginia Sardone, Deputy Director, Office of Affordable Housing Programs, Office of Community Planning and Development, Department of Housing and Urban Development, 451 7th Street SW., Room 7164, Washington, DC 20410; telephone number 202–708–2684 (this is not a toll-free number). Persons with hearing or speech impairments may access this number through TTY by calling the toll-free Federal Relay Service at 800–877–8339.
Although the HOME program is the largest federal block grant program for affordable housing, the HOME program regulations have not been updated in 16 years. Since the promulgation of the final rule in 1996, many HOME participating jurisdictions have adopted more complex program designs. They have encountered new challenges in administering their programs and in managing their growing portfolios of older HOME projects. These challenges include reduced availability of State or local funding sources, limited private lending, changes in housing property standards and energy codes, and reductions in State and local government workforces throughout the Nation. These challenges have been magnified by current housing and credit market conditions.
Over the years, HUD has invested significant time and resources in helping participating jurisdictions meet these challenges, as well as assisting them to correct financial and physical problems that threaten the viability of some HOME-assisted rental projects in their portfolios. HUD has determined that the most effective way to assist participating jurisdictions is to update the HOME program regulations to both provide participating jurisdictions with additional tools and flexibility to effectively address troubled projects, as well as increase accountability on the part of participating jurisdictions and oversight by HUD.
HUD is also taking the opportunity afforded by this final rule to make several technical, non-substantive changes. Specifically, HUD is revising several incorrect or outdated citations in § 92.353(c)(1) and (2) related to displacement, relocation and acquisition. The existing reference to 24 CFR 5.613 is replaced with 24 CFR 5.628. HUD is also updating the provisions of § 92.257 (Faith-Based Activities) to reflect the amendments made by Executive Order 13559 (Fundamental Principles and Policymaking Criteria for Partnerships with Faith-Based and Other Neighborhood Organizations) issued by President Obama on November 17, 2010, and published in the
The HOME program was authorized by Title II of the Cranston-Gonzalez National Affordable Housing Act (42 U.S.C. 12721
The HOME program is the largest federal block grant to States and local governments that is designed exclusively to create affordable housing for low-income households. Each year, the program allocates approximately $1.0 to $1.5 billion among the States and hundreds of localities nationwide. The program was designed to reinforce several important values and principles of community development. First, the HOME program's flexibility is intended to empower people and communities to design and implement strategies tailored to their own needs and priorities. Second, the HOME program's emphasis on consolidated planning is intended to expand and strengthen partnerships among all levels of government and the private sector in the development of affordable housing. Third, the HOME program's technical assistance activities and set-aside for qualified community-based nonprofit housing groups is intended to help build the capacity of these partners. Fourth, the HOME program's requirement that participating jurisdictions match 25 cents of every dollar in program funds is intended to help mobilize community resources in support of affordable housing.
The regulations for the HOME program are codified in 24 CFR part 92 and were last substantively revised by the final rule issued on September 16, 1996 (61 FR 48750). In the 16 years since the promulgation of the 1996 final rule, many HOME participating jurisdictions have adopted more complex program designs. They have encountered new challenges in administering their programs and in managing their growing portfolios of older HOME projects. These challenges include reduced availability of States or local funding sources, reduced private lending, changes in housing property standards and energy codes, and reductions in State and local government workforces throughout the Nation. These challenges have been magnified by current housing and credit market conditions.
Since the establishment of the HOME program, HUD has monitored participating jurisdictions' use of HOME funds and measured participating jurisdictions' performance. Through monitoring and audits, including those by HUD's Office of Inspector General (OIG), HUD has identified and corrected compliance problems and used this information to strengthen and clarify regulatory provisions to help avoid noncompliance and maximize effectiveness.
HUD has invested significant time and resources in helping participating jurisdictions correct financial and physical problems that threaten the viability of some HOME-assisted rental projects in their portfolios. HUD has determined that participating jurisdictions need additional tools and flexibility to effectively address troubled projects. Over the last several years, HUD has developed numerous publicly available reports that measure the performance and effectiveness of each participating jurisdiction.
Accordingly, through this rule, HUD makes regulatory changes to address many of the operational challenges facing participating jurisdictions, improve understanding of HOME program requirements, update property standards to which housing funded by HOME funds must adhere, and strengthen participating jurisdictions' accountability for both compliance with program requirements and performance.
The final rule largely adopts the provisions in the proposed rule, but HUD did make certain changes to the proposed regulatory provisions in response to public comments and further consideration of issues. Additionally, HUD further clarified language in various regulatory provisions for which commenters continued to indicate misunderstanding about the intent or meaning of the provision. Key changes made at the final rule stage include the following:
• Amending the definition of “commitment” to reinforce that participating jurisdictions must not commit HOME funds to a project in the Integrated Disbursement and Information System (IDIS) or in a written agreement until all necessary financing has been secured, a budget and production schedule established, and underwriting and subsidy layering completed; and clarifying, within that definition, the meaning of commit to a specific local project;
• Adding missing regulatory text to the definition of community housing development organization, language discussed in the preamble to the proposed rule, but which was inadvertently omitted in the regulatory text;
• Adopting language that permits a private nonprofit organization to qualify as a community housing development organization if the organization is a wholly-owned entity that is regarded as an entity separate from its owner for tax purposes, the owner has a tax exemption ruling from the Internal Revenue under section 501(c)(3) or (4) of the Internal Revenue Code of 1986 and the organization meets the definition of “community housing development organization.”
• Removing the prohibition imposed on community housing development organizations from occupying the office spaced owned by a government entity or a for-profit parent organization.
• Permitting community housing development organizations to use consultants to demonstrate their capacity, but only during the first year of the organization's participation as a community housing development organization;
• Allowing community housing development organizations to become owners of rental housing that they do not develop;
• Revising the definition of “homeownership” to include manufactured housing which is on land
• Revising the definition of “homeownership” to explicitly permit ground leases of 50 years or more for community land trusts;
• Adopting a 12-month timeframe for committing HOME funds for reconstruction of a unit that was destroyed;
• Providing that designation of a HOME project as a single room occupancy unit must be consistent with local zoning and building code classifications;
• Establishing the timeframe for income source documentation as 2 months;
• Making the cost of conducting unit inspections and determining the income of tenant-based rental assistance applicants or recipients an eligible project-related soft cost;
• Permitting participating jurisdictions to count as match the value of the contribution, if the contribution provides a direct financial benefit to the homebuyer, or the contribution, if the contribution to the development of the homebuyer unit reduces the sales price of the unit or enables the unit to be sold for less than the cost of development;
• Eliminating the requirement for separate written standards for methods and materials for new construction projects;
• Eliminating the requirement for a minimum 15-year useful life of major systems, and providing, in lieu of such requirement, that the participating jurisdiction must estimate the remaining useful life of major systems based on age and current condition of the systems and determine the necessary annual replacement reserve contributions to facilitate system replacement at the appropriate time;
• Providing that the requirement for a current inspection of a unit is no earlier than 90 days before the commitment of HOME assistance;
• Extending the timeframe for selling homebuyer units to 9 months from the completion of construction; and
• Revising the description of the cumulative methodology that HUD uses to determine compliance with the commitment, CHDO reservation, and expenditure deadlines to better present the method of calculation in use.
On December 16, 2011 (76 FR 78344), HUD published a proposed rule that would amend the HOME Investment Partnerships Program (HOME) program regulations to address many of the operational challenges confronting participating jurisdictions in relation to recent housing market conditions and the alignment of federal housing programs. The proposed rule also sought to clarify certain existing regulatory requirements, establish new requirements to enhance accountability, and update property standards. In addition to proposed changes to the HOME program regulations, the December 16, 2011, rule also proposed changes to HUD's Consolidated Plan regulations that pertained to the HOME program.
In the proposed rule, HUD also sought public comment on the following issues or provisions proposed in the rule: (1) Timeframes that would help ensure that initial occupancy of a HOME-assisted rental unit occurs timely following project completion and that HOME funds invested in rental units that have not been initially occupied within 18 months are repaid; and (2) use of the Bureau of the Census' median sales price for single family houses sold outside of Metropolitan Statistical Areas (MSAs) as the sale price limitation for newly constructed HOME units; (3) criteria used in and characteristics of an effective risk-based system for on-site monitoring by States; and (4) participating jurisdictions performing regular financial reviews, specifically, regarding the unit-threshold for trigging annual financial reviews and whether it would be appropriate to establish a regulatory requirement for less frequent financial reviews of smaller projects.
The public comment period on the proposed rule closed on February 14, 2012. HUD received 322 public comments in response to the December 16, 2011, proposed rule. Comments were submitted by various State and local participating jurisdictions, public housing authorities, individuals, trade associations, community housing development organizations (CHDOs), housing finance agencies, county governments, community land trust organizations, council of governments, housing and community development organizations, and other stakeholders.
The following section sets out the key issues raised by the public commenters on the December 16, 2011, HOME Program proposed rule, and HUD's responses to these issues.
HUD received many comments on the general direction of the proposed rule. Overall, commenters acknowledged that the HOME regulations needed updating to reflect current market conditions and challenges in affordable housing production. However, several commenters stated that, taken as a whole, HUD's proposed changes were an overreaction to largely unfounded criticisms. These commenters stated that the proposed rule ran counter to the flexibility that has long been a hallmark of the HOME program as the nation's largest affordable housing block grant program. This flexibility, they submit, has led to States and local governments producing more than one million affordable housing units that meet their locally-determined needs and priorities over the program's 20-year history. The commenters stated that the proposed rule would add a very significant administrative burden and additional costs on States and local governments at a time when governments are facing layoffs, furloughs, and a significant diminution of other available affordable housing and administrative resources, as well as very significant cuts to their annual HOME allocations. In addition, some participating jurisdictions commented that adoption of the proposed rule provisions would raise both development costs and administrative costs, in addition to increasing the administrative burden associated with developing and managing each HOME-assisted project, with the result being a reduction in the number of affordable housing units that participating jurisdictions could produce. Commenters from rural areas stated that they were particularly concerned with the feasibility of complying with the proposed HOME requirements. Other commenters expressed concern about the effect that proposed CHDO-related changes would have on these organizations.
HUD proposed revising §§ 91.220(l)(i) and (ii) and 91.320(k)(i) and (ii) of the Consolidated Plan regulations, codified at 24 CFR part 91. Sections 92.205(b) and 92.254(a)(5) of the HOME program regulations proposed to clarify that participating jurisdictions must receive approval in writing from HUD, separate from the consolidated plan approval letter, for forms of investment of HOME funds other than those described in § 92.205(b) and resale and recapture guidelines.
HUD proposed a revision to §§ 91.220 (l)(2)(iv) and 91.320(k)(2)(iv) to specifically require a participating jurisdiction that calculates its own 95 percent of median purchase price for HOME-assisted homebuyer or owner-occupied rehabilitation projects to submit its calculated limit and supporting documentation as part of its Consolidated Plan Annual Action Plan. The regulations currently codified do not specify the timing of the submission.
HUD proposed amending §§ 91.220 (l)(2)(v) and 91.320(k)(2)(v) of the Consolidated Plan regulations to require participating jurisdictions to describe eligible applicants for HOME funds and describe their process for soliciting and funding applications or proposals as part of its Consolidated Plan annual action plan.
HUD proposed adding a provision to § 91.220(l)(2)(vi) and § 91.320(k)(2)(v) of the Consolidated Plan regulations expressly permitting participating jurisdictions to limit HOME projects to specific populations, including to persons in a specific occupation (e.g., artists, police officers, or teachers) and requiring that participating jurisdictions include these uses in their Consolidated Plan Annual Action Plans.
HUD received no comments on the proposed addition of the following definitions to the HOME regulations:
Commenters stated that requiring participating jurisdictions and CHDOs to enter into a project-specific commitment within 24 months of the obligation of the HOME grant would be burdensome.
Commenters requested that HUD include as a commitment conditional reservations of funds that would allow CHDOs to secure additional funding for HOME-assisted projects, including Low Income Housing Tax Credits (LIHTC).
A commenter requested clarification on whether the revised commitment definition excluded agreements between a participating jurisdiction and a subrecipient that the participating jurisdiction controls. The commenter appeared to not understand that HUD was proposing to revise the definition of commitment to exclude exactly such cases. When a participating jurisdiction controls a subrecipient, only a legally binding written agreement between the two parties for a specific HOME project would meet the proposed definition.
Other commenters expressed concern about the timing and implementation of the new commitment requirements and how adoption of the new definition would affect upcoming 24-month HOME commitment deadlines.
At this final rule stage, HUD is further amending the commitment definition to reinforce that participating jurisdictions must not commit HOME funds to a project until all necessary financing has been secured, a budget and schedule established, and underwriting and subsidy layering completed. Based upon many of the comments received in response to the 4-year deadline for project completion proposed in § 92.205(e), participating jurisdictions appeared to not fully understand the point at which a commitment of HOME funds may take place.
The preamble of the proposed rule stated that HUD proposed revising the definition of “community housing development organization” (CHDO) in § 92.2 to add a reference to the Internal Revenue Service (IRS) regulations that implement section 501(c)(4) of the Internal Revenue Code to permit wholly-owned subsidiaries of a private non-profit organization that meet the requirements for CHDO designation to also qualify as a CHDO. The regulatory language was inadvertently omitted from the definition of CHDO at § 92.2 and this final rule corrects that error by including the regulatory text.
At this final rule stage, HUD is also adopting language in the proposed rule that permits a private nonprofit organization to qualify as a CHDO if it is a wholly-owned entity that is regarded as an entity separate from its owner for tax purposes (e.g., a single member limited liability company that is wholly-owned by an organization that qualifies as tax-exempt), the owner organization has a tax exemption ruling from the IRS under section 501(c)(3) or (4) of the Internal Revenue Code of 1986
HUD proposed revising the CHDO definition to clarify the relationship between the CHDO and its parent organization by adding a new paragraph (3)(iv) clarifying that, if a for-profit entity creates or sponsors a nonprofit entity that seeks designation as a CHDO, the officers and employees of the for-profit entity would be prohibited from serving as officers or employees of the CHDO, and the nonprofit entity would be prohibited from using the office space of the for-profit entity.
HUD proposed revising paragraph (5) of the definition to clarify that a governmental entity may create a CHDO, but is not permitted to control the CHDO by providing its employees to the CHDO as staff or officers. The revision to the rule would also prohibit CHDOs from occupying the office space of a governmental entity.
HUD proposed revising paragraph (9) of the existing definition of CHDO at § 92.2 to strengthen the requirement that an organization must have paid employee staff with housing development experience in order to be designated as a CHDO. The proposed rule specified that the demonstrated capacity requirement could not be met through the use of volunteers or staff donated by another organization. The rule also proposed to eliminate the provision that permitted a CHDO to meet the capacity requirement based upon the use of a consultant to undertake activities and train CHDO staff.
Notwithstanding the recognized difficulty that compliance with the new provisions applicable to CHDOs may present, HUD determined that these changes are necessary to ensure that the hundreds of millions of CHDO set-aside funds that are awarded each year are committed to organizations that have adequate capacity to carry out and complete the projects for which they are being funded, so that the funds benefit the low-income individuals and families the HOME program is designed to serve. Therefore, the final rule retains the requirement that CHDOs that receive CHDO set-aside funds to develop HOME-assisted housing must demonstrate development capacity through paid staff with development experience.
It is important to note that the rule does not prohibit the CHDO from using volunteers, board members, and staff of parent organizations in its operations; however, these individuals cannot be the basis for the determination of development capacity. Further, in requiring paid employees, HUD is not prohibiting a CHDO from employing an individual who is an independent contractor and using that contractor's experience as the basis for the demonstrated capacity determination. Paid staff is not required to be full time, but their hours must be appropriate for the role they play in the organization.
Additionally, HUD agrees that the use of consultants by new CHDOs is appropriate. Accordingly, HUD has revised at this final rule stage, the proposed rule language to permit the use of consultants to demonstrate capacity, but only during the first year
In response to the concerns raised about the effect of these provisions on organizations that are currently designated as CHDOs, HUD has made a substantial change in the definition of owner in revised § 92.300(a)(2) that establishes a new role for CHDOs to become owners of rental housing that they do not develop. HUD expects that this change will allow CHDOs without demonstrated development capacity to continue to access HOME funds to address the affordable housing needs in their communities.
HUD does not agree that the homeownership definition in the proposed rule excludes owner-occupied manufactured homes located in manufactured home communities. However, HUD has revised the homeownership definition to reflect the existing language in § 92.205(a)(4) to clarify that, in such situations, the ground lease must be at least equal to the applicable period of affordability.
Several commenters interpreted the proposed rule as permitting community land trusts with 50-year ground leases as an eligible form of homeownership. The commenters, however, misread the language, which is applicable only to Indian trusts. The proposed rule retained the 99-year leasehold requirement for projects, other than community land trusts, involving ground leases.
Other commenters suggested that HUD add a section to the homeownership definition explicitly addressing community land trusts. While HUD does not agree that a separate paragraph is needed to address community land trusts in this definition, HUD does agree that it would be appropriate to recognize community land trusts with 50-year ground leases as homeownership. Consequently, at this final rule stage, HUD is amending the definition to explicitly permit ground leases of 50 or more years for community land trusts.
In revising the definition of housing, HUD's intent was to clarify the difference between ineligible student or farmworker housing and eligible permanent or transitional housing. Given the many commenters commenting on this provision, and who appeared to not understand this distinction, HUD has further clarified the definition of housing. Revisions were also made to the language in the definitions of low-income and very low-income families that provide additional clarification on when a student household may be an eligible beneficiary.
Section 218(a) of NAHA prohibits a participating jurisdiction from investing HOME funds in projects outside its boundaries, except for projects located in a contiguous jurisdiction that are joint projects that serve the residents of both jurisdictions. HUD found that there were participating jurisdictions unfamiliar with or not fully familiar with this provision. HUD proposed to revise § 92.201 to clarify that, to qualify as a joint project, a project must be “jointly funded” by the two contiguous jurisdictions and both jurisdictions must make a substantial financial contribution (e.g., waiver of impact fees, property taxes or other taxes or fees customarily imposed on projects within the jurisdiction) to the project.
The proposed rule included a conforming change that would update the citation in § 92.202 to the site and neighborhoods regulations, which were moved to 24 CFR 983.57(e)(2) and (3). The site and neighborhood standards have applied to new construction rental projects funded with HOME since the inception of the program.
HUD proposed several changes to § 92.203 related to calculation of annual income of a family or household for the purpose of determining the family's or household's eligibility for HOME assistance.
HUD proposed revising § 92.203(a)(1)(i) and (a)(2) to require participating jurisdictions to examine at least 3 months of source documentation (e.g., wage statements, interest statements, unemployment compensation) when performing income determinations for potential HOME beneficiaries.
This change aligns with the requirements of many private mortgage lenders and should be less burdensome to potential applicants, particularly applicants for rental housing who may not have retained documentation for an extended period. HUD is adopting a provision that requires examination of 2 months of income documentation when determining a family's eligibility for HOME assistance. HUD is not adopting the suggestion that it accept a certified IRS 1040 as income documentation. Certified IRS 1040 forms are very frequently obtained by participating jurisdictions for the purpose of determining income eligibility. However, unlike source documentation, such as wage statements, stubs and bank
HUD proposed revising § 92.203(b)(2) to eliminate the option currently available to participating jurisdictions to use the definition of “annual income” that is based on income reported on the Census long form because it was rarely used by participating jurisdictions.
HUD proposed revising the IRS definition of “adjusted gross income” in § 92.203(b) to require that cost-of-living allowances for federal employees and military personnel in certain areas that are currently excluded from annual gross income by the IRS be included in adjusted gross income calculations when determining eligibility of applicants for HOME assistance. No comments regarding this proposed requirement were received. Section 1914 of the Non-Foreign Area Retirement Equity Assurance Act (Title XIX of Pub. L. 111–84, approved October 28, 2009) is phasing out these cost of living allowances. Consequently, HUD has determined that this regulatory change is not necessary. The language is eliminated in the final rule.
HUD proposed revising § 92.203(c) to clarify that a participating jurisdiction must designate and implement only one definition of income for each HOME-assisted program (e.g., downpayment assistance program, rental housing program) that it administers.
HUD proposed revising § 92.203(d)(1) to clarify that, when determining the annual income of a household to determine eligibility for HOME assistance, the participating jurisdiction must count the income of all persons in the household, including nonrelated individuals.
HUD proposed to revise several provisions of § 92.205.
The proposed rule would add language to paragraph (a)(1) to clarify that activities and costs are eligible for HOME funding only if the housing meets the property standards in § 92.251 upon project completion. HUD did not receive specific comments on this clarification and the clarification is retained in the final rule.
To improve the clarity of the regulation, HUD proposed revising § 92.205(a)(2) to specify that the acquisition of vacant land or demolition with HOME funds may be undertaken only with respect to a particular affordable housing project for which construction will begin within 12 months, as established in paragraph (2) of the definition of “commitment” in § 92.2.
HUD proposed revising § 92.205(d) to address the effect of converting a residential unit to an on-site manager's unit after project completion on the cost allocation and designation of HOME units.
HUD proposed changes to § 92.205(e)(2) that would establish a 4-year time period from commitment of HOME funds and set-up of a project in IDIS to complete the project. Projects that are not completed within this timeframe would be deemed terminated before completion and, in accordance with § 92.503, the participating jurisdiction would be required to repay HOME funds invested in the project to its HOME account. The proposed rule would permit participating jurisdictions to request a 12-month extension of the completion deadline by submitting information about the status of the project, steps being taken to overcome any obstacles to completion, proof of adequate funding to complete the project, and a schedule with milestones for completion of the project for HUD's review and approval.
Many commenters opposed the provision because of the length of time that it takes to obtain zoning approval, secure necessary financing, or overcome neighborhood opposition to an affordable housing project. These comments made clear to HUD that many HOME program participants continue to misunderstand the point at which a participating jurisdiction may commit HOME funds to a project. The existing HOME regulations require that, when committing HOME funds to a project, a participating jurisdiction must have a reasonable expectation that construction will begin within 12 months. Further, existing regulations require that a subsidy layering review and cost allocation be performed before commitment of funds and that the written agreement committing funds to a project include a project budget and a detailed construction schedule. Consequently, it has never been permissible to commit HOME funds to a project if delays in zoning or permitting approvals are anticipated, or if other necessary financing has not been secured. The proposed rule attempted to clarify these requirements. HUD is further amending the definition of “commitment” at § 92.2 to emphasize that HOME funds cannot be committed to a project (other than as a CHDO predevelopment loan) until financing necessary to complete the project has been secured and a construction schedule that ensures completion within 4 years has been developed. Corresponding changes are being made to the provisions applicable to written agreements with owners, developers, or sponsors of housing at § 92.504(c)(3) to require that written agreements include a schedule that ensures that construction will begin within 12 months and be completed within 4 years.
HUD proposed revising § 92.206(b)(1) to emphasize that it is rehabilitation, rather than refinancing, which is the primary activity that makes refinancing an eligible cost under the HOME program. The proposed rule added language to § 92.206(b)(1) to condition refinancing as an eligible cost to projects in which the cost of the actual rehabilitation is greater than the amount of debt that is refinanced with HOME funds. HUD also proposed amending § 92.206(b)(2) to allow that the eligibility of costs of refinancing existing debt under paragraph (b)(2), as well as the requirement for participating jurisdictions to adopt accompanying refinancing guidelines, are intended to cover all rental housing—multifamily and single family.
HUD proposed a revision to the CHDO operating expense provisions of § 92.208 to clarify that CHDO operating funds are separate from and not intended to supplant CHDO set-aside funds provided under § 92.300(a). CHDO operating funds are to cover general operating costs such as office rents and utilities, staff salaries, and insurance, and are not to be awarded in conjunction with CHDO set-aside funds to pay for project-related soft costs, such as architectural or engineering costs or in lieu of developer's fees. Such costs are eligible to be paid with CHDO set-aside funds.
HUD proposed adding language to § 92.209(a) to expressly permit the payment of utility deposits as an eligible HOME cost when provided in conjunction with HOME tenant-based rental assistance or security deposit assistance.
HUD proposed adding language to § 92.209(c) to clarify that a participating jurisdiction's tenant selection policies and criteria must be based on local housing needs and priorities that are consistent with the participating jurisdiction's consolidated plan. There was support and no opposition to this proposed change, and HUD is adopting the proposed rule language without change.
HUD proposed revising § 92.209(c)(2)(i) to clarify that a participating jurisdiction may establish a preference for individuals with special needs (e.g., homeless persons or elderly persons) or persons with disabilities if the specific category is identified in the participating jurisdiction's consolidated plan as having unmet need and the preference is needed to narrow the gap in benefits and services received by such persons. HUD also proposed adding a provision at § 92.209(c)(2)(ii) specifying that participation may be limited to persons with a specific disability, in accordance with the provisions in 24 CFR 8.4(b)(1)(iv), and clarified that participating jurisdictions may not require participation in medical or disability-related services as a condition of receiving HOME tenant-based rental assistance.
HUD proposed adding language to § 92.209 (c)(2) to specifically address the use of HOME tenant-based rental assistance in self-sufficiency and homeownership programs (including lease-purchase programs), expressly permitting a participating jurisdiction to condition selection for the program and renewal of the tenant-based rental assistance on the household's participation in the self-sufficiency program.
HUD proposed: (1) Adding a provision to redesignated § 92.209(c)(2)(v) to specifically prohibit the exclusion of persons who are given preferences for HOME assistance from participating in any other program of the jurisdiction; (2) revising § 92.209(g) to make explicit that all tenants must have a lease and that the lease must comply with the requirements that are already cross-referenced in the existing provision; (3) revising § 92.209(h)(3)(ii) to replace the existing description of one alternative for establishing the amount of rent for a unit with a cross-reference to the regulations in 24 CFR part 982, which govern the HCV program; and (4) making a technical change to § 92.209(l) to clarify that the provision applies whenever HCV assistance becomes available, rather than just when it becomes available “to a participating jurisdiction.” HUD did not receive comments on these proposed revisions and is adopting the proposed rule language without change.
HUD proposed adding a new § 92.210 to the HOME regulations, establishing provisions that facilitate participating jurisdictions' efforts to preserve HOME-assisted housing projects that have become financially unviable and, as a result, are at risk of failure or foreclosure.
The use of additional HOME funds to refinance existing debt would be permissible under the proposed rule language. However, HUD chose not to list this use because the use of HOME funds for this purpose is relatively rare. In instances where HOME funds were used to refinance existing debt, it would be necessary for the participating jurisdiction to designate all the units in the project as HOME-assisted, which may not be desirable or practicable in many circumstances. Consequently,
HUD disagrees with commenters who urged that the period of affordability always be required to be extended if the project receives additional HOME assistance and those who stated that the period of affordability never be extended on such a project under any circumstance. HUD's experience related to troubled project workouts has been that flexibility is essential to success. Many participating jurisdictions already impose periods of affordability that greatly exceed the required minimum periods in § 92.252. Alternately, some projects may face market or physical conditions that make an extended period of affordability unworkable or unrealistic. The minimum period of affordability required by HUD in a workout will never be less than the minimum period required under the regulations based upon the total of the initial and subsequent per unit HOME investment. Although HUD's preference is to extend affordability periods whenever practicable, it declines to make the requested change in order to preserve the flexibility necessary to achieve successful workouts.
HUD proposed adding a new § 92.213 to the HOME regulations to address the use of HOME funds with public housing funds. The use of HOME funds in public housing projects, and, in particular, the use of HOME funds in HOPE VI projects is an area that would benefit from further regulatory elaboration, given that HOME funds and public housing funds are each governed by separate statutes and NAHA prohibits the use of HOME funds to provide assistance authorized under section 9 of the United States Housing Act of 1937 (Public Housing Capital and Operating Funds). This prohibition is reflected in paragraph (a) of § 92.213, which prohibits the use of HOME funds for public housing modernization or operating assistance. This provision also prohibits a HOME-assisted unit from receiving Operating Fund or Capital Fund assistance under Section 9 during the period of affordability. With respect to the development of new public housing, paragraph (a) also makes clear that HOME funds cannot be used for public housing units, whether funded under section 9 or another source. Paragraph (b) of § 92.213 establishes an exception to this prohibition that permits the use of HOME funds to develop a unit that receives funds for development under section 24 (HOPE VI), so long as no Capital Funds are used to develop the unit. Paragraph (c) of § 92.213 makes clear that HOME funds may be used to develop or rehabilitate affordable housing units that are not public housing units in projects that also contain public housing units funded by Section 9, HOPE VI, or other funds.
The HOME Program was established to stimulate public-private partnerships to develop affordable housing, but the HOME authorizing statute specifically excluded from such partnerships combining HOME funds with public housing operating or capital funds for the operation, modernization or development of public housing under sections 9 and 14. As explained in the Senate report accompanying S.566 (the bill that became NAHA and authorized the HOME program) “These prohibitions are made necessary by the Committee's intent that [HOME] be a new initiative focused on expanding public and private investment for more affordable housing and not just a general fund for undifferentiated federal housing assistance” (S. Rep. 101–316, June 8, 1990, at 51). This prohibition remained in place even after section 9 of the 1937 Act was significantly revised by the Quality Housing and Work Responsibility Act (QHWRA) (Pub. L. 105–276, approved October 21, 1998) to establish the public housing operating and capital funds. The general HOME prohibition on use for activities “under section 9” remained in place, and the provision prohibiting use under section 14 was amended to reflect the new capital fund provision—section 9(d)(1)—and expanded the explicit prohibition on using HOME funds for public housing capital investments. However, Section 535 of QHWRA added a new section 24 to the 1937 Act (42 U.S.C. 1437v) to establish the HOPE VI program that is in operation today, and QHWRA did not preclude combining HOME funds with HOPE VI funds in the development and management of affordable housing.
The HOME rule is consistent with these provisions and does not allow HOME funds to be used for public housing units, except to develop units under section 24 of the 1937 Act. Units developed with both HOME and HOPE VI may receive operating assistance and may subsequently receive Capital Funds for rehabilitation or modernization under section 9 of the 1937 Act. Once developed, public housing units may not receive HOME funds, and HOME-assisted housing units may not receive Operating Fund or Capital Fund assistance under section 9 of the 1937
HUD agrees that clarification of how HOME rent requirements of § 92.252(a) and (b) affect the tenant and operating payments of public housing units is appropriate. Therefore, a new paragraph (d) is added to provide the requested clarification.
HUD proposed several revisions to § 92.214(b) for the purpose of clarifying the prohibition against program participants charging fees to cover their administrative costs and that the amount of application fees charged must not create an undue impediment to a low-income family, a jurisdiction, or other entity's participation in the participating jurisdiction's HOME program. HUD also proposed a new provision at § 92.214(b)(2) prohibiting owners of HOME-assisted rental projects from charging fees to tenants that are not reasonable or customary.
HUD also proposed revising § 92.214(b)(1) to eliminate the prohibition against monitoring fees and expressly permitting participating jurisdictions to charge fees to owners of HOME rental housing to cover the cost of ongoing monitoring, financial oversight, and physical inspection during the period of affordability.
HUD proposed adding a new paragraph (d) to § 92.221 requiring that a contribution to HOME-assisted or HOME-eligible homeownership projects must be valued not at face value, but by the amount by which it reduced the sales price to the homebuyer. Contributions that are included in a homebuyer's mortgage (e.g., donated land or construction materials) would not count as a match contribution.
HUD proposed revising § 92.222(b) so that HUD would take the extent of a disaster's fiscal impact on a participating jurisdiction into account when determining whether to grant the reduction, as well as the amount and duration of any match reduction.
HUD proposed revising § 92.250(a) to clarify that the maximum HOME per-unit subsidy may not be increased above 240 percent of the base limits authorized by section 221(d)(3)(ii) of the National Housing Act (12 U.S.C. 17151(d)(3)(iii), despite the fact that section 221 of the General Provisions of Title II, Division K of the Consolidated Appropriations Act, 2008 (Pub. L. 110–161, approved December 26, 2007) increased the maximum exceptions that HUD may grant for the 221(d)(3) mortgage insurance program to up to 315 percent of the base limits. The clarification was determined necessary because section 212(e) of NAHA, which establishes the 221(d)(3) mortgage insurance limits as the per-unit cost limits for HOME-assisted units, was not amended and continues to limit HOME subsidy to the lesser of a participating jurisdictions' actual high cost percentage or to 240 percent of the base limit. HUD did not receive any comments on this provision and is adopting the proposed rule language without change.
HUD proposed revising § 92.250(b) to require participating jurisdictions to: (1) Evaluate subsidy layering and conduct or examine the underwriting of all projects to ensure that the HOME subsidy is not excessive and does not result in an undue or excessive return to the owner; and (2) adopt underwriting and subsidy layering guidelines that include an assessment of, at minimum, the market conditions of the neighborhood in which the project will be located, the experience of the developer, the financial capacity of the developer, and firm financial commitments for the project.
HUD will issue guidance on these requirements. However, it is important to clarify that not all HOME projects will require a full-scale market analysis and that the market area for projects of various sizes or other characteristics varies. While such analyses are appropriate for large-scale developments, assessing market
HUD has determined that additional guidance on the applicability of these requirements to specific types of projects is necessary. This final rule makes explicit that an underwriting analysis is only required for owner-occupied rehabilitation projects if the HOME-funded rehabilitation loan is amortizing; participating jurisdictions will not be required to perform underwriting analyses of HOME-funded grants or deferred, forgivable loans to owner-occupants seeking rehabilitation assistance. This rule also makes clear that participating jurisdictions will not be required to perform neighborhood market analyses or evaluate developer capacity for owner-occupied rehabilitation projects or projects involving the provision of HOME-funded downpayment assistance, but no HOME–funded development. New paragraphs § 92.250(b)(3) and (4) have been added to provide this clarification.
HUD proposed substantial revisions to the property standards applicable to HOME-assisted properties. The proposed changes to § 92.251 reorganized the section and established new requirements for HOME-assisted projects involving new construction, rehabilitation, acquisition of standard housing, manufactured housing, as well as ongoing property condition standards for HOME-assisted rental housing. In the final rule, the standards for rehabilitation projects, in § 92.251(b), were reorganized and revised to reflect public comment and to clarify misunderstandings of the proposed requirements.
HUD proposed to add definitions for “observed deficiency (OD)” and “Uniform Physical Condition Standards (UPCS)” to § 92.2.
The proposed regulation required the participating jurisdiction's property standards for rehabilitation projects to describe, in detail, the scope of the rehabilitation that may be performed and the participating jurisdiction's written requirements for the design, amenity, and materials, beyond that which is contained in the local code (i.e., written methods and materials). The rehabilitation standards must establish the requirements for the minimum acceptable product that the rehabilitation completes, and a basis for a uniform inspection of the rehabilitated housing.
In the final rule, HUD reorganized and revised language in § 92.251(b) to clarify the requirements for rehabilitation standards for HOME-assisted projects. The final rule requires that a participating jurisdiction's rehabilitation standards must include requirements to: Address health and safety defects immediately; determine the useful life cycle of major systems in both rental and owner-occupied housing and appropriately fund replacement
Some commenters supported the use of UPCS for rental properties, but suggested that the UPCS standards should not apply to owner-occupied homeowner rehabilitation. Some commenters requested that HUD clarify the difference between UPCS, standards in state and local codes, and the proposed required rehabilitation standard that prescribes the methods and materials to be used in rehabilitation activities.
HUD will issue guidance specifying which inspectable items and areas in UPCS must be included in these inspections. Where the 2009 International Property Maintenance Code has been adopted as the state or local code, participating jurisdiction would incorporate those requirements in the standards they establish to meet the requirements of § 92.251(f).
In the final rule at § 92.251(b)(1)(viii), HUD also clarifies how deficiencies listed in UPCS are incorporated into a participating jurisdiction's rehabilitation standards. HUD agrees that not every deficiency would be required to be addressed for all HOME-assisted rehabilitation. Based on the list of inspectable items and areas in the UPCS, HUD will establish which critical deficiencies must be corrected as a minimum requirement for each type of rehabilitation—rental, homebuyer, and homeowner housing—and, therefore, must be included in the participating jurisdiction's rehabilitation standards.
HUD disagrees that the UPCS standards should not apply to owner-occupied homeowner rehabilitation. Although the current regulation requires that HOME-funded homeowner rehabilitation correct all property code violations, HUD has found that in many instances, the completed housing units did not meet the existing property codes and that all health and safety defects were not removed. Along with existing state and local property condition and building codes, or the IEBC, the use of UPCS inspections on completed HOME-funded homeowner rehabilitation will help assure that these units are free of life-threatening conditions, as well as health and safety defects, and meet minimum quality standards. HUD will issue guidance that establishes which observed deficiencies in homeowner rehabilitation, from the list of inspectable items and areas in UPCS, must be included in a participating jurisdiction's rehabilitations standards
To clarify the difference between codes such as the IEBC or local building codes and UPCS, UPCS is an inspection protocol that is used to evaluate the condition of housing. In this final rule, HUD is requiring participating jurisdictions to use this inspection protocol to establish minimum property condition standards for rehabilitation standards, (e.g., if certain deficiencies are observed as part of the UPCS inspection, then the housing must be rehabilitated to correct them). HUD previously issued guidance regarding written rehabilitation standards and how they differ from property standards in HOMEfires Vol. 3, No. 1, January 2001, which is posted on HUD's Web site.
Many commenters misunderstood the proposed use of UPCS in inspecting HOME-assisted units and believed HUD proposed that participating jurisdictions adopt existing REAC inspection procedures and protocols (i.e., item weight, scoring, and level of criticality). As stated earlier, HUD proposed to use UPCS for property condition inspections and as part of rehabilitation standards in the HOME program. Use of certified REAC inspectors is not required. Further, participating jurisdictions, subrecipients, and state recipients are not required to use their own staff to conduct the inspections; they may contract with third parties to do so. HUD is aware that some participating jurisdictions are not familiar with UPCS, and agrees with commenters that a transition period and training would be helpful. The final rule delays the effective date of the provisions of § 92.251 by 18 months so that HUD may develop additional guidance to facilitate an efficient transition to the new requirements.
The proposed rule required that the participating jurisdiction's rehabilitation standards must address health and safety issues.
The proposed rule required that the remaining useful life of each major system be 15 years, at a minimum, after project completion, or the major system must be rehabilitated or replaced to have a minimum useful life of 15 years. A capital needs assessment would be required for all multifamily rental projects with 26 or more total units and determine the useful life of major systems with a capital needs assessment. For owner-occupied housing undergoing rehabilitation with HOME funds, the participating jurisdiction would be required to ensure that each major system has a remaining useful life of at least 5 years at the time the project is completed; major systems with a useful life of less than 5 years after project completion would be required to be rehabilitated or replaced to meet this requirement.
One commenter stated that the 5-year life expectancy requirement for homeownership housing would make it difficult for homebuyers to qualify their selected resale homes as eligible for HOME assistance. Some commenters stated that it is unfair to require a single-family rental house to have a 15-year useful life when a single-family homebuyer house is only required to have a 5-year useful life, and requested more flexibility with these requirements. Other commenter suggested a shorter useful life requirement of 5, 7, or 10 years for rental housing. A commenter recommended that the provision should state that all major systems must be in good operational condition rather than specifying time limits. A commenter supported the proposed capital needs assessment requirement for projects with 26 or more units. Another commenter recommended that a capital needs assessment be required for all rental projects, regardless of size. A few commenters recommended that HUD not impose a specific capital needs assessment format or process, and instead allow participating jurisdictions to use their own process. Another commenter requested clarification that a PJ is not required to conduct a capital needs assessment and it can be conducted by a professional third party entity.
HUD is not imposing a specific format or process for the required capital needs assessment. Participating jurisdictions will have the flexibility to develop their own capital needs assessment format and process. However, the White House Domestic Policy Council's Rental Policy Working Group alignment initiative may recommend capital needs assessment requirements and/or guidance that may apply to all federally assisted and funded multifamily rental housing in the future. While the participating jurisdiction is ultimately responsible for the management and oversight of its HOME program to ensure compliance with the property standards requirements, a qualified third party can be procured to carry out these tasks. Therefore, the participating jurisdiction is not required to conduct the capital needs assessments, but it must review and approve any capital needs assessment conducted by a qualified third party. HUD has determined that the capital needs assessment requirement would be overly burdensome for multifamily projects with less than 26 units. HUD is adopting the proposed rule language without change.
For HOME-assisted homeowner housing (homebuyer acquisition and/or rehabilitation projects and rehabilitation of owner-occupied housing), HUD disagrees with the comment that the requirement for a minimum useful life of major systems would negatively impact local homeownership programs. The final rule does not change the proposed rule, and therefore states that each of the major systems must have a minimum useful life of 5 years, or the system(s) must be rehabilitated.
HUD proposed that, where applicable, housing would be required to be improved to mitigate the impact of disasters such as earthquakes, hurricanes, flooding, and fires.
HUD proposed adding a new paragraph, § 92.251(b)(2)(viii) to clarify that discretionary housing improvements beyond those required to meet property standards may include modest amenities and aesthetic features that are in keeping with housing of similar type in the community, and must avoid luxury improvements, as defined by the participating jurisdiction.
HUD proposed to add new paragraphs to § 92.251(a)(2)(vi) and § 92.251(b)(3) and (4) to provide additional detail on required inspections and work write-ups. The proposed regulatory language was intended to make clear that a participating jurisdiction must inspect the property, and review and approve work write-ups for the project that describe the work needed to bring the project up to the participating jurisdiction's rehabilitation standards. The proposed language also provided that the participating jurisdiction must have written construction progress inspection procedures (including a description of how and by whom the inspections will be carried out) and detailed inspection checklists reflecting all aspects of the property standards, and that progress and final payments be tied to inspections of the completed work.
Regarding progress payment schedules, HUD agrees with the commenters that expressed concern about requiring progress inspections before payment may delay construction and potentially increasing costs. In many projects, HOME funds are used to acquire the site and construction is financed by other sources. Therefore, the proposed language may not effectively accomplish this purpose. At this final rule stage, HUD is revising § 92.251(a)(2)(vii) and (b)(4)(iii) to state that the participating jurisdiction must conduct periodic inspections during construction, see § 92.251(a)(2)(iv), (a)(2)(v) and (b)(2) and (b)(3) . These inspections do not need to be tied to the progress payments. Progress payments and inspections should be tied to the normal construction schedule; a separate payment schedule is not required for HOME.
When HOME funds are used to purchase existing rental housing, such housing must be in good condition or it must be rehabilitated with HOME funds to ensure that the housing is in standard condition at the time of project completion. HUD proposed revising § 92.251(c)(1) to set forth property standards for existing housing in standard condition that is acquired with HOME funds. If the housing was newly constructed or rehabilitated less than one year before HOME funds were committed to acquire the housing as rental housing, the housing would be required to meet the property standards in § 92.251(a). The participating jurisdiction would be required to document this compliance based upon a review of approved building plans and Certificates of Occupancy, and a current inspection conducted no less than 30 days before the commitment of HOME assistance. Existing housing that did not meet these standards would be required to be rehabilitated.
In § 92.251(c)(2) HUD proposed that existing rental housing, which does not meet the definition of § 92.251(c)(1), is acquired with HOME funds would be required to be rehabilitated and meet the requirements of § 92.251(b). The participating jurisdiction would be required to document this compliance based upon a current inspection conducted no less than 30 days before the date of commitment of HOME assistance, in accordance with the inspection procedures that the
Several commenters expressed concern and opposition to the proposed required inspections for homebuyer housing. Some commenters expressed opposition to inspecting the unit after it is sold to the homebuyer, stating concern over cost and accessibility to the unit once it is sold. For homebuyer acquisition projects, one commenter recommended that, in addition to ensuring that the housing must be free from all health and safety defects before occupancy, the participating jurisdiction be required to ensure that all property standards are met before transfer of ownership and occupancy (instead of not later than 6 months after the transfer) to facilitate administration and ensure compliance.
The final rule states that existing housing that is acquired for homeownership (e.g., downpayment assistance) must be decent, safe, sanitary, and in good repair. The participating jurisdiction must establish standards to determine that the housing is decent, safe, sanitary, and in good repair. At minimum, the standards must provide that the housing meets all applicable State and local housing quality standards and code requirements and the housing does not contain the deficiencies proscribed by HUD based on the inspectable items and inspected areas in HUD-prescribed physical inspection procedures (UPCS) pursuant to 24 CFR 5.705.
HUD agrees that the requirement to conduct an inspection no less than 30 days before the commitment of HOME assistance may not allow sufficient time, resulting in duplicative inspections and unnecessary costs. Consequently, in the final rule at § 92.251(c)(1) and (c)(2), HUD is requiring that an inspection be conducted no less than 90 days before the commitment of HOME assistance. HUD acknowledges the concerns expressed about the proposed inspection required by the participating jurisdiction after a homeowner acquires a unit with HOME funds. In the final rule, to address public comment, HUD has revised the language to remove the requirement for the participating jurisdiction to inspect the unit after it is sold.
Informing homebuyers of any defects in the unit provides them with the opportunity to negotiate
HUD proposed adding a requirement to § 92.251(e) that manufactured housing assisted with HOME funds must be attached to a permanent foundation.
HUD proposed to eliminate the requirement that HOME-assisted rental housing meet the housing quality standards (HQS) in 24 CFR 982.401 applicable during the period of affordability and instead adopt UPCS as the minimum habitability standard, in concert with applicable state and local code requirements. HUD proposed that at a minimum, the participating jurisdiction's ongoing property standards would be required to include all inspectable items in the most recent notice setting forth the physical inspection procedures prescribed by HUD, pursuant to 24 CFR 5.705.
Subrecipients can conduct these inspections if it is specified in their written agreement with the participating jurisdiction or it can hire an independent, third-party contractor to do the inspections. Although the participating jurisdiction staff is not required to conduct the inspections, the participating jurisdiction cannot rely on or accept independent inspections performed by any party not under contract to the participating jurisdiction or its subrecipient, including inspections and certifications by the project owner or a contractor of the project owner. Participating jurisdictions or its subrecipients cannot rely on any inspections performed by any party that is not contractually obligated to perform the participating jurisdiction's obligations to determine compliance with HOME property standards requirements. If the participating jurisdiction uses a state recipient, subrecipient, or contractor to perform these inspections, it must assess the work performed through periodic monitoring.
HUD finds that the UPCS is a more suitable inspection protocol for HOME-assisted housing than the MPS. As discussed above, the adoption of UPCS in the HOME program could facilitate alignment between HOME and other Federal affordable housing programs. When administrative alignment regarding the use of UPCS across federal affordable housing programs is completed, participating jurisdictions and their subrecipients may choose to cooperate with other federal funders in a jointly funded project to share inspection data, and may use inspections conducted by these funders if they willing to accept the data. This could result in decreased administrative burden and cost. HUD will issue guidance or modify these regulations at the appropriate time to facilitate alignment.
In the final rule, the language has been revised to remove UPCS as a minimum requirement for the participating jurisdiction's ongoing property standards. HUD has determined that this requirement may result in duplicative inspections and could result in HOME-assisted rental units being inspected in accordance with both UPCS and state or local codes by different inspectors. The HOME statute requires that all HOME units must be inspected and meet applicable state and local codes. In many places it may be administratively burdensome or impracticable to try to combine or compare state or local codes with UPCS. Therefore, participating jurisdictions will use UPCS for property inspections of HOME-assisted rental housing only in the absence of applicable state or local codes. HUD plans to issue guidance to establish which inspectable items and areas must be included in the participating jurisdiction's ongoing property standards and which critical deficiencies must be corrected. The participating jurisdiction's property standards are not required to use any scoring, item weight, or level of criticality in the UPCS.
HUD has added language to the final regulation at § 92.251(f)(2) clarifying that the ongoing property standards for existing HOME rental projects and for rental projects to which funds are committed before the effective date of the new ongoing property standards must continue to meet the standards in effect at the time HOME funds were committed.
HUD proposed revising § 92.252 to require that HOME-assisted rental units be occupied by an initial tenant within a specified period from the date of project completion. While the regulation itself did not include a timeframe, the preamble specifically solicited comments on the appropriate timeframe, which would not be less than 3 months or longer than 6 months. If units have not been leased to an eligible tenant within that time, HUD will require the participating jurisdiction to provide information about current marketing efforts and, if appropriate, a plan for marketing the unit so that it is leased as quickly as possible. If a unit is not occupied by an initial tenant after 18 months, HUD would require repayment of HOME funds invested in the units.
A unit that has not served a low- or very low-income household has never met the purposes of the HOME program and therefore, the costs associated with the unit are ineligible. HUD therefore maintains that 18 months is a more than adequate amount of time for a HOME-funded unit to be rented to an initial occupant, if the market demand for the project was adequate at the time funds were committed to it. The requirement that HOME funds expended on a unit that is never rented to an income-eligible household would have to be repaid provides participating jurisdictions further incentive to select projects for which there is adequate market demand for the affordable units. HUD is adopting the proposed provision of § 92.252 without change. Projects that encounter extraordinary circumstances can be dealt with administratively.
HUD proposed adding a sentence to the introductory paragraph of § 92.252 to make explicit that leases are required for all HOME-assisted rental units.
HUD proposed to incorporate the “High HOME rent” (i.e., “maximum HOME rent”) and “Low HOME rent” (i.e., “additional requirements”) terminology, which is commonly used by HUD, participating jurisdictions, and other HOME program participants, including owners, developers, and property managers, into paragraphs (a) and (b) for clarity. No comments were received on this change, and HUD is adopting the proposed language without change.
HUD proposed a revision to § 92.252(a) to specifically state that HOME rent limits include both rent and utilities or utility allowance. No comments were received on this change, and the proposed rule language is adopted without change.
HUD proposed a change to paragraph (b)(2) to make clear that participating jurisdictions may designate more than the minimum 20 percent of units in a project as Low HOME rent units, as is common practice in many HOME projects, particularly in projects that also receive project-based rental assistance. This practice facilitates the use of HOME funds for extremely low-income households, such as Section 202 projects for the elderly or permanent supportive housing for the homeless.
HUD proposed adding language to § 92.252(c) to establish the applicable rent limits for Single Room Occupancy (SRO) units assisted with HOME. Recognizing that a zero-bedroom rent was not appropriate for all SROs, depending on the amenities located within the unit, HUD established these rent limitations in administrative guidance in 1994. HUD did not receive comments on this provision, and is adopting the proposed rule language except that a circular reference to fair market rents is corrected in both subparagraphs (c)(1) and (c)(2). The reference should be to maximum HOME rent.
HUD proposed adding language to § 92.252(d) to require participating jurisdictions to use the HUD Utility Schedule Model to determine a project's annual utility allowance or to otherwise determine a project's utility allowance based upon the utilities used at the project. The model was developed by HUD and enables the user to calculate utility schedules by housing type after inputting utility rate information. The IRS uses this model to determine utilities for its LIHTC program. The model can be found at:
HUD proposed adding a sentence to § 92.252(e) to clarify existing regulatory requirements by specifically stating that the termination of affordability restrictions under paragraph (e) does not relieve a participating jurisdiction of its
HUD proposed adding a sentence to § 92.252(f)(2) to require that a participating jurisdiction must review and approve the rents for its HOME-assisted rental projects each year to ensure that they comply with the HOME limits and do not result in undue increases from the previous year. Participating jurisdictions are currently required to provide the published maximum HOME rents to project owners and then to examine reports submitted by owners outlining for each HOME unit the rent being charged and the income of the tenant. The additional step codifies existing practice of most participating jurisdictions, which do not permit HOME project owners to raise rents without approval or to charge the maximum permissible HOME rent.
HUD proposed adding language to § 92.252(j) to specify that the written agreement between the participating jurisdiction and a project owner must state whether HOME rental units will be fixed or floating during the period of affordability because participating jurisdictions are not always documenting the determination or including the specific designation in their written agreements.
HUD proposed adding two new paragraphs to § 92.252 to make the regulations more user-friendly for persons attempting to locate requirements related to rental housing. No comments were received on this change and HUD is adopting the proposed rule language without change. A new § 92.252(k) that cross-references the tenant selection requirements located in § 92.253(d) is added. A new paragraph (l) is added to § 92.252 that cross-references participating jurisdictions' ongoing responsibilities for on-site inspections, and financial oversight located in § 92.504(d).
HUD proposed revising § 92.253(a) to clarify that there must be a written lease for all HOME-assisted rental units and units rented by HOME tenant-based rental assistance recipients, and that the statutory tenant protections in this
HUD proposed adding a new paragraph § 92.253(b)(9) prohibiting lease terms that make acceptance of supportive services mandatory, except that a tenant in transitional housing may be required to accept supportive services. This clarification is consistent with section 504 of the Rehabilitation Act of 1973 (29 U.S.C. 794), which prohibits discrimination on the basis of disability in Federally-funded programs and activities and HUD's implementing regulations at 24 CFR part 8. HUD did not receive comments on the provision in this paragraph. HUD received comments on the related provision in § 92.253(c), which are addressed below. HUD is adopting this proposed rule provision without change.
HUD proposed revising § 92.253(c) to provide that a tenant's failure to follow a transitional housing services plan is a permissible basis for terminating a tenancy or refusing to renew a lease, to ensure the unit can be made available to individuals who use the transitional housing for its intended purpose. HUD also proposed revising § 92.253(c) to make explicit that an increase in a tenant's income does not constitute good cause for termination or refusal to renew.
Several commenters objected to the requirement that owners of HOME rental housing provide 30-day written notice before evicting a tenant or refusing to renew a lease. Commenters stated that it is necessary for project owners to have the ability to remove tenants who pose an imminent threat to residents or employees of the project or to the property.
The 30-day written notice requirement for eviction or refusal to renew a lease is not new. It is a longstanding provision of the HOME regulations that implements a statutory requirement that 30-day written notice be provided in these cases. HUD is adopting the proposed rule language without change.
HUD proposed moving the provisions on nondiscrimination against rental assistance subsidy holders in existing § 92.252(d) to § 92.253(d)(4). No substantive change was proposed.
HUD proposed adding language at new § 92.253(d)(3)(i) that would provide that any limitation or preference for HOME-assisted housing must not violate nondiscrimination requirements listed in § 92.350, and clarify that a limitation or preference does not violate nondiscrimination requirements if the housing also receives funding from a Federal program that limits eligibility to a particular segment of the population (e.g., HUD's Section 202 supportive housing for the elderly, Section 811 housing for persons with disabilities, etc.). HUD also proposed a new § 92.253(d)(3)(ii) that would provide that preferences may be given to disabled families who need services offered at a project, if certain conditions are met.
HUD proposed revising § 92.254(a)(2)(iii) so that participating jurisdictions would no longer be permitted to use the FHA Single Family Mortgage Limit (known as the 203(b) limit) as a surrogate for 95 percent of area median purchase price. Section 215(b) of NAHA requires that the initial purchase price of homeownership units assisted with HOME funds not exceed 95 percent of the area median purchase price for single family housing, as determined by HUD. The preamble to the proposed rule describes in detail why continuing to use the 203(b) limit as the sales price or after-rehabilitation value limit for HOME homeownership projects would violate NAHA. HUD proposed calculating 95 percent of median purchase price for each MSA or county and providing the limits annually, as it has been doing for informational purposes since 2008. In response to participating jurisdictions' concerns regarding the very low median sales prices in some non-metropolitan areas, HUD proposed amending § 92.254(a)(2)(iii) to permit participating jurisdictions to use the greater of the HUD-issued 95 percent of area median purchase price limit or 95 percent of the Bureau of the Census' median sales price for single family houses sold outside of MSAs.
HUD has carefully considered how to address commenters' concern about the effect that low median sales prices in some areas will have on the HOME program while still complying with the NAHA provisions. HUD has determined that the use of an alternate data set that excludes housing that is not in standard physical condition is consistent with the statutory intent and yields 95 percent of area median sales figures that more accurately reflect the market value of newly constructed and standard existing housing. For newly constructed single family housing units being developed or acquired with HOME funds, HUD will provide limits for affordable newly constructed housing based on 95 percent of the median purchase price of newly constructed housing in the area using data from the Federal Housing Administration (FHA) and other appropriate data sources, with a minimum limit based on 95 percent of the U.S. median purchase price for new construction for nonmetropolitan areas. For existing single family housing units being acquired and/or rehabilitated with HOME funds, HUD will provide limits for affordable existing housing based on 95 percent of the median purchase price of existing housing in the area using data from the FHA and other appropriate data sources on sale prices of existing homes in standard condition, with a minimum limit based on 95 percent of the state-wide nonmetropolitan area median purchase price using this data. Participating jurisdictions also would continue to have the option to determine their own 95 percent of area median value limit using the methodology in the regulation, which remains unchanged. HUD is amending § 92.254(a)(2)(iii) of the regulation to establish these affordable housing value limits.
HUD proposed revising § 92.254(a)(3) to require participating jurisdictions to convert homebuyer housing that has not been sold to an eligible homebuyer within 6 months of the completion of construction or rehabilitation to rental housing that complies with all provisions of § 92.252. If an unsold homebuyer unit is not converted to rental housing, the participating jurisdiction would be required to repay the HOME funds expended on it.
In response to the concerns raised, HUD has determined that it is appropriate to extend the timeframe for selling homebuyer units to 9 months from the completion of construction. In addition, to alleviate potential noncompliance due to common delays in closings, HUD is specifying that a ratified contract for purchase of a HOME-assisted unit is sufficient to meet the deadline for sale of the unit. This extension balances, to some extent, the interest in ensuring that federal funds timely result in public benefit. Because this final rule applies to projects to which HOME funds are committed on or after the effective date, this provision
HUD proposed revising §§ 92.254(a)(3) and 92.254(b)(2) to specify that the income of all adults residing in the housing must be included when determining the income of a family applying for homebuyer or homeowner rehabilitation assistance. No opposition was expressed for this proposal and a commenter voiced support for this proposed change. HUD is adopting the proposed rule provision in the final rule.
HUD proposed revisions to § 92.254(a)(3) to require that all homebuyers receiving HOME assistance or purchasing units developed with HOME funds receive housing counseling.
HUD proposed revising § 92.254(a)(5) to require participating jurisdictions to obtain HUD's specific written approval of their resale and recapture provisions.
HUD proposed amending § 92.254(a)(5)(i) to require participating jurisdictions, in their resale provisions, to specifically define “fair return on investment” and “affordability to a reasonable range of low-income buyers,” and to address how it will make the housing affordable if the resale price that is needed for a fair return on investment is too high to be within the affordable range.
HUD proposed amending § 92.254(a)(5)(ii) to permit a subsequent low-income purchaser of a HOME-assisted homeownership unit to assume the HOME loan and recapture obligation entered into by the original buyer.
HUD proposed amending § 92.254(c) to permit rehabilitation assistance to be provided in three types of situations—heir properties, life estates, and living trusts—under which the occupant of the housing would not meet the definition of “homeownership” in § 92.2.
HUD proposed adding a new § 92.254(e) that would put in place safeguards to prevent potential abuses in situations in which the same entity is under contract with the participating jurisdiction to provide HOME homeownership assistance (e.g., downpayment assistance) and is also providing first mortgage financing to the same families.
HUD proposed adding a new paragraph (f) to § 92.254 requiring participating jurisdictions that use HOME funds for homebuyer assistance to develop and follow written policies for underwriting homeownership assistance, preventing predatory lending (i.e., ensuring responsible lending), and resubordinating HOME debt in the event of refinancing of private debt.
With respect to sustainable homeownership, it is important to note that since issuance of the December 16, 2011, proposed rule, the Consumer Financial Protection Bureau (CFPB) completed its rulemaking under section 1411 of subtitle B of Title XIV of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Pub. L. 111–230, 124 Stat. 1736, approved July 21, 2010) (Dodd-Frank Act). Section 1411 added a new section 129C to the Truth-in-Lending Act (TILA) to provide minimum standards for considering a consumer's ability to repay a residential mortgage. The CFPB published a final rule on January 30, 2013, at 78 FR 6408, entitled, “Ability-to-Repay and Qualified Mortgage Standards under the Truth in Lending Act (Regulation Z)” (QM rule) to implement the provisions of new section 129C of TILA. Section 1412 of the Dodd-Frank Act requires that HUD, with regard to mortgages insured under the National Housing Act; the Department of Veterans Affairs (VA), with regard to a loan made or guaranteed by the Secretary of Veterans Affairs; the Department of Agriculture (USDA), with regard to loans guaranteed by the Secretary of Agriculture pursuant to 42 U.S.C. 1472(h); and the Rural Housing Service (RHS), with regard to loans insured by the RHS, prescribe
Therefore, as noted earlier, HUD is adopting the requirement in the proposed rule that participating jurisdictions establish underwriting and responsible lending policies that help to ensure that HOME-assisted homebuyers obtain mortgages that they have the ability to repay. HUD will issue guidance on responsible lending that explains the CFPB ability-to-pay principles and suggests additional considerations that would be appropriately included in a lending policy applicable to low-income homebuyers. The final lending policies, however, rest with the judgment of the participating jurisdiction, which is in the best position to craft responsible lending policies based on the populations they serve.
HUD proposed a revision to § 92.255 to clarify that the existing regulation does not permit conversion of an entire HOME-assisted multifamily rental project to condominium ownership during the period of affordability and that tenants' refusal to purchase their rental housing unit does not constitute grounds for eviction or failure to renew the lease.
HUD proposed to codify longstanding definitions of housing that is owned, developed, or sponsored by a CHDO currently established in HUD's administrative guidance into the regulation in § 92.300(a)(2) through (a)(6), with minimal revisions. The proposed definitions included the existing requirement that a CHDO must have demonstrated development capacity to undertake development of a project in order to receive CHDO funds, regardless of whether the CHDO would be the “owner,” “developer,” or “sponsor” of the project. The proposed rule differentiated between the roles of CHDO “sponsors” and CHDO “developers” of rental housing, making clear that a developer of HOME-assisted rental housing must also own the housing during the period of affordability, whereas a sponsor may sell the HOME-assisted rental housing to a non-profit organization or another CHDO.
For HOME-assisted homebuyer projects, the housing is “developed” by the CHDO if it is the owner (in fee simple absolute) and developer of new housing that will be constructed or existing substandard housing that is owned or will be acquired by the CHDO and rehabilitated for sale to low-income families, in accordance with § 92.254. To be the “developer,” the CHDO must arrange financing of the project and be in sole charge of construction.
HUD proposed language to clarify the allowable ownership structures and roles of CHDOs when they are participating in limited partnerships or limited liability corporations as developers or sponsors of HOME-assisted projects.
HUD proposed language that CHDOs must own the HOME-assisted housing in “in fee simple absolute.”
The proposed rule required that rental housing that is developed or owned by a CHDO must be owned by a CHDO throughout the period of affordability. Should a CHDO be removed as owner, HUD proposed that the owner of the HOME-assisted housing be replaced by another CHDO.
HUD proposed revising § 92.351 to: (1) remove the provision that affirmative marketing requirements do not apply to tenants with tenant-based rental assistance because HOME-assisted rental housing must always be affirmatively marketed without regard to whether the potential tenant has rental assistance; and (2) expand the applicability of affirmative marketing provisions to HOME-funded programs in addition to projects with 5 or more HOME-assisted units.
HUD proposed revising § 92.352 to clarify that the applicability of environmental review regulations is based on the type of HOME project (new construction, rehabilitation, acquisition) or activity (tenant-based rental assistance), not the particular cost paid with HOME funds.
HUD proposed revising § 92.352(a)(3) to remove the reference to HUD Handbook 1344.1 Federal Labor Standards Compliance in Housing and Community Development Programs and replace this reference with a regulatory citation. HUD did not receive any comments on the proposed change and is adopting the proposed rule language without change.
HUD proposed revising the conflict of interest provisions of § 92.356(b) to clarify that the covered conflict involves a financial benefit or interest, and that covered familial relationships are limited to immediate family members. The proposed change would align the HOME provisions with the CDBG regulations. HUD did not receive comments on this revision and is adopting the proposed rule language without change.
HUD proposed revising § 92.356(f)(1) to prohibit immediate family members of an officer, employee, agent, elected or appointed official or consultant of an owner, developer, or sponsor from occupying a HOME-assisted affordable housing unit in a project.
HUD proposed amending § 92.500(c) to require that participating jurisdictions' local HOME accounts be interest-bearing.
To provide an incentive for participating jurisdictions to proactively manage CHDO set-aside funds by moving them from nonperforming CHDOs to performing CHDOs before they expire, HUD proposed adding a new paragraph at § 92.500(d)(1)(C) to establish a separate 5-year expenditure deadline for community housing development organization set-aside funds.
HUD proposed adding a provision to § 92.502(a) clarifying that participating jurisdictions are required to report all program income earned on HOME funds in IDIS.
A commenter requested implementation flexibility with respect to reporting program income in IDIS and stated that reporting program income in IDIS should only be required if it is received after the effective date of the new regulations. The same commenter stated that the regulations should not be required to ensure that program income received and held by one state recipient is used before it draws HOME funds from its HOME Treasury Account to pay costs incurred by another state recipient or CHDO.
HUD proposed revising § 92.502(e) to clarify that even though other participants may be permitted to access HUD's disbursement and information system, only participating jurisdictions and State recipients (if permitted by the State) may request disbursement.
HUD proposed revising § 92.503 to provide that, when repayment of HOME funds is required, HUD will instruct a participating jurisdiction whether to repay funds to the HOME Investment Trust Fund Treasury account or the local account. HUD did not receive any comments on this proposed change and is adopting the rule language without change.
HUD proposed revising § 92.504(a) to: Require participating jurisdictions to develop and follow written policies, procedures, and systems, including a system for assessing risk of activities and projects, and a system for monitoring entities, to ensure that HOME requirements are met; to make explicit that State recipients are included in the entities that must be evaluated annually; and clarify that the evaluation must include a review of each entity's compliance with HOME program requirements.
HUD proposed several revisions to § 92.504(c), which sets forth the provisions that are required in participating jurisdictions' written agreements with participants in their HOME programs, including state recipients, subrecipients, owners, developers, sponsors, contractors, and CHDOs to reflect new or altered requirements that would be added to other sections of the HOME regulations and to improve the ability of participating jurisdictions to use written agreements to ensure compliance.
HUD proposed revising § 92.504(d)(1) to require on-site completion inspections of all completed HOME-assisted units, and proposing different sampling and frequency schedules in the requirements for ongoing periodic inspections of rental property in § 92.504(d)(1) to provide participating jurisdictions with flexibility to implement risk-based monitoring. HUD proposed that participating jurisdictions must conduct inspections at least every 3 years, but more frequently if deficiencies are revealed during inspection. The proposed rule also required that inspections be performed on a larger number of HOME-assisted units.
HUD proposed a new a requirement pertaining to annual financial oversight of HOME-assisted rental properties in § 92.504(d)(2). The purpose of this requirement is to enable participating jurisdictions to identify HOME-assisted projects that may become financially troubled before problems become severe. HUD proposed that this requirement apply only to projects with 10 or more HOME-assisted unit and specifically requested public comment on whether a different applicability threshold was appropriate.
HUD proposed revising § 92.505(a) and (b) to add a reference to the regulations implementing OMB Circular No. A–87 (2 CFR part 225) and OMB Circular No. A–122 (2 CFR part 230). Circular A–87 is entitled “Cost Principles for States, Local, and Indian Tribal Governments.” Circular A–122 is entitled “Cost Principles for Non-Profit Organizations.” The provisions of these cost principle circulars are codified in the government-wide regulations found at 2 CFR part 225 and 2 CFR part 230, respectively. HUD received no comments on this proposed change and is adopting the proposed rule language without change.
HUD proposed revising § 92.508 to require participating jurisdictions to maintain records pertaining to new requirements that would be established under this rule.
HUD proposed amending § 92.551(c) by revising and adding to the remedial actions available for imposition on a participating jurisdiction. The current provision for requiring matching contributions would be expanded to include establishment of a remedial plan to make up a matching contribution deficit.
Two new remedial actions, which are establishing procedures to ensure compliance with HOME requirements and forming a consortium with the urban county, would also be added. The existing provision under which HUD may change the method of payment from advance to reimbursement would be expanded to require submission of supporting documentation before payment is made. Finally, the proposed change would provide that HUD may determine the participating jurisdiction to be high-risk and impose special conditions or restrictions in accordance with 24 CFR 85.12. HUD did not receive any comments on these changes and is adopting the proposed rule language without change.
HUD proposed to revise § 92.552(b) to remove the reference that subpart B of 24 CFR part 26 governs hearing proceedings. HUD did not receive any comments on this change and the final rule removes this reference.
HUD proposed a minor technical change to § 92.614. HUD proposed to move the reference to the affirmative marketing requirements in § 92.351(a) from § 92.614(b) to § 92.614(a)(3). HUD did not receive any comments on this change and is adopting the proposed rule language without change.
Under Executive Order 12866 (Regulatory Planning and Review), a determination must be made whether a
This rule makes several changes to the HOME Program regulations, which are over 16 years old, and without a significant update during that period. The changes in this rule, for which public comment was received and considered, are designed to improve the performance of the program. The rule updates definitions and adds new terminology relevant to the housing market and real estate market; modifies the eligibility requirements of community housing development organizations that seek to participate in the HOME program to ensure that they have the capacity to undertake their responsibilities under the HOME Program, establishes deadlines for project completion in an effort to ensure that housing units needed by low-income households are in fact constructed and made available; strengthens conflict of interest provisions; and clarifies language in several existing HOME regulatory provisions to remove any possible ambiguity as to what is expected of participating jurisdictions, community housing development organizations and other entities that participate in the HOME program.
The rule is an administrative one and so the economic impacts are almost entirely within the program. The requirements that improve program oversight and avoid noncompliance will lead to a more efficient allocation of resources within the program and the provision of more affordable housing. Some elements of the rule have the potential to impose compliance costs on participants. However, these costs will either be subsidized by HUD or can be avoided through more efficient behavior on the part of the participating jurisdictions and developers. Although the rule is expected to create some efficiencies within the HOME program, the rule it is not expected to have a measurable impact beyond the grant program. The costs and benefits of the regulatory changes made by this rule are more fully discussed in the regulatory impact analysis (RIA) that accompanies this rule and can be found at
The docket file is available for public inspection in the Regulations Division, Office of General Counsel, Department of Housing and Urban Development, 451 7th Street SW., Room 10276, Washington, DC 20410–0500. Due to security measures at the HUD Headquarters building, please schedule an appointment to review the docket file by calling the Regulations Division at 202–708–3055 (this is not a toll-free number).
The information collection requirements contained in this rule were submitted to the Office of Management and Budget (OMB) under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501–3520), and assigned OMB control number 2506–0171. For the information collection and recordkeeping changes made by this final rule, HUD estimated that annually the number of respondents would be 180,487, responding only once annually but with varying hours per response, resulting in a total annual burden hours of 208,886. HUD estimated the total annual cost of $31 per hour, resulting in a total cost of $6,475,450.00. HUD's supporting statement that is submitted to OMB describes in more detail the changes made by this final rule to the existing HOME program information collection and recordkeeping requirements can be found on the HOME program Web site.
The Regulatory Flexibility Act (5 U.S.C. 601
Section 601 of the Regulatory Flexibility Act defines the term “small entity” to include small governmental jurisdictions as governments of cities, counties, towns, townships, villages, school districts, or special districts with a population of less than 50,000. Currently, there are 644 jurisdictions participating in the HOME program, and 33 jurisdictions meet the definition of small governmental jurisdictions. HUD is cognizant of the greater difficulties that small entities may have in meeting regulatory requirements, but as noted in the preamble, the requirements governing this program are designed to ensure that the use of HOME program grant funds, are consistent with statutory requirements and the objectives of the HOME program. Additionally, as a grant program, the program provides that up to 10 percent of a participating jurisdiction's annual allocation may be used for program planning and program administration.
Nevertheless HUD has strived to meet the objective of responsible and accountable use of grant funds without imposing undue burden on small jurisdictions or any other size jurisdiction. As discussed earlier in this preamble, several provisions adopted by this final rule are best practices, not requirements. As also discussed earlier in this preamble, additional costs that may arise as result of enhanced accountability and monitoring may be paid with HOME grant funds as project-
Accordingly, for these reasons and as further discussed in the preamble, HUD has determined that this rule would not have a significant economic impact on a substantial number of small entities.
Executive Order 13132 (entitled “Federalism”) prohibits an agency from publishing any rule that has federalism implications if the rule either (1) imposes substantial direct compliance costs on state and local governments and is not required by statute, or (2) preempts state law, unless the agency meets the consultation and funding requirements of section 6 of the Order. This rule does not have federalism implications and would not impose substantial direct compliance costs on state and local governments nor preempt state law within the meaning of the Order.
A Finding of No Significant Impact with respect to the environment was made, at the proposed rule stage, in accordance with HUD regulations in 24 CFR part 50 that implement section 102(2)(C) of the National Environmental Policy Act of 1969 (42 U.S.C. 4332(2)(C)). The Finding remains applicable to this final rule and is available for public inspection during regular business hours in the Regulations Division, Office of General Counsel, Department of Housing and Urban Development, 451 7th Street SW., Room 10276, Washington, DC 20410–0500. Due to security measures at the HUD Headquarters building, please schedule an appointment to review the Finding by calling the Regulations Division at (202) 402–3055 (this is not a toll-free number). Individuals with speech or hearing impairments may access this number via TTY by calling the Federal Relay Service at (800) 877–8339.
Title II of the Unfunded Mandates Reform Act of 1995 establishes requirements for federal agencies to assess the effects of their regulatory actions on state, local, and tribal governments and the private sector. This rule will not impose any federal mandates on any state, local, or tribal governments or the private sector within the meaning of the Unfunded Mandates Reform Act of 1995.
Aged, Grant programs-housing and community development, Homeless, Individuals with disabilities, Low and moderate income housing, and Reporting and recordkeeping requirements.
Administrative practice and procedure, Grant programs-housing and community development, Low and moderate income housing, Manufactured homes, Rent subsidies, and Reporting and recordkeeping requirements.
For the reasons stated in the preamble, HUD amends 24 CFR parts 91and 92, as follows:
42 U.S.C. 3535(d), 3601–3619, 5301–5315, 11331–11388, 12701–12711, 12741–12756, and 12901–12912.
(l) * * *
(2)
(ii) If the participating jurisdiction intends to use HOME funds for homebuyers, it must set forth the guidelines for resale or recapture, and obtain HUD's specific, written approval, as required in 24 CFR 92.254. Approval of the consolidated plan or action plan under § 91.500 or the failure to disapprove the consolidated plan or action does not satisfy the requirement for specific HUD approval for resale or recapture guidelines.
(iv) If the participating jurisdiction intends to use HOME funds for homebuyer assistance or for rehabilitation of owner-occupied single family housing and does not use the HOME affordable homeownership limits for the area provided by HUD, it must determine 95 percent of the median area purchase price and set forth the information in accordance with 24 CFR 92.254(a)(2)(iii).
(v) The jurisdiction must describe eligible applicants (e.g., categories of eligible applicants), describe its process for soliciting and funding applications or proposals (e.g., competition, first-come first-serve) and state where detailed information may be obtained (e.g., application packages are available at the office of the jurisdiction or on the jurisdiction's Web site).
(vi) The participating jurisdiction may limit the beneficiaries or give preferences to a particular segment of the low-income population only if described in the action plan.
(A) Any limitation or preference must not violate nondiscrimination requirements in 24 CFR 92.350, and the participating jurisdiction must not limit or give preferences to students.
(B) A limitation or preference may include, in addition to targeting tenant- based rental assistance to persons with special needs, as provided in 24 CFR 92.209(c)(2), limiting beneficiaries or giving preferences to such professions as police officers, teachers, or artists.
(C) The participating jurisdiction must not limit beneficiaries or give a preference to all employees of the jurisdiction.
(D) The participating jurisdiction may permit rental housing owners to limit
(k) * * *
(2)
(ii) If the State intends to use HOME funds for homebuyers, it must set forth the guidelines for resale or recapture, and obtain HUD's specific, written approval, as required in 24 CFR 92.254. Approval of the consolidated plan or action plan under § 91.500 or the failure to disapprove the consolidated plan or action does not satisfy the requirement for specific HUD approval for other forms of investment.
(iv) If the participating jurisdiction intends to use HOME funds for homebuyer assistance or for rehabilitation of owner-occupied single family housing and does not use the HOME affordable homeownership limits for the area provided by HUD, it must determine 95 percent of the median area purchase price and set forth the information in accordance with 24 CFR 92.254(a)(2)(iii).
(v) The State must describe eligible applicants (e.g., categories of eligible applicants), describe its process for soliciting and funding applications or proposals (e.g., competition, first-come first-serve; subgrants to local jurisdictions) and state where detailed information may be obtained (e.g., application packages are available at the office of the State or on the State's Web site).
(vi) The participating jurisdiction may limit the beneficiaries or give preferences to a particular segment of the low-income population only if described in the action plan.
(A) Any limitation or preference must not violate nondiscrimination requirements in 24 CFR 92.350, and the participating jurisdiction must not limit or give preferences to students.
(B) A limitation or preference may include, in addition to targeting tenant-based rental assistance to persons with special needs as provided in 24 CFR 92.209(c)(2), limiting beneficiaries or giving preferences to persons in certain occupations, such as police officers, firefighters, or teachers.
(C) The participating jurisdiction must not limit beneficiaries or give a preference to all employees of the jurisdiction.
(D) The participating jurisdiction may permit rental housing owners to limit tenants or give a preference in accordance with 24 CFR 92.253(d) only if such limitation or preference is described in the action plan.
42 U.S.C. 3535(d) and 12701– 12839.
The terms
(1) The participating jurisdiction has executed a legally binding written agreement (that includes the date of the signature of each person signing the agreement) with a State recipient, a subrecipient, or a contractor to use a specific amount of HOME funds to produce affordable housing, provide downpayment assistance, or provide tenant-based rental assistance; or has met the requirements to commit to a specific local project, as defined in paragraph (2) of this definition. (See § 92.504(c) for minimum requirements for a written agreement.) An agreement between the participating jurisdiction and a subrecipient that is controlled by the participating jurisdiction (e.g., an agency whose officials or employees are official or employees of the participating jurisdiction) does not constitute a commitment. An agreement between the representative unit and a member unit of general local government of a consortium does not constitute a commitment.
(2)
(i) If the project consists of rehabilitation or new construction (with or without acquisition) the participating jurisdiction (or State recipient or sub recipient) and project owner have executed a written legally binding agreement under which HOME assistance will be provided to the owner for an identifiable project for which all necessary financing has been secured, a budget and schedule have been established, and underwriting has been completed and under which construction is scheduled to start within twelve months of the agreement date. If the project is owned by the participating jurisdiction or State recipient, the project has been set up in the disbursement and information system established by HUD, and construction can reasonably be expected to start within twelve months of the project set-up date.
(3) * * *
(ii) The for-profit entity may not have the right to appoint more than one-third of the membership of the organization's governing body. Board members appointed by the for-profit entity may not appoint the remaining two-thirds of the board members;
(iii) The community housing development organization must be free to contract for goods and services from vendors of its own choosing; and
(iv) The officers and employees of the for-profit entity may not be officers or
(4) Has a tax exemption ruling from the Internal Revenue Service under section 501(c)(3) or (4) of the Internal Revenue Code of 1986 (26 CFR 1.501(c)(3)–1 or 1.501(c)(4)–1)), is classified as a subordinate of a central organization non-profit under section 905 of the Internal Revenue Code of 1986, or if the private nonprofit organization is an wholly owned entity that is disregarded as an entity separate from its owner for tax purposes (e.g., a single member limited liability company that is wholly owned by an organization that qualifies as tax-exempt), the owner organization has a tax exemption ruling from the Internal Revenue Service under section 501(c)(3) or (4) of the Internal Revenue Code of 1986 and meets the definition of “community housing development organization;”
(5) Is not a governmental entity (including the participating jurisdiction, other jurisdiction, Indian tribe, public housing authority, Indian housing authority, housing finance agency, or redevelopment authority) and is not controlled by a governmental entity. An organization that is created by a governmental entity may qualify as a community housing development organization; however, the governmental entity may not have the right to appoint more than one-third of the membership of the organization's governing body and no more than one- third of the board members may be public officials or employees of governmental entity. Board members appointed by a governmental entity may not appoint the remaining two-thirds of the board members. The officers or employees of a governmental entity may not be officers or employees of a community housing development organization;
(9) Has a demonstrated capacity for carrying out housing projects assisted with HOME funds. A designated organization undertaking development activities as a developer or sponsor must satisfy this requirement by having paid employees with housing development experience who will work on projects assisted with HOME funds. For its first year of funding as a community housing development organization, an organization may satisfy this requirement through a contract with a consultant who has housing development experience to train appropriate key staff of the organization. An organization that will own housing must demonstrate capacity to act as owner of a project and meet the requirements of § 92.300(a)(2). A nonprofit organization does not meet the test of demonstrated capacity based on any person who is a volunteer or whose services are donated by another organization; and
(1) The land may be owned in fee simple or the homeowner may have a 99-year ground lease.
(i) For housing located in the insular areas, the ground lease must be 40 years or more.
(ii) For housing located on Indian trust or restricted Indian lands or a Community Land Trust, the ground lease must be 50 years or more.
(iii) For manufactured housing, the ground lease must be for a period at least equal to the applicable period of affordability in § 92.254.
(2) Right to possession under a contract for deed, installment contract, or land contract (pursuant to which the deed is not given until the final payment is made) is not an equivalent form of ownership.
(3) The ownership interest may be subject only to the restrictions on resale required under § 92.254(a); mortgages, deeds of trust, or other liens or instruments securing debt on the property as approved by the participating jurisdiction; or any other restrictions or encumbrances that do not impair the good and marketable nature of title to the ownership interest.
(4) The participating jurisdiction must determine whether or not ownership or membership in a cooperative or mutual housing project constitutes homeownership under State law; however, if the cooperative or mutual housing project receives Low Income Housing Tax Credits, the ownership or membership does not constitute homeownership.
(2) Gross income from the use or rental of real property, owned by the participating jurisdiction, State recipient, or a subrecipient, that was acquired, rehabilitated, or constructed, with HOME funds or matching contributions, less costs incidental to generation of the income (
The regulations of this part, as revised by final rule published on July 24, 2013 are applicable to projects for which HOME funds are committed on or after August 23, 2013, with the exception of the following provisions;
(a) Section 92.2, for the definition of commitment, the change which eliminates reservations of funds that are not project-specific to CHDOs as a commitment will be applicable on October 22, 2013 and will be implemented by HUD for deadlines that occur on or after January 1, 2015;
(b) Section 92.251, Property Standards, will apply to projects to which funds are committed on or after January 24, 2015;
(c) Section 92.254(f). Homebuyer program policies, for written policies related to underwriting, responsible lending, and refinancing, will be applicable on January 24, 2014;
(d) Section 92.500(d)(1)(C), establishing the separate 5-year deadline for expenditure of CHDO set-aside funds will be applicable on January 1, 2015 and will be implemented by HUD for all deadlines that occur on or after that date; and
(e) Section 92.504(a), for written policies, procedures, and systems, will be applicable on July 24, 2014.
(f) Section 92.504(d)(2), for financial oversight of projects assisted with HOME funds, will be applicable on July 24, 2014.
(a) * * *
(2) The participating jurisdiction may only invest its HOME funds in eligible projects within its boundaries, or in jointly funded projects within the boundaries of contiguous local jurisdictions which serve residents from both jurisdictions. For a project to be jointly funded, both jurisdictions must make a financial contribution to the project. A jurisdiction's financial contribution may take the form of a grant or loan (including a loan of funds that comes from other federal sources and that are in the jurisdiction's control, such as CDBG program funds) or relief of a significant tax or fee (such as waiver of impact fees, property taxes, or other taxes or fees customarily imposed on projects within the jurisdiction).
(b)
(a) * * *
(1) * * *
(i) Examine at least 2 months of source documents evidencing annual income (e.g., wage statement, interest statement, unemployment compensation statement) for the family.
(2) For all other families (i.e., homeowners receiving rehabilitation assistance, homebuyers, and recipients of HOME tenant-based rental assistance), the participating jurisdiction must determine annual income by examining at least 2 months of source documents evidencing annual income (e.g., wage statement, interest statement, unemployment compensation statement) for the family.
(b) When determining whether a family is income eligible, the participating jurisdiction must use one of the following two definitions of “annual income”:
(1) Annual income as defined at 24 CFR 5.609 (except when determining the income of a homeowner for an owner-occupied rehabilitation project, the value of the homeowner's principal residence may be excluded from the calculation of Net Family Assets, as defined in 24 CFR 5.603); or
(2) Adjusted gross income as defined for purposes of reporting under Internal Revenue Service Form 1040 series for individual Federal annual income tax purposes.
(c) Although the participating jurisdiction may use either of the
(d)(1) The participating jurisdiction must calculate the annual income of the family by projecting the prevailing rate of income of the family at the time the participating jurisdiction determines that the family is income eligible. Annual income shall include income from all persons in the household. Income or asset enhancement derived from the HOME-assisted project shall not be considered in calculating annual income.
(a) * * *
(1) HOME funds may be used by a participating jurisdiction to provide incentives to develop and support affordable rental housing and homeownership affordability through the acquisition (including assistance to homebuyers), new construction, reconstruction, or rehabilitation of nonluxury housing with suitable amenities, including real property acquisition, site improvements, conversion, demolition, and other expenses, including financing costs, relocation expenses of any displaced persons, families, businesses, or organizations; to provide tenant-based rental assistance, including security deposits; to provide payment of reasonable administrative and planning costs; and to provide for the payment of operating expenses of community housing development organizations. The housing must be permanent or transitional housing. The specific eligible costs for these activities are set forth in §§ 92.206 through 92.209. The activities and costs are eligible only if the housing meets the property standards in § 92.251 upon project completion.
(2) Acquisition of vacant land or demolition must be undertaken only with respect to a particular housing project intended to provide affordable housing within the time frames established in paragraph (2) of the definition of “commitment” in § 92.2.
(b) * * *
(1) A participating jurisdiction may invest HOME funds as equity investments, interest-bearing loans or advances, non-interest-bearing loans or advances, interest subsidies consistent with the purposes of this part, deferred payment loans, grants, or other forms of assistance that HUD determines to be consistent with the purposes of this part and specifically approves in writing. Each participating jurisdiction has the right to establish the terms of assistance, subject to the requirements of this part.
(d)
(1) Only the actual HOME eligible development costs of the assisted units may be charged to the HOME program. If the assisted and nonassisted units are not comparable, the actual costs may be determined based on a method of cost allocation. If the assisted and non- assisted units are comparable in terms of size, features, and number of bedrooms, the actual cost of the HOME- assisted units can be determined by prorating the total HOME eligible development costs of the project so that the proportion of the total development costs charged to the HOME program does not exceed the proportion of the HOME-assisted units in the project.
(2) After project completion, the number of units designated as HOME- assisted may be reduced only in accordance with § 92.210, except that in a project consisting of all HOME- assisted units, one unit may be subsequently converted to an on-site manager's unit if the participating jurisdiction determines that the conversion will contribute to the stability or effectiveness of the housing and that, notwithstanding the loss of one HOME-assisted unit, the costs charged to the HOME program do not exceed the actual costs of the HOME- assisted units and do not exceed the subsidy limit in § 92.250(b).
(e)
(1) A project that does not meet the requirements for affordable housing must be terminated and the participating jurisdiction must repay all HOME funds invested in the project to the participating jurisdiction's HOME Investment Trust Fund in accordance with § 92.503(b).
(2) If a participating jurisdiction does not complete a project within 4 years of the date of commitment of funds, the project is considered to be terminated and the participating jurisdiction must repay all funds invested in the project to the participating jurisdiction's HOME Investment Trust Fund in accordance with § 92.503(b). The participating jurisdiction may request a one-year extension of this deadline in writing, by submitting information about the status of the project, steps being taken to overcome any obstacles to completion, proof of adequate funding to complete the project, and a schedule with milestones for completion of the project for HUD's review and approval.
(a) * * *
(1) For new construction projects, costs to meet the new construction standards in § 92.251;
(2) For rehabilitation, costs to meet the property standards for rehabilitation projects in § 92.251;
(3) For both new construction and rehabilitation projects, costs:
(4) For both new construction and rehabilitation of multifamily rental housing projects, costs to construct or rehabilitate laundry and community facilities that are located within the same building as the housing and which are for the use of the project residents and their guests.
(b)
(1) For single-family (one- to four- family) owner-occupied housing, when loaning HOME funds to rehabilitate the housing, if the refinancing is necessary to reduce the overall housing costs to the borrower and make the housing more affordable and if the rehabilitation
(2) For single family or multifamily projects, when loaning HOME funds to rehabilitate the units if refinancing is necessary to permit or continue affordability under § 92.252. The participating jurisdiction must establish refinancing guidelines and state them in its consolidated plan described in 24 CFR part 91. Regardless of the amount of HOME funds invested, the minimum affordability period shall be 15 years. The guidelines shall describe the conditions under which the participating jurisdictions will refinance existing debt. At minimum, the guidelines must:
(vi) State that HOME funds cannot be used to refinance single family or multifamily housing loans made or insured by any Federal program, including CDBG.
(d) * * *
(1) Architectural, engineering, or related professional services required to prepare plans, drawings, specifications, or work write-ups. The costs may be paid if they were incurred not more than 24 months before the date that HOME funds are committed to the project and the participating jurisdiction expressly permits HOME funds to be used to pay the costs in the written agreement committing the funds.
(3) Costs of a project audit, including certification of costs performed by a certified public accountant, that the participating jurisdiction may require with respect to the development of the project.
(6) Staff and overhead costs of the participating jurisdiction directly related to carrying out the project, such as work specifications preparation, loan processing inspections, and other services related to assisting potential owners, tenants, and homebuyers, e.g., housing counseling, may be charged to project costs only if the project is funded and the individual becomes the owner or tenant of the HOME-assisted project. For multi-unit projects, such costs must be allocated among HOME- assisted units in a reasonable manner and documented. Although these costs may be charged as project costs, these costs (except housing counseling) cannot be charged to or paid by low-income families.
(b)
(a) Up to 5 percent of a participating jurisdiction's fiscal year HOME allocation may be used for the operating expenses of community housing development organizations (CHDOs). This amount is in addition to amounts set aside for housing projects that are owned, developed, or sponsored by CHDOs as described in § 92.300(a). These funds may not be used to pay operating expenses incurred by a CHDO acting as a subrecipient or contractor under the HOME Program. Operating expenses means reasonable and necessary costs for the operation of the community housing development organization. Such costs include salaries, wages, and other employee compensation and benefits; employee education, training, and travel; rent; utilities; communication costs; taxes; insurance; equipment; materials; and supplies. The requirements and limitations on the receipt of these funds by CHDOs are set forth in § 92.300(e) and (f).
(a)
(c)
(2)
(ii) The participating jurisdiction may also provide a preference for a specific category of individuals with disabilities (e.g., persons with HIV/AIDS or chronic mental illness) if the specific category is identified in the participating jurisdiction's consolidated plan as having unmet need and the preference is needed to narrow the gap in benefits and services received by such persons.
(iii)
(iv)
(v) Preferences cannot be administered in a manner that limits the opportunities of persons on any basis prohibited by the laws listed under 24 CFR 5.105(a). For example, a participating jurisdiction may not determine that persons given a preference under the program are therefore prohibited from applying for or participating in other programs or forms of assistance. Persons who are eligible for a preference must have the opportunity to participate in all programs of the participating jurisdiction, including programs that are not separate or different.
(g)
(h) * * *
(3) * * *
(ii) The Section 8 Housing Choice Voucher Program (24 CFR part 982).
(l)
(a) The provisions of this section apply only to an existing HOME- assisted rental project that, within the HOME period of affordability, is no longer financially viable. For purposes of this section, a HOME assisted rental project is no longer financially viable if its operating costs significantly exceed its operating revenue. HUD may approve one or both of the actions described in paragraphs (b) and (c) of this section to strategically preserve a rental project after consideration of market needs, available resources, and the likelihood of long-term viability of the project.
(b) Notwithstanding § 92.214, a participating jurisdiction may request and HUD may permit, pursuant to a written memorandum of agreement, a participating jurisdiction to invest additional HOME funds in the existing HOME-assisted rental project. The total HOME funding for the project (original investment plus additional investment) must not exceed the per-unit subsidy limit in § 92.250(a). The use of HOME funds may include, but is not limited to, rehabilitation of the HOME units and recapitalization of project reserves for the HOME units (to fund capital costs). If additional HOME funds are invested, HUD may require the period of affordability to be extended, based on such considerations as the amount of additional HOME funds or additional units.
(c) HUD Headquarters may, through written approval, permit the participating jurisdiction to reduce the number of HOME-assisted units, if the project contains more than the minimum number of units required to be designated as HOME-assisted under § 92.205(d). In determining whether to permit a reduction in the number of HOME-assisted units, HUD will take into account the required period of affordability and the amount of HOME assistance provided to the project.
(a)
(b)
(c)
(d) The HOME funds must be used in accordance with the requirements of this part and the project must meet the requirements of this part, including rent requirements in § 92.252.
(a) * * *
(4) Provide assistance for uses authorized under section 9 of the 1937 Act (Public Housing Capital and Operating Funds);
(b)(1) Participating jurisdictions may not charge (and must prohibit State recipients, subrecipients, and community housing development organizations from charging) servicing, origination, or other fees for the purpose of covering costs of administering the HOME program (e.g., fees on low-income families for construction management or for inspections for compliance with property standards) (see § 92.206(d)(6) and § 92.207), except that:
(i) Participating jurisdictions and State recipients may charge owners of rental projects reasonable annual fees for compliance monitoring during the period of affordability. The fees must be based upon the average actual cost of performing the monitoring of HOME-assisted rental projects. The basis for determining the amount of for the fee amount must be documented and the fee must be included in the costs of the project as part of the project underwriting;
(ii) Participating jurisdictions, subrecipients and State recipients may charge nominal application fees (although these fees are not an eligible
(iii) Participating jurisdictions, subrecipients and State recipients may charge homebuyers a fee for housing counseling.
(2) All fees charged under paragraph (b)(1) of this section are applicable credits under 2 CFR part 225 (OMB Circular A–87, entitled “Cost Principles for State, Local, and Indian Tribal Governments”).
(3) The participating jurisdiction must prohibit project owners from charging fees that are not customarily charged in rental housing (e.g., laundry room access fees), except that rental project owners may charge:
(i) Reasonable application fees to prospective tenants;
(ii) Parking fees to tenants only if such fees are customary for rental housing projects in the neighborhood; and
(iii) Fees for services such as bus transportation or meals, as long as the services are voluntary and fees are charged for services provided.
(d) Match credit for the development of affordable homeownership housing for sale to homebuyers. Contributions to the development of homeownership housing may be credited as a match only to the extent that the sales price of the housing is reduced by the amount of the contribution or, if the development costs exceed the fair market value of the housing, the contribution may be credited to the extent that the contributions enable the housing to be sold for less than the cost of development.
(b) Reduction of match for participating jurisdictions in disaster areas. If a participating jurisdiction is located in an area in which a declaration of major disaster is made pursuant to the Robert T. Stafford Disaster Relief and Emergency Assistance Act (42 U.S.C. 5121–5206), the participating jurisdiction may request a reduction of its matching requirement.
(1) In determining whether to grant the request and the amount and duration of the reduction, if any, HUD must consider the fiscal impact of the disaster on the participating jurisdiction.
(i) For a local participating jurisdiction, the HUD Field office may reduce the matching requirement specified in § 92.218 by up to 100 percent for the fiscal year in which the declaration of major disaster is made and the following fiscal year.
(ii) For a State participating jurisdiction, the HUD Field office may reduce the matching requirement specified in § 92.218, by up to 100 percent for the fiscal year in which the declaration of major disaster is made and the following fiscal year with respect to any HOME funds expended in an area to which the declaration of a major disaster applies.
(2) At its discretion and upon request of the participating jurisdiction, the HUD Field Office may extend the reduction for an additional year.
(a)
(b)
(1) An examination of the sources and uses of funds for the project and a determination that the costs are reasonable; and
(2) An assessment, at minimum, of the current market demand in the neighborhood in which the project will be located, the experience of the developer, the financial capacity of the developer, and firm written financial commitments for the project.
(3) For projects involving rehabilitation of owner-occupied housing pursuant to § 92.254(b):
(i) An underwriting analysis is required only if the HOME-funded rehabilitation loan is an amortizing loan; and
(ii) A market analysis or evaluation of developer capacity is not required.
(4) For projects involving HOME-funded downpayment assistance pursuant to § 92.254(a) and which do not include HOME-funded development activity, a market analysis or evaluation of developer capacity is not required.
(a)
(2)
(i)
(ii) [Reserved]
(iii)
(iv)
(v)
(b)
(1)
(i)
(ii)
(iii)
(iv)
(v) [Reserved]
(vi)
(vii)
(viii)
(ix)
(2)
(3)
(c)
(2) All other existing housing that is acquired with HOME assistance for rental housing must meet the
(3) Existing housing that is acquired for homeownership (e.g., downpayment assistance) must be decent, safe, sanitary, and in good repair. The participating jurisdiction must establish standards to determine that the housing is decent, safe, sanitary, and in good repair. At minimum, the standards must provide that the housing meets all applicable State and local housing quality standards and code requirements and the housing does not contain the specific deficiencies proscribed by HUD based on the applicable inspectable items and inspected areas in HUD-prescribed physical inspection procedures (Uniform Physical Condition Standards) issued pursuant to 24 CFR 5.705. The participating jurisdiction must inspect the housing and document this compliance based upon an inspection that is conducted no earlier than 90 days before the commitment of HOME assistance. If the housing does not meet these standards, the housing must be rehabilitated to meet the standards of this paragraph (c)(3) or it cannot be acquired with HOME funds.
(d)
(e)
(f)
(i)
(ii)
(iii)
(2) Projects to which HOME funds were committed before January 24, 2015 must meet all applicable State or local housing quality standards or code requirements, and if there are no such standard or code requirements, the housing must meet the housing quality standards in 24 CFR 982.401.
(3)
(4)
(5)
The revisions and additions read as follows:
The HOME-assisted units in a rental housing project must be occupied by households that are eligible as low- income families and must meet the requirements of this section to qualify as affordable housing. If the housing is not occupied by eligible tenants within six
(a)
(b)
(c)
(2) For SRO units that have no sanitary or food preparation facilities or only one of the two, the maximum HOME rent is based on 75 percent of the zero-bedroom fair market rent. The project is not required to have low HOME rents in accordance with paragraph (b)(1) or (2) of this section, but must meet the occupancy requirements of paragraph (b) of this section.
(d)
(2) The participating jurisdiction must review and approve rents proposed by the owner for units, subject to the maximum rent limitations in paragraphs (a) or (b) of this section. For all units subject to the maximum rent limitations in paragraphs (a) or (b) of this section for which the tenant is paying utilities and services, the participating jurisdiction must ensure that the rents do not exceed the maximum rent minus the monthly allowances for utilities and services.
(e)
(1) The affordability requirements:
(i) Apply without regard to the term of any loan or mortgage, repayment of the HOME investment, or the transfer of ownership;
(ii) Must be imposed by a deed restriction, a covenant running with the land, an agreement restricting the use of the property, or other mechanisms approved by HUD and must give the participating jurisdiction the right to require specific performance (except that the participating jurisdiction may provide that the affordability restrictions may terminate upon foreclosure or transfer in lieu of foreclosure); and
(iii) Must be recorded in accordance with State recordation laws.
(2) The participating jurisdiction may use purchase options, rights of first refusal or other preemptive rights to purchase the housing before foreclosure or deed in lieu of foreclosure in order to preserve affordability.
(3) The affordability restrictions shall be revived according to the original terms if, during the original affordability period, the owner of record before the foreclosure, or deed in lieu of foreclosure, or any entity that includes the former owner or those with whom the former owner has or had family or business ties, obtains an ownership interest in the project or property.
(4) The termination of the restrictions on the project does not terminate the participating jurisdiction's repayment obligation under § 92.503(b).
(f) * * *
(2) The participating jurisdiction must provide project owners with information on updated HOME rent limits so that rents may be adjusted (not to exceed the maximum HOME rent limits in paragraph (f)(1) of this section) in accordance with the written agreement between the participating jurisdiction and the owner. Owners must annually provide the participating jurisdiction with information on rents and occupancy of HOME-assisted units to demonstrate compliance with this section. The participating jurisdiction must review rents for compliance and approve or disapprove them every year.
(g)
(j)
(k)
(l)
The revisions and additions read as follows:
(a)
(b) * * *
(9)
(c)
(d)
(1) Limit the housing to very low- income and low-income families;
(2) Are reasonably related to the applicants' ability to perform the obligations of the lease (i.e., to pay the rent, not to damage the housing; not to interfere with the rights and quiet enjoyment of other tenants);
(3) Limit eligibility or give a preference to a particular segment of the population if permitted in its written agreement with the participating jurisdiction (and only if the limitation or preference is described in the participating jurisdiction's consolidated plan).
(i) Any limitation or preference must not violate nondiscrimination requirements in § 92.350. A limitation or preference does not violate nondiscrimination requirements if the housing also receives funding from a Federal program that limits eligibility to a particular segment of the population (e.g., the Housing Opportunity for Persons with AIDS program under 24 CFR part 574, the Shelter Plus Care program under 24 CFR part 582, the Supportive Housing program under 24 CFR part 583, supportive housing for the elderly or persons with disabilities under 24 CFR part 891), and the limit or preference is tailored to serve that segment of the population.
(ii) If a project does not receive funding from a Federal program that limits eligibility to a particular segment of the population, the project may have a limitation or preference for persons with disabilities who need services offered at a project only if:
(A) The limitation or preference is limited to the population of families (including individuals) with disabilities that significantly interfere with their ability to obtain and maintain housing;
(B) Such families will not be able to obtain or maintain themselves in housing without appropriate supportive services; and
(C) Such services cannot be provided in a nonsegregated setting. The families must not be required to accept the services offered at the project. In advertising the project, the owner may advertise the project as offering services for a particular type of disability; however, the project must be open to all otherwise eligible persons with disabilities who may benefit from the services provided in the project.
(4) Do not exclude an applicant with a certificate or voucher under the Section 8 Tenant-Based Assistance: Housing Choice Voucher Program (24 CFR part 982) or an applicant participating in a HOME tenant-based rental assistance program because of the status of the prospective tenant as a holder of such certificate, voucher, or comparable HOME tenant-based assistance document.
(5) Provide for the selection of tenants from a written waiting list in the chronological order of their application, insofar as is practicable; and
(6) Give prompt written notification to any rejected applicant of the grounds for any rejection.
(a) * * *
(2) * * *
(iii) If a participating jurisdiction intends to use HOME funds for homebuyer assistance or for the rehabilitation of owner-occupied single- family properties, the participating jurisdiction must use the HOME affordable homeownership limits provided by HUD for newly constructed housing and for existing housing. HUD will provide limits for affordable newly constructed housing based on 95 percent of the median purchase price for the area using Federal Housing Administration (FHA) single family mortgage program data for newly constructed housing, with a minimum limit based on 95 percent of the U.S. median purchase price for new construction for nonmetropolitan areas. HUD will provide limits for affordable existing housing based on 95 percent of the median purchase price for the area using Federal FHA single family mortgage program data for existing housing data and other appropriate data that are available nation-wide for sales of existing housing, with a minimum limit based on 95 percent of the state-wide nonmetropolitan area median purchase price using this data. In lieu of the limits provided by HUD, the participating jurisdiction may determine 95 percent of the median area purchase price for single family housing in the jurisdiction annually, as follows. The participating jurisdiction must set forth the price for different types of single family housing for the jurisdiction. The participating jurisdiction may determine separate limits for existing housing and newly constructed housing. For housing located outside of metropolitan areas, a State may aggregate sales data from more than one county, if the counties are contiguous and similarly situated. The following information must be included in the annual action plan of the Consolidated Plan submitted to HUD for review and updated in each action plan.
(A) The 95 percent of median area purchase price must be established in accordance with a market analysis that ensured that a sufficient number of
(B) Sales must cover the requisite number of months based on volume: For 500 or more sales per month, a one- month reporting period; for 250 through 499 sales per month, a 2-month reporting period; for less than 250 sales per month, at least a 3-month reporting period. The data must be listed in ascending order of sales price.
(C) The address of the listed properties must include the location within the participating jurisdiction. Lot, square, and subdivision data may be substituted for the street address.
(D) The housing sales data must reflect all, or nearly all, of the one- family house sales in the entire participating jurisdiction.
(E) To determine the median, take the middle sale on the list if an odd number of sales, and if an even number, take the higher of the middle numbers and consider it the median. After identifying the median sales price, the amount should be multiplied by 0.95 to determine the 95 percent of the median area purchase price.
(3) The housing must be acquired by a homebuyer whose family qualifies as a low-income family, and the housing must be the principal residence of the family throughout the period described in paragraph (a)(4) of this section. If there is no ratified sales contract with an eligible homebuyer for the housing within 9 months of the date of completion of construction or rehabilitation, the housing must be rented to an eligible tenant in accordance with § 92.252. In determining the income eligibility of the family, the participating jurisdiction must include the income of all persons living in the housing. The homebuyer must receive housing counseling.
(5)
(i)
(ii)
(b) * * *
(2) The housing is the principal residence of an owner whose family qualifies as a low-income family at the time HOME funds are committed to the housing. In determining the income eligibility of the family, the participating jurisdiction must include the income of all persons living in the housing.
(c)
(1)
(2)
(3)
(4)
(e)
(1) The homeownership assistance may be provided only as specified in a written agreement between the participating jurisdiction and the lender. The written agreement must specify the forms and amounts of homeownership assistance that the participating jurisdiction authorizes the lender to provide to families and any conditions that apply to the provision of such homeownership assistance.
(2) Before the lender provides any homeownership assistance to a family, the participating jurisdiction must verify that the family is low-income and must inspect the housing for compliance with the property standards in § 92.251.
(3) No fees (e.g., origination fees or points) may be charged to a family for the HOME homeownership assistance provided pursuant to this paragraph (e), and the participating jurisdiction must determine that the fees and other amounts charged to the family by the lender for the first mortgage financing are reasonable. Reasonable administrative costs may be charged to the HOME program as a project cost. If the participating jurisdiction requires lenders to pay a fee to participate in the HOME program, the fee is program income to the HOME program.
(4) If the nonprofit lender is a subrecipient or contractor that is receiving HOME assistance to determine that the family is eligible for homeownership assistance, but the participating jurisdiction or another entity is making the assistance to the homebuyer (e.g., signing the documents for the loan or the grant), the requirements of paragraphs (e)(2) and (3) of this section are applicable.
(f)
(1) Underwriting standards for homeownership assistance that evaluate housing debt and overall debt of the family, the appropriateness of the amount of assistance, monthly expenses of the family, assets available to acquire the housing, and financial resources to sustain homeownership;
(2) Responsible lending, and
(3) Refinancing loans to which HOME loans are subordinated to ensure that the terms of the new loan are reasonable.
(a) The participating jurisdiction may permit the owner of HOME-assisted rental units to convert the rental units to homeownership units by selling, donating, or otherwise conveying the units to the existing tenants to enable the tenants to become homeowners in accordance with the requirements of § 92.254. However, refusal by the tenant to purchase the housing does not constitute grounds for eviction or for failure to renew the lease.
(b) If no additional HOME funds are used to enable the tenants to become homeowners, the homeownership units are subject to a minimum period of affordability equal to the remaining affordable period if the units continued as rental units. If additional HOME funds are used to directly assist the tenants to become homeowners, the minimum period of affordability is the affordability period under § 92.254(a)(4), based on the amount of direct homeownership assistance provided.
(a)
(2)
(b)
(c)
(d)
(e)
(f)
(a) Within 24 months after the date that HUD notifies the participating jurisdiction of HUD's execution of the HOME Investment Partnerships Agreement, the participating jurisdiction must reserve not less than 15 percent of the HOME allocation for investment only in housing to be owned, developed or sponsored by community housing development organizations. For a State, the HOME allocation includes funds reallocated under § 92.451(c)(2)(i) and, for a unit of general local government, includes funds transferred from a State under § 92.102(b). The participating jurisdiction must certify the organization as meeting the definition of “community housing development organization” and must document that the organization has capacity to own, develop, or sponsor housing each time it commits funds to the organization. For purposes of this paragraph:
(1) Funds are reserved when a participating jurisdiction enters into a written agreement with the community housing development organization (or project owner as described in paragraph (a)(4) of this section) committing the funds to a specific local project in accordance with paragraph (2) of the definition of “commitment” in § 92.2.
(2) Rental housing is “owned” by the community housing development organization if the community housing development organization is the owner in fee simple absolute of multifamily or single family housing (or has a long term ground lease) for rental to low-income families in accordance with § 92.252. If the housing is to be rehabilitated or constructed, the community housing development organization hires and oversees the developer that rehabilitates or constructs the housing. At minimum, the community housing development organization must hire or contract with an experienced project manager to oversee all aspects of the development, including obtaining zoning, securing non-HOME financing, selecting a developer or general contractor, overseeing the progress of the work and determining the reasonableness of costs. The community housing development organization must own the rental housing during development and for a period at least equal to the period of affordability in § 92.252. If the CHDO acquires housing that meets the property standards in § 92.251, the CHDO must own the rental housing for a period at least equal to the period of affordability in § 92.252.
(3) Rental housing is “developed” by the community development housing organization if the community housing development organization is the owner of multifamily or single family housing in fee simple absolute (or has a long term ground lease) and the developer of new housing that will be constructed or existing substandard housing that will be rehabilitated for rent to low-income families in accordance with § 92.252. To be the “developer,” the community development housing organization must be in sole charge of all aspects of the development process, including obtaining zoning, securing non-HOME financing, selecting architects, engineers and general contractors, overseeing the progress of the work and determining the reasonableness of costs. At a minimum, the community housing development organization must own the housing during development and for a period at least equal to the period of affordability in § 92.252.
(4) Rental housing is “sponsored” by the community development housing organization if it is rental housing “owned” or “developed” by a subsidiary of a community housing development organization, a limited partnership of which the community housing development organization or its subsidiary is the sole general partner, or a limited liability company of which the community housing development organization or its subsidiary is the sole managing member.
(i) The subsidiary of the community housing development organization may be a for-profit or nonprofit organization and must be wholly owned by the community housing development organization. If the limited partnership or limited liability company agreement permits the community housing development organization to be removed as general partner or sole managing member, the agreement must provide that the removal must be for cause and that the community housing development organization must be replaced with another community housing development organization.
(ii) The HOME funds must be provided to the entity that owns the project.
(5) HOME-assisted rental housing is also “sponsored” by a community housing development organization if the community housing development organization “developed” the rental housing project that it agrees to convey to an identified private nonprofit organization at a predetermined time after completion of the development of the project. Sponsored rental housing, as provided in this paragraph (a)(5), is subject to the following requirements:
(i) The private nonprofit organization may not be created by a governmental entity.
(ii) The HOME funds must be invested in the project that is owned by the community housing development organization.
(iii) Before commitment of HOME funds, the community housing development organization sponsor must select the nonprofit organization that will obtain ownership of the property.
(A) The nonprofit organization assumes the community housing development organization's HOME obligations (including any repayment of loans) for the rental project at a specified time after completion of development.
(B) If the housing is not transferred to the nonprofit organization, the community housing development organization sponsor remains responsible for the HOME assistance and the HOME project.
(6) Housing for homeownership is “developed” by the community development housing organization if the community housing development organization is the owner (in fee simple absolute) and developer of new housing that will be constructed or existing substandard housing that will be rehabilitated for sale to low-income families in accordance with § 92.254.
(i) To be the “developer” the community development housing organization must arrange financing of the project and be in sole charge of construction. The community housing development organization may provide direct homeownership assistance (e.g., downpayment assistance) when it sells the housing to low-income families and the community housing development organization will not be considered a subrecipient. The HOME funds for downpayment assistance shall not be greater than 10 percent of the amount of HOME funds for development of the housing.
(ii) The participating jurisdiction must determine and set forth in its written agreement with the community housing development organization the actual sales prices of the housing or the method by which the sales prices for the housing will be established and whether the proceeds must be returned to the participating jurisdiction or may be retained by the community housing development organization.
(A) While proceeds that the participating jurisdiction permits the community housing development organization to retain are not subject to the requirements of this part, the participating jurisdiction must specify in the written agreement with the community housing development organization whether the proceeds are to be used for HOME-eligible activities or other housing activities to benefit low-income families.
(B) Funds that are recaptured because the housing no longer meets the affordability requirements under § 92.254(a)(5)(ii) are subject to the requirements of this part in accordance with § 92.503.
(7) The participating jurisdiction determines the form of assistance (e.g., grant or loan) that it will provide to the community housing development organization receives or, for rental housing projects under paragraph (a)(4) of this section, to the entity that owns the project.
(e) If funds for operating expenses are provided under § 92.208 to a community housing development organization that is not also receiving funds under paragraph (a) of this section for housing to be owned, developed or sponsored by the community housing development organization, the participating jurisdiction's written agreement with the community housing development organization must provide that the community housing development organization is expected to receive funds under paragraph (a) of this section for a project within 24 months of the date of receiving the funds for operating expenses, and specifies the terms and conditions upon which this expectation is based.
(f) The participating jurisdiction must ensure that a community housing development organization does not receive HOME funding for any fiscal year in an amount that provides more than 50 percent or $50,000, whichever is greater, of the community housing development organization's total operating expenses in that fiscal year. This also includes organizational support and housing education provided under section 233(b)(1), (2), and (6) of the Act, as well as funds for operating expenses provided under § 92.208.
(a)
(2) * * *
(ii) Requirements and practices each subrecipient and owner must adhere to in order to carry out the participating jurisdiction's affirmative marketing procedures and requirements (e.g., use of commercial media, use of community contacts, use of the Equal Housing Opportunity logotype or slogan, and display of fair housing poster);
(iii) Procedures to be used by subrecipients and owners to inform and solicit applications from persons in the housing market area who are not likely to apply for the housing program or the housing without special outreach (e.g., through the use of community organizations, places of worship, employment centers, fair housing groups, or housing counseling agencies);
(iv) Records that will be kept describing actions taken by the participating jurisdiction and by subrecipients and owners to affirmatively market the program and units and records to assess the results of these actions; and
(a)
(c) * * *
(2) * * *
(C) * * *
(
(
(a) * * *
(1) Every contract for the construction (rehabilitation or new construction) of housing that includes 12 or more units assisted with HOME funds must contain a provision requiring the payment of not less than the wages prevailing in the locality, as predetermined by the Secretary of Labor pursuant to the Davis-Bacon Act (40 U.S.C. 3141), to all laborers and mechanics employed in the development of any part of the housing. Such contracts must also be subject to the overtime provisions, as applicable, of the Contract Work Hours and Safety Standards Act (40 U.S.C. 3701).
(3) Participating jurisdictions, contractors, subcontractors, and other participants must comply with regulations issued under these acts and with other Federal laws and regulations pertaining to labor standards, as applicable. Participating jurisdictions shall be responsible for ensuring compliance by contractors and subcontractors with labor standards described in this section. In accordance with procedures specified by HUD, participating jurisdictions shall:
(i) Ensure that bid and contract documents contain required labor standards provisions and the appropriate Department of Labor wage determinations;
(ii) Conduct on-site inspections and employee interviews;
(iii) Collect and review certified weekly payroll reports;
(iv) Correct all labor standards violations promptly;
(v) Maintain documentation of administrative and enforcement activities; and
(vi) Require certification as to compliance with the provisions of this section before making any payment under such contracts.
(b)
(f)
(c) * * *
(1) The local account of the HOME Investment Trust Fund includes deposits of HOME funds disbursed from the Treasury account; the deposit of any State funds (other than HOME funds transferred pursuant to § 92.102(b)(2)) or local funds that enable the jurisdiction to meet the participating threshold amount in § 92.102, any program income (from both the allocated funds and matching contributions in accordance with the definition of program income), and any repayments or recaptured funds as required by § 92.503. The local account must be interest-bearing.
(d)(1) * * *
(A) Any funds in the United States Treasury account that are required to be reserved (i.e., 15 percent of the funds) by a participating jurisdiction under § 92.300 that are not committed to a community housing development organization project within 24 months after the last day of the month in which HUD notifies the participating jurisdiction of HUD's execution of the HOME Investment Partnership Agreement;
(C) Any funds in the United States Treasury account that are not expended within 5 years after the last day of the month in which HUD notifies the participating jurisdiction of HUD's execution of the HOME Investment Partnership Agreement and any funds in the United States Treasury account that were committed to community housing development organization projects that are not expended within 5 years after the last day of the month in which HUD notifies the participating jurisdiction of HUD's execution of the HOME Investment Partnership Agreement; and
(2) For purposes of determining the amount by which the HOME Investment Trust Fund will be reduced or recaptured under paragraphs (d)(1)(A), (B) and (C) of this section, HUD will consider the sum of commitments to CHDOs, commitments, or expenditures, as applicable, from all fiscal year allocations. This sum must be equal to or greater than the sum of all fiscal year allocations through the fiscal year allocation being examined (minus previous reductions to the HOME Investment Trust Fund), or in the case of commitments to CHDOs, 15 percent of those fiscal year allocations.
(a)
(b) * * *
(2) If the project set-up information is not completed within 20 days of the
(e)
(b) * * *
(3) HUD will instruct the participating jurisdiction to either repay the funds to the HOME Investment Trust Fund Treasury account or the local account. Generally, if the HOME funds were disbursed from the participating jurisdiction's HOME Investment Trust Fund Treasury account, they must be repaid to the Treasury account. If the HOME funds were disbursed from the participating jurisdiction's HOME Investment Trust Fund local account, they must be repaid to the local account. If the jurisdiction is not a participating jurisdiction at the time the repayment is made, the funds must be remitted to HUD, and reallocated in accordance with § 92.454.
The revisions and additions read as follows:
(a)
(c) * * *
(1)
(i)
(ii)
(vii)
(xi)
(xiii)
(2)
(i)
(iv)
(v)
(x)
(xi)
(3)
(i)
(ii)
(A) If the owner or developer is undertaking rental projects, the agreement must establish the initial rents, the procedures for rent increases pursuant to § 92.252(f)(2), the number of HOME units, the size of the HOME units, and the designation of the HOME units as fixed or floating, and include the requirement that the owner or developer provide the address (e.g., street address and apartment number) of each HOME unit no later than the time of initial occupancy.
(B) If the owner or developer is undertaking a homeownership project for sale to homebuyers in accordance with § 92.254(a), the agreement must set forth the resale or recapture requirements that must be imposed on the housing, the sales price or the basis upon which the sales price will be determined, and the disposition of the sales proceeds. Recaptured funds must be returned to the participating jurisdiction.
(iii)
(iv)
(v) * * *
(A) The agreement must specify the owner or developer's affirmative marketing responsibilities as enumerated by the participating jurisdiction in accordance with § 92.351.
(vi)
(vii)
(x)
(xi)
(4)
(6)
(d)
(i)
(ii)
(A) The on-site inspections must occur within 12 months after project completion and at least once every 3 years thereafter during the period of affordability.
(B) If there are observed deficiencies for any of the inspectable items in the property standards established by the participating jurisdiction, in accordance with the inspection requirements of § 92.251, a follow-up on-site inspection to verify that deficiencies are corrected must occur within 12 months. The participating jurisdiction may establish a list of non-hazardous deficiencies for which correction can be verified by third party documentation (e.g., paid invoice for work order) rather than re-inspection. Health and safety deficiencies must be corrected immediately, in accordance with § 92.251. The participating jurisdiction must adopt a more frequent inspection schedule for properties that have been found to have health and safety deficiencies.
(C) The property owner must annually certify to the participating jurisdiction that each building and all HOME- assisted units in the project are suitable for occupancy, taking into account State and local health, safety, and other applicable codes, ordinances, and requirements, and the ongoing property standards established by the participating jurisdiction to meet the requirements of § 92.251.
(D) Inspections must be based on a statistically valid sample of units appropriate for the size of the HOME-assisted project, as set forth by HUD through notice. For projects with one-to-four HOME-assisted units, participating jurisdiction must inspect 100 percent of the HOME-assisted units and the inspectable items (site, building exterior, building systems, and common areas) for each building housing HOME-assisted units.
(iii)
(2)
(a)
(b)
The revisions and addition read as follows:
(a) * * *
(2) * * *
(ii) The forms of HOME assistance used in the program, including any forms of investment described in the Consolidated Plan under 24 CFR part 91 that are not identified in § 92.205(b), and which are specifically approved by HUD.
(iii) The underwriting and subsidy layering guidelines adopted in accordance with § 92.250 that support the participating jurisdiction's Consolidated Plan certification.
(viii) If HOME funds are used for acquisition of housing for homeownership, the resale or recapture guidelines established in accordance with § 92.254(a)(5), as set forth in the Consolidated Plan.
(xiii) Records documenting objections to the religious character of an organization that provides services under the HOME program, and the reasonable efforts undertaken to identify and refer the program participant to an alternative provider to which the prospective program participant has no objection, as provided in § 92.257(d).
(3)
(ii) The source and application of funds for each project, including supporting documentation in accordance with 24 CFR 85.20; and records to document the eligibility and permissibility of the project costs, including the documentation of the actual HOME-eligible development costs of each HOME-assisted unit (through allocation of costs, if permissible under § 92.205(d)) where HOME funds are used to assist less than all of the units in a multi-unit project.
(iii) Records demonstrating that each rental housing or homeownership project meets the minimum per-unit subsidy amount of § 92.205(c), the maximum per-unit subsidy amount of § 92.250(a), and the subsidy layering and underwriting evaluation adopted in accordance with § 92.250(b).
(iv) Records (e.g., inspection reports) demonstrating that each project meets the property standards of § 92.251 at project completion. In addition, during the period of affordability, records for rental projects demonstrating compliance with the property standards and financial reviews and actions pursuant to § 92.504(d).
(vi) Records demonstrating that each tenant-based rental assistance project meets the written tenant selection policies and criteria of § 92.209(c), including any targeting requirements, the rent reasonableness requirements of § 92.209(f), the maximum subsidy provisions of § 92.209(h), property inspection reports, and calculation of the HOME subsidy.
(xiii) Records demonstrating that a site and neighborhood standards review was conducted for each project which includes new construction of rental housing assisted under this part to determine that the site meets the requirements of 24 CFR 983.57(e)(2) and (e)(3), in accordance with § 92.202.
(xiv) Records (written agreements) demonstrating compliance with the written agreements requirements in § 92.504.
(4) * * *
(i) Written agreements committing HOME funds to CHDO projects in accordance with § 92.300(a).
* * *
(iii) The name and qualifications of each CHDO and amount of HOME CHDO set-aside funds committed.
(6)
(c) * * *
(1) * * *
(vii) Establishing procedures to ensure compliance with HOME requirements;
(viii) Making matching contributions as draws are made from the participating jurisdiction's HOME Investment Trust Fund United States Treasury Account and establishing a remedial plan to make up the matching contributions deficit; and
(ix) If the participating jurisdiction is a metropolitan city, forming a consortium with the urban county if the urban county is willing to carry out the HOME program in the metropolitan city.
(2) HUD may also change the method of payment from an advance to reimbursement basis and may require supporting documentation to be submitted for HUD review for each payment request before payment is made; determine the participating jurisdiction to be high risk and impose special conditions or restrictions on the next year's allocation in accordance with 24 CFR 85.12; and take other remedies that may be legally available.
(b)
The addition reads as follows:
(a) * * *
(3)
Bureau of Consumer Financial Protection.
Final rule; official interpretations.
This rule amends some of the final mortgage rules issued by the Bureau of Consumer Financial Protection (Bureau) in January of 2013. These amendments clarify, correct, or amend provisions on the relation to State law of Regulation X's servicing provisions; implementation dates for adjustable-rate mortgage servicing; exclusions from requirements on higher-priced mortgage loans; the small servicer exemption from certain servicing rules; the use of government-sponsored enterprise and Federal agency purchase, guarantee or insurance eligibility for determining qualified mortgage status; and the determination of debt and income for purposes of originating qualified mortgages.
This rule is effective January 10, 2014, except for the amendment to § 1026.35(e), which is effective July 24, 2013. See part V, Effective Date, in
Marta Tanenhaus, Senior Counsel, Paul Ceja, Senior Counsel and Special Advisor; Joseph Devlin, Counsel; Office of Regulations, at (202) 435–7700.
In January 2013, the Bureau issued several final rules concerning mortgage markets in the United States (2013 Title XIV Final Rules), pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). Public Law 111–203, 124 Stat. 1376 (2010). On January 10, 2013, the Bureau issued the 2013 ATR Final Rule;
First, the Bureau is amending the commentary to the preemption provision of Regulation X to clarify that the regulation does not occupy the field of regulation of the practices covered by the Real Estate Settlement Procedures Act (RESPA) or Regulation X, including with respect to mortgage servicers or mortgage servicing. The rule also redesignates the Regulation X preemption provision, § 1024.13, as § 1024.5(c).
Second, in response to industry requests, the Bureau is providing clarification of the implementation dates for adjustable-rate mortgage provisions § 1026.20(c) and (d) of the 2013 TILA Servicing Final Rule. This clarification is provided in the section-by-section analysis and does not revise the 2013 TILA Servicing Final Rule or its official commentary.
Third, the Bureau is revising § 1026.35(e) of Regulation Z, as amended by the Amendments to the 2013 Escrows Final Rule,
Fourth, the Bureau is clarifying the scope and application of the exemption for small servicers that is set forth in Regulation Z's periodic statement provision, § 1026.41, and incorporated by cross-reference in certain provisions of Regulation X. The rule clarifies which mortgage loans to consider in determining small servicer status and the application of the small servicer exemption with regard to servicer/affiliate and master servicer/subservicer relationships. Further, the rule provides that three types of mortgage loans will not be considered in determining small servicer status: mortgage loans voluntarily serviced for an unaffiliated entity without remuneration, reverse mortgages, and mortgage loans secured by a consumer's interest in timeshare plans.
Fifth, the Bureau is revising regulatory text and an official interpretation adopted in the 2013 ATR Final Rule and adding a new official interpretation to describe qualified mortgages that are entitled to a presumption of compliance with the ability-to-repay requirements under the Dodd-Frank Act. Specifically, the Bureau is providing clarifications with regard to § 1026.43(e)(4), which allows qualified mortgage status to certain loans that are eligible for purchase, guarantee, or insurance by the GSEs or federal agencies. Section 1026.43(e)(4)(ii)(A)–(E) is amended to make clear that matters wholly unrelated to ability to repay will not be relevant to determination of QM status under this provision. Comment 43(e)(4)–4 explains that matters wholly unrelated to ability to repay are those matters that are wholly unrelated to credit risk or the underwriting of the loan. Comment 43(e)(4)–4 also clarifies the standards a creditor must meet when relying on a written guide or an automated underwriting system to determine qualified mortgage status under § 1026.43(e)(4). In addition, the revised comment specifies that a creditor relying on approval through an automated underwriting system to establish qualified mortgage status must also meet the conditions on approval that are generated by that same system.
The Bureau is also revising comment 43(e)(4)–4 to clarify that a loan meeting eligibility requirements provided in a written agreement with one of the GSEs, HUD, VA, USDA, or RHS is also eligible for purchase or guarantee by the GSEs or insured or guaranteed by the agencies for the purposes of § 1026.43(e)(4). In addition, the comment has been clarified to provide that loans receiving individual waivers from GSEs or agencies will be considered eligible as
The Bureau is also issuing new comment 43(e)(4)–5, which provides that a repurchase or indemnification demand by the GSEs, HUD, VA, USDA, or RHS is not dispositive for ascertaining qualified mortgage status. The comment provides two examples to illustrate the application of this guidance.
Sixth, the Bureau is amending appendix Q of Regulation Z to facilitate compliance and ensure access to credit by assisting creditors in determining a consumer's debt-to-income ratio (DTI) for the purposes of § 1026.43(e)(2), the primary qualified mortgage provision. The Bureau is making changes to address compliance challenges raised by stakeholders, as well as technical and wording changes for clarification purposes. The Bureau's revisions include clarifications to appendix Q on: (1) Stability of income, and the creditor requirement to evaluate the probability of the consumer's continued employment; (2) with regard to salary, wage, and other forms of consumer income, the creditor requirement to determine whether the consumer's income level can reasonably be expected to continue; (3) creditor analysis of consumer overtime and bonus income; (4) creditor analysis of consumer Social Security income; (5) requirements related to the analysis of self-employed consumer income; (6) requirements related to non-employment related consumer income, including creditor analysis of consumer trust income; and (7) creditor analysis of rental income. The Bureau is also revising the introduction to appendix Q to make clear that creditors may refer to other federal agency and GSE guidance that is in accordance with appendix Q as a resource, and to provide default rules and an optional safe harbor when appendix Q's standards do not otherwise resolve how to treat a particular type of debt or income.
In response to an unprecedented cycle of expansion and contraction in the mortgage market that sparked the most severe U.S. recession since the Great Depression, Congress passed the Dodd-Frank Act, which was signed into law on July 21, 2010. In the Dodd-Frank Act, Congress established the Bureau and, under sections 1061 and 1100A, generally consolidated the rulemaking authority for Federal consumer financial laws, including the Truth in Lending Act (TILA) and RESPA, in the Bureau.
On January 10, 2013, the Bureau issued the 2013 ATR Final Rule, Escrow Requirements Under the Truth in Lending Act (Regulation Z) (2013 Escrows Final Rule),
Concurrent with the 2013 ATR Final Rule, on January 10, 2013, the Bureau issued Proposed Amendments to the Ability-to-Repay Standards Under the Truth in Lending Act (Regulation Z) (2013 ATR Concurrent Proposal).
On February 13, 2013, the Bureau announced an initiative to support implementation of its new mortgage rules (Implementation Plan),
This final rule is the third final rule providing additional revisions and clarifications of and amendments to the 2013 Title XIV Final Rules. In addition, the Bureau issued a proposed rule with further revisions and clarifications of and amendments to several of the 2013 Title XIV Final Rules on June 24, 2013. The purpose of these updates is to address important questions raised by industry, consumer groups, or other agencies. Priority for these updates is given to issues that are important to a large number of stakeholders and that critically affect mortgage companies' implementation decisions. Previously, the Bureau issued a final rule
The Bureau received 73 comments on the proposed rule
The Bureau has examined all comments submitted and will discuss those that were responsive to the proposal in the section-by-section analysis below.
The Bureau is issuing this final rule pursuant to its authority under RESPA, TILA, and the Dodd-Frank Act. Section 1061 of the Dodd-Frank Act transferred to the Bureau the “consumer financial protection functions” previously vested in certain other Federal agencies, including the Federal Reserve Board (Board). The term “consumer financial protection function” is defined to include “all authority to prescribe rules or issue orders or guidelines pursuant to any Federal consumer financial law, including performing appropriate functions to promulgate and review such rules, orders, and guidelines.”
Section 19(a) of RESPA, 12 U.S.C. 2617(a), authorizes the Bureau to prescribe such rules and regulations, to make such interpretations, and to grant such reasonable exemptions for classes of transactions, as may be necessary to achieve the purposes of RESPA, which include its consumer protection purposes. In addition, section 6(j)(3) of RESPA, 12 U.S.C. 2605(j)(3), authorizes the Bureau to establish any requirements necessary to carry out section 6 of RESPA, and section 6(k)(1)(E) of RESPA, 12 U.S.C. 2605(k)(1)(E), authorizes the Bureau to prescribe regulations that are appropriate to carry out RESPA's consumer protection purposes. As identified in the 2013 RESPA Servicing Final Rule, the consumer protection purposes of RESPA include responding to borrower requests and complaints in a timely manner, maintaining and providing accurate information, helping borrowers avoid unwarranted or unnecessary costs and fees, and facilitating review for foreclosure avoidance options.
Section 105(a) of TILA, 15 U.S.C. 1604(a), authorizes the Bureau to prescribe regulations to carry out the purposes of TILA. Under 105(a) such regulations may contain such additional requirements, classifications, differentiations, or other provisions, and may provide for such adjustments and exceptions for all or any class of transactions, as in the judgment of the Bureau are necessary or proper to effectuate the purposes of TILA, to prevent circumvention or evasion thereof, or to facilitate compliance therewith. A purpose of TILA is “to assure a meaningful disclosure of credit terms so that the consumer will be able to compare more readily the various credit terms available to him and avoid the uninformed use of credit.” TILA section 102(a), 15 U.S.C. 1601(a). In particular, it is a purpose of TILA section 129C, as amended by the Dodd-Frank Act, to assure that consumers are offered and receive residential mortgage loans on terms that reasonably reflect their ability to repay the loans and that are understandable and not unfair, deceptive, or abusive. Section 105(f) of TILA, 15 U.S.C. 1604(f), authorizes the Bureau to exempt from all or part of TILA any class of transactions if the Bureau determines that TILA coverage does not provide a meaningful benefit to consumers in the form of useful information or protection. Accordingly, the Bureau has authority to issue regulations pursuant to title X as well as RESPA and TILA, as amended by title XIV.
In addition, to constitute a qualified mortgage a loan must meet “any guidelines or regulations established by the Bureau relating to ratios of total monthly debt to monthly income or alternative measures of ability to pay regular expenses after payment of total monthly debt, taking into account the income levels of the borrower and such other factors as the Bureau may determine are relevant and consistent with the purposes described in [TILA section 129C(b)(3)(B)(i)].” The Dodd Frank Act also provides the Bureau with authority to prescribe regulations that revise, add to, or subtract from the criteria that define a qualified mortgage upon a finding that such regulations are necessary or proper to ensure that responsible, affordable mortgage credit remains available to consumers in a manner consistent with the purposes of the ability-to-repay requirements; or are necessary and appropriate to effectuate the purposes of the ability-to-repay requirements, to prevent circumvention or evasion thereof, or to facilitate compliance with TILA sections 129B and 129C. TILA section 129C(b)(3)(B)(i), 15 U.S.C. 1639c(b)(3)(B)(i). In addition, TILA section 129C(b)(3)(A) provides the Bureau with authority to prescribe regulations to carry out the purposes of the qualified mortgage provisions, such as to ensure that responsible and affordable mortgage credit remains available to consumers in a manner consistent with the purposes of TILA section 129C. TILA section 129C(b)(3)(A), 15 U.S.C. 1639c(b)(3)(A).
Section 1022(b)(1) of the Dodd-Frank Act authorizes the Bureau to prescribe rules “as may be necessary or appropriate to enable the Bureau to administer and carry out the purposes and objectives of the Federal consumer financial laws, and to prevent evasions
The Bureau is amending certain rules finalized in January, 2013, that implement a number of Dodd-Frank Act provisions. In particular, the Bureau is clarifying or amending regulatory provisions and associated commentary adopted by the 2013 ATR Final Rule,
The Bureau proposed a technical amendment to the heading for Subpart A of Regulation X from “Subpart A—General” to “Subpart A—General Provisions” to conform the heading in the text of the regulation to the heading set forth in the corresponding commentary. No comments were received on this change, and it is adopted as proposed.
The Bureau proposed to redesignate § 1024.13 as § 1024.5(c). Section 1024.13, “Relation to State laws,” sets forth rules regarding the relationship of the requirements in RESPA and Regulation X to requirements established pursuant to State law. In the 2013 RESPA Servicing Final Rule, the Bureau divided Regulation X into subparts and § 1024.13 was located in new “Subpart B—Mortgage Settlement and Escrow Accounts.” However, the provisions of § 1024.13(a) are intended to apply with respect to all of Regulation X. Because § 1024.13 applies for all sections of Regulation X, the Bureau proposed to redesignate § 1024.13 as § 1024.5(c), located within “Subpart A—General Provisions.” Further, the Bureau proposed to remove and reserve § 1024.13.
The Bureau further proposed to add commentary for proposed § 1024.5(c) to make clear that Regulation X does not create field preemption. Since issuing the 2013 RESPA Servicing Final Rule, the Bureau had received inquiries as to whether Regulation X's mortgage servicing rules result in preemption of the field of mortgage servicing regulation. The Bureau had addressed this question in the preamble to the final rule, stating that “the Final Servicing Rules generally do not have the effect of prohibiting State law from affording borrowers broader consumer protection relating to mortgage servicing than those conferred under the Final Servicing Rules.”
Because the Bureau continued to receive questions on this issue, the Bureau believed it was appropriate to propose commentary to clarify the scope of proposed § 1024.5(c) and expressly address concerns about field preemption. Consistent with the preamble to the 2013 RESPA Servicing Final Rule, proposed comment 5(c)(1)–1 stated that State laws that are in conflict with the requirements of RESPA or Regulation X may be preempted by RESPA and Regulation X. Proposed comment 5(c)(1)–1 stated further that nothing in RESPA or Regulation X, including the provisions in subpart C with respect to mortgage servicers or mortgage servicing, should be construed to preempt the entire field of regulation of the covered practices. This proposed addition to the commentary was meant to clarify that RESPA and Regulation X do not effectuate field preemption of States' regulation of mortgage servicers or mortgage servicing. The comment also made clear that RESPA and Regulation X do not preempt State laws that give greater protection to consumers than do these federal laws.
The Bureau requested comment regarding the addition of the proposed commentary, including whether further clarification regarding the preemption effects of RESPA and Regulation X was necessary or appropriate.
Numerous consumer and community groups provided similar comments supporting the proposed changes to the Regulation X preemption provision. These commenters supported the relocation of the preemption provision to § 1024.5(c) in the General Provisions subpart and the addition of comment 5(c)(1)–1. Many of these consumer and community groups further suggested that the regulatory text itself be changed to replace the phrase “settlement practices” with language more clearly inclusive of servicing activities. Several also requested that an example be included with comment 5(c)(1)–1 showing that a state law more protective of consumers will not be preempted by Regulation X.
Two industry commenters supported the proposed changes to the Regulation X preemption provision. One trade association suggested that the Bureau should promote uniform servicing standards to help create certainty in the market. Another industry commenter stated that the current regulation covered the situation sufficiently and the proposed guidance was unnecessary.
Two trade associations stated that the Bureau was narrowing the existing preemption provision to reduce the likelihood of preemption. One opposed the idea that state laws more protective of consumers are not preempted, and so opposed the inclusion of the comment. The other stated that the preemption provision for mortgage servicing transfers functions statutorily as a general preemption of mortgage servicing.
Several industry commenters pointed out that the statute and regulation use the word “inconsistent” when explaining which state laws may be preempted, while the proposed comment uses the more common term “conflict” to describe the situation. They suggested that the comment also use the term “inconsistent” to avoid confusion.
The relocation of the preemption provision and the guidance in proposed comment 5(c)(1)–1 were not intended to change the current preemption regime under Regulation X and the Bureau does not believe that they do so. The sentence in the regulation that consumer and community groups urged the Bureau to change simply replicates text in RESPA section 18. Therefore the Bureau does not believe that a change to that sentence would be appropriate. Comment 5(c)(1)–1 provides the
The final rule adopts the amendments as proposed, but changes the word “conflict” in the comment to “inconsistent” to avoid confusion.
ARM regulations § 1026.20(c) and (d) generally apply to ARMs originated both prior to and after the January 10, 2014, effective date. However, no servicer is required to comply with the rule until the effective date.
The Bureau is concerned that its recently published Amendments to the 2013 Escrows Final Rule
In January 2013, the Bureau issued the 2013 Escrows Final Rule,
Since adopting the above-referenced rules, the Bureau adopted Amendments to the 2013 Escrows Final Rule
The Bureau's renumbering of the ability-to-repay and prepayment penalty provisions in § 1026.35(e) of Regulation Z, without excluding reverse mortgages and construction and bridge loans from coverage under that section, could be seen as removing these exclusions from the requirements of that temporary provision. To clarify that the Amendments to the 2013 Escrows Final Rule did not have that effect, the Bureau is revising temporary § 1026.35(e) to explicitly exclude construction loans, bridge loans, and reverse mortgages from its requirements. The Bureau is replacing current § 1026.35(e)(3) with new § 1026.35(e)(3), which states that the requirements of § 1026.35(e) do not apply to construction loans, bridge loans, and reverse mortgages. The Bureau is renumbering current § 1026.35(e)(3), “Sunset of requirements on repayment ability and prepayment penalties,” as new § 1026.35(e)(4). The general language in § 1026.35(e) is also revised to reflect the addition of these exclusions. As noted below, the amendment to § 1026.35(e) will apply to any transaction consummated on or after June 1, 2013, for which the creditor receives an application on or before January 9, 2014. Then, at the time § 1026.35(e) expires, the exclusions for construction loans, bridge loans, and reverse mortgages in the 2013 ATR and HOEPA Final Rules will take effect. Thus, the revision of § 1026.35(e) in this
For these reasons, the Bureau is revising temporary amendment § 1026.35(e) to explicitly exclude construction loans, bridge loans, and reverse mortgages from its requirements regarding ability to repay and prepayment penalties for HPMLs, pursuant to its authority to provide for adjustments and exceptions under TILA section 105(a) and (f), and with reliance on the authority used by the Board in amending Regulation Z to include these requirements,
Notice and comment are not necessary for this revision of § 1026.35(e), which merely makes explicit in the regulation the Bureau's continuing interpretation that certain loans have been excluded from certain legal requirements throughout the renumbering process. Moreover, the Bureau finds good cause to proceed without notice and comment. 5 U.S.C. 553(b)(B). This revision merely clarifies the operation of the rule that should already have been apparent to many market participants. Notice and comment are therefore unnecessary. In addition, the length of the notice and comment period make it impracticable to correct erroneous interpretations of a rule that is already in effect and that expires within months. For these reasons and under the authority cited above, the Bureau is expressly excluding construction and bridge loans and reverse mortgages from the ability-to-repay and prepayment penalty requirements for HPMLs under interim § 1026.35(e).
Section 1026.41(a)(1) of the 2013 TILA Servicing Final Rule addresses the scope of the mortgage loans subject to the periodic statement requirements, stating that the rule applies to closed-end consumer credit transactions secured by a dwelling, subject to certain exemptions set forth in § 1026.41(e). It goes on to say that, for purposes of § 1026.41, “such transactions are referred to as
To eliminate any confusion as to which loans “such transactions” refers, and thus to which loans the periodic statement rule applies, the Bureau proposed to clarify § 1026.41(a)(1). The proposed revision would have replaced the indefinite reference “such transactions” in § 1026.41(a)(1) with a reiteration of the loans to which the rule applies, that is, closed-end consumer credit transactions secured by a dwelling. This revision would have clarified which transactions are considered “mortgage loans” for purposes of § 1026.41.
The proposal stated that the Bureau believed this change also would reduce uncertainty about which loans to consider in determining a servicer's eligibility for one of the exemptions under § 1026.41(e), the small servicer exemption. Section 1026.41(e)(4)(ii) defines a small servicer as a servicer that services 5,000 or fewer mortgage loans, for all of which the servicer (or an affiliate) is the creditor or assignee.
The Bureau received no comments on its proposed change to the regulatory text of § 1026.41(a)(1) and therefore is adopting it as proposed. The Bureau did, however, receive comments regarding the mortgage loans covered by the small servicer exemption, and those comments are discussed below in the sections specifically addressing the small servicer exemption.
The proposed rule explained that, for the reasons set forth in the 2013 Servicing Final Rules,
To ensure understanding of the small servicer exemption, the Bureau proposed to amend the commentary to § 1026.41(e)(4)(ii) to specifically identify which mortgage loans are considered for purposes of determining eligibility for the small servicer exemption. To this end, the Bureau proposed to add comment 41(e)(4)(ii)–1, which would have clarified that, in general and pursuant to § 1026.41(a)(1), the mortgage loans considered in determining qualification for the small servicer exemption are closed-end consumer credit transactions secured by a dwelling. Proposed comment 41(e)(4)(ii)–1 also would have highlighted that, pursuant to § 1026.41(e)(4)(iii), certain closed-end consumer credit transactions secured by a dwelling are not considered in determining status as a small servicer, as discussed further below in connection with proposed § 1026.41(e)(4)(iii).
The Bureau requested comments and data regarding whether proposed comment 41(e)(4)(ii)–1 would appropriately clarify the scope of mortgage loans that must be considered for determining if a servicer qualifies as a small servicer. The Bureau specifically requested comment and data regarding whether any servicers service a significant number of closed-end consumer credit transactions secured by a dwelling, which are subject to Regulation Z, but service significantly fewer “federally related mortgage loans,” which are subject to Regulation X. By way of example, the Bureau requested comment and data regarding whether any servicers would not be considered a small servicer if the small servicer exemption were based on whether a servicer services 5,000 or fewer closed end consumer credit transactions secured by a dwelling, but would be a small servicer if the small servicer exemption were based on whether a servicer services 5,000 or fewer “federally related mortgage loan[s],” as that term is defined in 12 CFR 1024.2. The proposal provided a specific example in a footnote of a servicer that services 10,000 construction loans, which are not considered “federally related mortgage loans” pursuant to 12 CFR 1024.2, and 100 mortgage loans that are considered “federally related mortgage loans” pursuant to 12 CFR 1024.2.
In response to its request for comment, the Bureau received several comments expressing general support for its proposed clarification of the scope of loans to consider in determining whether a servicer is a small servicer, and received no comments opposing the proposed clarification. Nor did the Bureau receive any data or comment with regard to servicers servicing a disproportionate number of federally related mortgage loans, as defined by Regulation X, compared to the number of “mortgage loans” they service, as defined by Regulation Z.
The Bureau also received a number of comments that were beyond the scope of the proposal. Three national trade associations urged the Bureau to revise the rule itself so that more servicers could qualify for the small servicer exemption, but provided no data or reasoning in support of this position. Similarly, a credit union trade association recommended that the Bureau revise the rule to consider only “federally related mortgage loans” instead of the more inclusive “mortgage loans,” as defined by the rule, but likewise provided no supporting data or reasoning. A trade association representing community banks generally urged the Bureau to reduce the loan pool used to determine small servicer status by limiting it to “federally related mortgage loans” and, in the alternative, specifically recommended carving out construction loans—one of the categories of loans not included in the definition of “federally related mortgage loans”—from the category of “mortgage loans.” The trade association set forth reasons why construction loans require less oversight than other mortgage loans. Finally, a trade association representing home builders voiced concern that the proposal's reference to construction loans in the footnote example might cause “confusion” which could result in community banks reducing their construction loan portfolio to preserve their small servicer status. To avoid this possibility, the trade association recommended excluding construction loans from the loans considered in determining small servicer status.
As stated above in section I, this final rule generally does not address comments not directly related to the clarifications and revisions proposed by the rule. Absent opposition or responsive comments and in view of the support the Bureau received for its
The Bureau also proposed to amend the comments to § 1026.41(e)(4)(ii)(A). Specifically, comment 41(e)(4)(ii)–1 would have been redesignated as comment 41(e)(4)(ii)–2 and would have been amended to clarify several elements set forth in the 2013 TILA Servicing Final Rule. First, it would have clarified that there are two concurrent requirements for determining whether a servicer is a small servicer, as discussed further below. Second, it would have explained that the mortgage loans considered in making this determination are those serviced by the servicer as well as by its affiliates. Finally, it would have clarified that the second requirement of the small servicer test, that a servicer must be either the “creditor or assignee” of the mortgage loans it services, means that the servicer must either currently own or have originated all of the mortgage loans it services. The comment also would have provided examples to illustrate these points.
Proposed comment 41(e)(4)(ii)–2 would have set forth the two requirements for determining if a servicer is a small servicer and would have clarified that both requirements apply to the mortgage loans serviced by the servicer as well as by its affiliates. The comment would have set forth both requirements: (1) A servicer, together with its affiliates, must service 5,000 or fewer mortgage loans, and (2) the servicer must only service mortgage loans for which the servicer (or an affiliate) is the creditor or assignee. Proposed comment 41(e)(4)(ii)–2 further would have clarified that to be the “creditor or assignee” of a mortgage loan, the servicer (or an affiliate) must either currently own the mortgage loan or must have been the entity to which the mortgage loan was initially payable. It also would have clarified that a servicer that only services such mortgage loans may qualify as a small servicer so long as the servicer also only services 5,000 or fewer mortgage loans. The Bureau stated that it believed that this clarification would provide a helpful alternative way of expressing the requirement stated in the rule that the servicer or affiliate must also be the creditor or assignee of a mortgage loan.
Proposed comment 41(e)(4)(ii)–2 also would have provided examples of specific circumstances demonstrating these requirements. The first example would have illustrated the effect affiliation has on the loan count requirement of the small servicer test. Proposed comment 41(e)(4)(ii)–2.i stated that if a servicer services 3,000 mortgage loans, but is affiliated (as defined at § 1026.32(b)(2))
Finally, the Bureau proposed to redesignate comment 41(e)(4)(ii)–2 as 41(e)(4)(ii)–3 and to revise the comment so that it would provide further clarification regarding the application of the small servicer exemption in certain master servicer/subservicer relationships. Under the 2013 TILA Servicing Final Rule, the Bureau explained, comment 41(e)(4)(ii)–2 references Regulation X, 12 CFR 1024.31, for the definitions of “master servicer” and “subservicer” that apply to the rule. It also provided an example demonstrating that even though a master servicer meets the definition of a small servicer, a subservicer retained by that master servicer that does not meet the definition does not qualify for the small servicer exemption.
Proposed comment 41(e)(4)(ii)–3 would have clarified that a small servicer does not lose its small servicer status because it retains a subservicer, as that term is defined in 12 CFR 1024.31, to service any of its mortgage loans. The comment also would have clarified that, for a subservicer, as that term is defined in 12 CFR 1024.31, to gain the benefit of the small servicer exemption, both the master servicer and the subservicer must be small servicers. The comment also would have pointed out that, generally, a subservicer will not qualify as a small servicer because it does not own or did not originate the mortgage loans it subservices. However, the comment went on to state, a subservicer would qualify as a small servicer if it is an affiliate of a master servicer that qualifies as a small servicer.
Proposed comment 41(e)(4)(ii)–3 also would have removed the example in 2013 TILA Servicing Rule comment 41(e)(4)(ii)–2 described above in favor of three other examples that would have demonstrated the implication of a master servicer/subservicer relationship for purposes of qualifying for the small servicer exemption. In the first proposed example, a credit union services 4,000 mortgage loans—all of which it originated or owns. The credit union retains a credit union service organization to subservice 1,000 of the mortgage loans and the credit union services the remaining 3,000 mortgage loans itself. The credit union has no affiliation relationship with the credit union service organization. The credit
Proposed comment 41(e)(4)(ii)–3.ii would have posited the example of a bank holding company that, through a lender subsidiary, owns or originated 4,000 mortgage loans. In the example, all mortgage servicing rights for the 4,000 mortgage loans are owned by a wholly owned master servicer subsidiary. Servicing for the 4,000 mortgage loans is conducted by a wholly owned subservicer subsidiary. The bank holding company controls all of these subsidiaries and, thus, they are affiliates of the bank holding company pursuant § 1026.32(b)(2). Because the master servicer and subservicer service 5,000 or fewer mortgage loans and because the mortgage loans are owned or originated by an affiliate of each, the master servicer and the subservicer are each considered a small servicer and qualify for the small servicer exemption for all 4,000 mortgage loans.
Proposed comment 41(e)(4)(ii)–3.iii would have posited the example of a nonbank servicer that services 4,000 mortgage loans, all of which it originated or owns. The servicer retains a “component servicer” to assist it with servicing functions. The component servicer is not engaged in “servicing” as defined in 12 CFR 1024.2; that is, the component servicer does not receive any scheduled periodic payments from a borrower pursuant to the terms of any mortgage loan, including amounts for escrow accounts, and does not make the payments to the owner of the loan or other third parties of principal and interest and such other payments with respect to the amounts received from the borrower as may be required pursuant to the terms of the mortgage servicing loan documents or servicing contract. In this proposed example, the component servicer is not a subservicer pursuant to 12 CFR 1024.31 because it is not engaged in servicing, as that term is defined in 12 CFR 1024.2. The nonbank servicer is a small servicer and the small servicer exemption applies to all 4,000 mortgage loans it services.
Many commenters expressed their appreciation for the Bureau's clarification of the affiliate and master/subservicer relationships. Among them, a trade association representing the banking industry noted that the proposed clarification of the affiliate relationship was consistent with the regulation as issued by the Bureau. Several commenters submitted comments outside the scope of this rulemaking recommending that the Bureau reconsider altogether the inclusion of affiliate loans in determining eligibility for the small servicer exemption. A trade association representing credit union service organizations (CUSOs), a national and state trade association representing credit unions, and two individual credit unions raised concerns that the affiliate relationships some CUSOs have with one or more credit unions would prevent those CUSOs (and their credit union affiliates) from qualifying for the small servicer exemption. (The proposed example clarifying the master/subservicer relationship included a CUSO that was not an affiliate.) These commenters recommended that the Bureau either revise the rule to remove affiliates and their mortgage loans from consideration in determining small servicer status or that the Bureau provide clarification regarding how to take into account the loans of CUSO affiliates that are not wholly-owned by credit unions or of CUSOs with multiple owners. Two of the commenters explained that many credit unions have an affiliate relationship with a CUSO to facilitate mortgage lending and borrowing. The trade associations noted the many cases of multiple credit unions affiliating with a single CUSO in order to achieve economies of scale and to maintain competitiveness in the marketplace. They indicated that these arrangements are particularly important for small credit unions with limited capacity. The trade association representing CUSOs voiced concern that the affiliate requirement in § 1026.41 could have a chilling effect on the mortgage CUSO industry by encouraging credit unions to divest their interests in CUSOs to maintain their small servicer exemption or by discouraging credit unions that qualify as small servicers from investing in an affiliate relationship with a CUSO.
In view of the comments supporting the proposed clarification of affiliate and master/subservicer relationships with regard to small servicer qualification and in the absence of responsive comments to the contrary, the Bureau is adopting the clarifications as proposed. With respect to the comments outside the scope of this rulemaking recommending that the Bureau exclude the mortgage loans of affiliates from consideration in determining small servicer status, the Bureau declines to revise the rule. In addition to the fact that reopening consideration of a major policy decision would require notice and comment relatively late in the implementation process, the Bureau continues to believe that the reasons underlying the rule as set forth in the 2013 Servicing Final Rules are persuasive on the merits.
For clarification with regard to CUSOs and their relationships with one or more credit unions, the Bureau directs both the CUSOs and the credit unions to the Bank Holding Company Act of 1956 (12 U.S.C. 1841
Section 1026.41(e)(4)(iii) of the 2013 TILA Servicing Final Rule sets forth certain criteria regarding how to determine if a servicer qualifies as a small servicer. In addition, that section explains that small servicer determination is based on the number of mortgage loans serviced by the servicer and any affiliates as of January 1 for the remainder of the calendar year. It also specifies that a servicer that “crosses the threshold,” and thus loses its small
To provide clarification regarding the date for determining small service status and when a servicer that loses small servicer status must begin to comply with regulations from which it had been exempt, and that those dates apply to both elements of the small servicer exemption (loan count and ownership status), proposed § 1026.41(e)(4)(iii) included a number of revisions to the 2013 TILA Servicing Final Rule § 1026.41(e)(4)(iii). First, proposed § 1026.41(e)(4)(iii) would have replaced the reference to a servicer that “crosses the threshold” for determining if the servicer qualifies as a small servicer with broader language indicating that a servicer that “ceases to qualify” as a small servicer will have six months or until the next January 1, whichever is later, to comply with any requirements for which a servicer is no longer exempt as a small servicer. The Bureau stated it believed that the broader phrase “ceases to qualify” would more accurately reflect the fact that there are two elements to determining if a servicer qualifies as a small servicer and pointed to the discussion above to underscore that either one of these elements could cause a servicer to lose exempt status.
Proposed § 1026.41(e)(4)(iii) therefore would have applied the transition period set out in the rule to situations in which a servicer no longer meets the loan count requirement as well as to situations in which the servicer no longer meets the requirement that the servicer is the creditor or assignee of all mortgage loans it services. Thus, the proposal stated, if a servicer exceeds the 5,000 mortgage loan limit or begins to service mortgage loans it does not own or did not originate, it must comply with any requirements from which it is no longer exempt by either the following January 1 or six months after the change in operations that disqualifies it as a small servicer, whichever is later. The proposal would have provided the example that, if on September 1 a servicer that previously qualified as a small servicer begins to service a mortgage loan that it does not own and did not originate, the servicer has until March 1 of the following year to comply with the requirements from which it was previously exempt as a small servicer.
The Bureau did not receive any responsive comments regarding the proposed clarifications discussed above, outside of general support for providing clarification regarding this issue. In order to clarify the timing provision, the Bureau is adopting the changes as proposed.
In this final rule, the Bureau also is revising a comment to § 1026.41(e)(4)(iii) that provides three examples of the timing for when a small servicer is no longer considered a small servicer and when that former small servicer must start complying with any requirements from which it previously was exempt as a small servicer. The Bureau is revising comment 41(e)(4)(iii)–2 to maintain consistency with and further clarify the changes to the regulatory text the Bureau is adopting in § 1026.41(e)(4)(iii), as discussed above.
To this end, the Bureau is revising the heading of comment 41(e)(4)(iii)–2. The Bureau is removing the reference to “threshold” and is amending the heading to read: “
The revised examples clarify two points. The first point is that the application of the calendar dates apply to both elements of the small servicer test,
The first revised example explains that a small servicer that begins servicing more than 5,000 mortgage loans (or begins servicing one or more mortgage loans it does not own or did not originate) on October 1 and is servicing 5,000 mortgage loans (or services one or more mortgage loans it does not own or did not originate) as of January 1 of the following year, would no longer be considered a small servicer on January 1 of that following year and would have to comply with any requirements from which it is no longer exempt as a small servicer on April 1 of that following year. The second revised example states that a small servicer that begins servicing more than 5,000 mortgage loans (or begins servicing one or more mortgage loans it does not own or did not originate) on February 1, and services more than 5,000 mortgage loans (or begins servicing one or more mortgage loans it does not own or did not originate) as of January 1 of the following year, would no longer be considered a small servicer on January 1 of that following year and would have to comply with any requirements from which it is no longer exempt as a small servicer on that same January 1. The third revised example states that a servicer that begins servicing more than 5,000 mortgage loans (or begins servicing one or more mortgage loans it does not own or did not originate) on February 1, but services less than 5,000 mortgage loans (or no longer services mortgage loans it does not own or did not originate) as of January 1 of the following year, is considered a small servicer for that following year. In sum, the amended heading and examples conform to and provide further clarification of the proposed changes to the regulatory text discussed above that the Bureau is adopting in this final rule.
The proposal also would have excluded from consideration in connection with the small servicer exemption, any mortgage loan voluntarily serviced by a servicer for a creditor or assignee that is not an affiliate of the servicer and for which the servicer does not receive any compensation or fees (“charitably serviced” mortgage loans). The Bureau explained that it had received feedback that certain servicers that otherwise would be considered small servicers voluntarily service mortgage loans for unaffiliated nonprofit entities for charitable purposes and do not receive compensation or fees from engaging in that servicing. The Bureau further explained that, if such charitably serviced mortgage loans were considered in connection with determining whether a servicer qualifies as a small servicer, a servicer engaging in this practice would not qualify for the small servicer exemption because the servicer would be servicing a mortgage loan it does not own or did not originate, notwithstanding that such servicer undertook to service those mortgage loans for charitable purposes.
The Bureau expressed concern that including charitably serviced mortgage loans in determining small servicer status would cause servicers to refrain from charitable servicing rather than lose the benefits of a small servicer exemption. The Bureau stated its belief that such a result would not further the goal of consumer protection for the affected consumers and might instead negatively affect the availability and costs of credit for consumers whose mortgage loans would otherwise be serviced pursuant to such charitable arrangements. Further, the Bureau believed that consumers would be more likely to receive superior service from an entity in the business of servicing that is willing to donate its services than they would if nonprofit entities that are not experienced in the business of servicing were forced to take on those duties themselves. Finally, the Bureau stated that it believed that the benefits of excluding charitably serviced mortgage loans from small servicer determination would outweigh the potential risks to consumers that exclusion may pose.
The Bureau proposed that, for the reasons set forth above and pursuant to the Bureau's exemption authority and authority to provide for adjustments and exceptions for any class of transactions as may be necessary or proper to effectuate the purposes of TILA, under TILA sections 105(a) and (f), mortgage loans voluntarily serviced by a servicer for a creditor or assignee that is not an affiliate of the servicer and for which the servicer does not receive any compensation or fees would not be considered in determining a servicer's qualification as a small servicer. The Bureau stated that it believed that considering such loans in determining if a servicer is a small servicer would defeat the purposes of TILA by penalizing charitable servicers, thereby dissuading them from engaging in charitable servicing to the detriment of the consumers that otherwise would benefit from this activity. The Bureau requested comment regarding whether it would be appropriate not to consider such mortgage loans when determining if a servicer qualifies for the small servicer exemption. The Bureau further requested comment on whether other mortgage loans serviced through similar limited arrangements should not be considered in determining whether a servicer is a small servicer. The Bureau emphasized in its proposed rule that it was neither reexamining nor seeking comment on the issue of exempting nonprofit entities engaged in mortgage servicing from the requirements of the periodic statement or any other mortgage servicing rule.
Finally, the Bureau proposed to add comment 41(e)(4)(iii)–3. Proposed comment 41(e)(4)(iii)–3 would have clarified that mortgage loans that are not considered for purposes of determining small servicer qualification pursuant to § 1026.41(e)(4)(iii), are not considered for determining either whether a servicer services, together with any affiliates, 5,000 or fewer mortgage loans or whether a servicer is servicing mortgage loans that it does not own or did not originate. Proposed comment 41(e)(4)(iii)–3 further would have posited the example of a servicer that services a total of 5,400 mortgage loans, of which the servicer owns or originated 4,800 mortgage loans, services 300 reverse mortgage transactions that it does not own or did not originate, and voluntarily services 300 mortgage loans that it does not own or did not originate for an unaffiliated nonprofit organization for which the servicer does not receive any compensation or fees. The example stated that neither the reverse mortgage transactions nor the mortgage loans voluntarily serviced by the servicer are considered for purposes of determining if the servicer is a small servicer. The example concluded that, because the only mortgage loans considered are the 4,800 other mortgage loans serviced by the servicer, and the servicer owns or originated each of those mortgage loans, the servicer is considered a small servicer and qualifies for the small servicer exemption with regard to all 5,400 mortgage loans it services. The comment also would have noted that reverse mortgages and transactions secured by a consumer's interest in timeshare plans, in addition to not being considered in determining small servicer qualification, also are
In the proposed rule, the Bureau said it similarly believed that not considering reverse mortgages in determining whether a servicer is a small servicer would effectuate the purposes of, and would facilitate compliance with, TILA and Regulation Z. The Bureau said it believed this for the same reasons set forth in the 2013 TILA Servicing Final Rule
The Bureau received only positive comments regarding its proposed clarification that reverse mortgage transactions and mortgage loans secured by a consumer's interest in timeshare plans, which are exempt from all provisions of § 1026.41, are excluded from the loan pool used to determine eligibility for the small servicer exemption. However, one national trade association representing credit unions contested the Bureau's clarification that fixed-rate loans with coupon books must be considered for purposes of determining eligibility for the small servicer exemption. The commenter said that including fixed-rate loans with coupon books in the loan pool used to determine small servicer status but excluding them from the requirement to provide periodic statements would create confusion without providing adequate benefits. The Bureau disagrees and notes, as discussed above, that fixed-rate loans with coupon books are exempt only from some of the requirements of § 1026.41—as opposed to reverse mortgage transactions and mortgage loans secured by a consumer's interest in timeshare plans which are not subject to any of the requirements of § 1026.41. Servicers servicing fixed-rate loans with coupon books are exempt from the requirement to provide periodic statements for these loans under § 1026.41, but servicers nevertheless have to provide to consumers with such loans the information contained in the periodic statement, either in the coupon book or in some other form. Because servicers servicing fixed-rate loans with coupon books must comply with the requirements of § 1026.41 regarding those mortgage loans, it is appropriate that such loans would be considered in determining whether such servicers are small servicers and therefore exempt from complying with the requirements of § 1026.41 with regard to those loans. Conversely, it is appropriate to exclude reverse mortgage transactions and mortgage loans secured by a consumer's interest in timeshare plans from the loan pool used to determine small servicer status because, regardless of that servicer's small servicer status, there is no requirement for the servicer to comply with any of the requirements of § 1026.41 with regard to those loans.
The Bureau received strong support for its proposed revision of § 1026.41 to exclude charitably serviced loans from consideration in determining whether a servicer qualifies as a small servicer, that is, mortgage loans voluntarily serviced for a non-affiliate creditor or assignee and for which the servicer does not receive any compensation or fees. Commenters agreed that, absent the Bureau's proposal, small servicers likely would relinquish their volunteer efforts in order to preserve their small servicer status. In response to one commenter's request for clarification, the Bureau notes that its proposed revision of the rule with regard to volunteer servicing is not limited to the servicing of mortgage loans owned or originated by nonprofit organizations, although the Bureau suspects that most charitable servicing is done on behalf of such organizations. Due to the support received by the Bureau for its proposed revision of § 1026.41(e)(4)(iii)(A) excluding charitably serviced mortgage loans from the loan pool used to determine small servicer eligibility, and for the reasons stated above, the Bureau is adopting the revision as proposed.
In addition to requesting comment regarding the appropriateness of excluding charitably serviced mortgage loans when determining small servicer status, the proposal solicited comment on whether other mortgage loans serviced through similar limited arrangements should not be considered in determining whether a servicer is a small servicer. The Bureau did not receive comments recommending that any other servicing arrangements be excluded from consideration for purposes of determining small servicer status. The Bureau did receive a comment outside of the scope of the proposal from a national trade association requesting guidance regarding the trade association's conclusion that certain depository services some of its members provide for depositors who self-finance the sale of residential real estate do not qualify as “servicing,” as defined in 12 CFR 1024.2(b). The trade association explained that, for a minimal fee, some banks—usually small banks—receive mortgage payments from a borrower and deposit the funds into that customer's account. According to the trade association, the agreement between the bank and the depositor/creditor typically excludes any other services, such as providing servicing in the case of delinquency. The trade association expressed concern that small institutions will discontinue this service for their depository customers who owner-finance the sale of real property for fear of losing their small servicer status if the depository service could be construed as servicing mortgage loans that the bank does not own or did not originate.
Because the comment was outside the scope of the proposal, the Bureau declines to provide the requested guidance. Moreover, even if the comment were within the scope of the proposal, the Bureau is not able to
The 2013 ATR Final Rule generally requires creditors to make a reasonable, good faith determination of a consumer's ability to repay any consumer credit transaction secured by a dwelling (excluding an open-end credit plan, timeshare plan, reverse mortgage, or temporary loan) and establishes certain protections from liability under this requirement for “qualified mortgages.” These provisions, in § 1026.43(c), (e)(2), (e)(4), (e)(5), (e)(6)
To determine the qualified mortgage status of a loan, creditors must analyze whether the loan meets one of the definitions of “qualified mortgage” in § 1026.43(e)(2), (e)(4), (e)(5), (e)(6) or (f). Section 1026.43(e)(4) provides a definition of qualified mortgage for loans that (1) meet the prohibitions on certain risky loan features (
Even if the Federal agencies do not issue additional rules or conservatorship does not end, the temporary qualified mortgage definition in § 1026.43(e)(4) will expire seven years after the effective date of the rule.
As adopted by the 2013 ATR Final Rule, comment 43(e)(4)–4 clarifies that, to satisfy § 1026.43(e)(4)(ii), a loan need not be actually purchased or guaranteed by a GSE or insured or guaranteed by HUD, VA, USDA, or RHS. Rather, § 1026.43(e)(4)(ii) requires only that the loan be eligible for such purchase, guarantee, or insurance. For example, the comment provides that, for purposes of § 1026.43(e)(4), a creditor is not required to sell a loan to a GSE for that loan to be a qualified mortgage. Rather, the loan must be eligible for purchase or guarantee by a GSE. The Commentary clarifies that, with respect to GSEs, to determine eligibility, a creditor may rely on an underwriting recommendation provided by one of the GSEs' automated underwriting systems (AUSs) or their written guides. Accordingly, with regard to the GSEs, the comment states that a covered transaction is eligible for purchase or guarantee by Fannie Mae or Freddie Mac (and therefore a qualified mortgage under § 1026.43(e)(4)) if: (i) the loan conforms to the standards set forth in the Fannie Mae Single-Family Selling Guide or the Freddie Mac Single-Family Seller/Servicer Guide; or (ii) the loan receives an “Approve/Eligible” recommendation from Desktop Underwriter (DU); or an “Accept and Eligible to Purchase” recommendation from Loan Prospector (LP).
The Bureau proposed to revise comment 43(e)(4)–4 in a number of ways. First, the proposal would have clarified that a creditor is not required to comply with all GSE or agency requirements to show qualified mortgage status. Specifically, the proposed revision made clear that the creditor need not comply with certain requirements that are wholly unrelated to a consumer's ability to repay, including activities related to selling, securitizing, or delivering consummated loans and any requirement the creditor is required to perform after the consummated loan is sold, guaranteed, or endorsed for insurance (in the case of agency loans) such as document custody, quality control, and servicing. These requirements are spelled out in the most depth in the GSE and agency written guides, but may also be referenced in automated underwriting system conditions and in written agreements with individual creditors, as discussed further below.
The Bureau believed that the proposed comment would clarify the intended scope of the temporary category of qualified mortgage created in § 1026.43(e)(4) and facilitate compliance with the provisions of Regulation Z adopted in the 2013 ATR Final Rule. As explained in the preamble to the final rule, the Bureau established § 1026.43(e)(4) as a temporary transition measure designed to ensure access to responsible, affordable credit for consumers with debt-to-income ratios that exceed the 43 percent threshold that the Bureau adopted as a bright-line standard in the permanent general definition of qualified mortgage under § 1026.43(e)(2) while creditors adapted to the new ATR rules and other changes in economic and regulatory conditions. The Bureau believed that using widely recognized underwriting standards of Federal agencies and entities under Federal conservatorship to define qualified mortgages during this interim period would both facilitate compliance and ensure responsible lending practices. The temporary provision therefore bases qualified mortgage status on
However, the Bureau recognized in the proposed rule that the GSEs and agencies impose a wide variety of requirements relating not only to underwriting of potentially eligible loans, but also to the mechanics of sale, guarantee, or insurance and post-consummation activities. Because
The Bureau believed that the items described in the comment would meet this test and provide greater clarity to the temporary definition of qualified mortgage. Because TILA requires assessment of a consumer's ability to repay a loan as of the time of consummation, the Bureau believed that GSE and agency requirements relating to post-consummation activity should not be relevant to qualified mortgage status. And because the temporary definition does not require actual purchase, guarantee, or insurance, the Bureau believed that it would not be appropriate to base qualified mortgage status on elements of the guides relating to the mechanics of actual delivery, purchase, guarantee, and endorsement. The Bureau recognized that most requirements wholly unrelated to underwriting involve post-consummation activity; however, pre-consummation GSE and agency requirements could also be wholly unrelated to underwriting. For example, the status of a creditor's approval or eligibility to do business with a GSE is not relevant for ascertaining qualified mortgage status using an AUS. The Bureau invited comment on this proposed clarification generally and on whether other GSE or agency requirements should be excluded.
Only one consumer group commented on the Bureau's inclusion of guidance stating that issues wholly unrelated to ability to repay would not affect a loan's QM status. This consumer group is also a nonprofit lender. Its comment suggested that the Bureau should state clearly those issues that are “related” to ability to repay, such as income or obligations that materially impact ability to repay, and violations of specific QM product restrictions, and rule out such things as credit score and appraisal requirements. This commenter also stated that failure to make this guidance clearer could reduce credit availability.
Industry commenters overwhelmingly supported the interpretation that issues wholly unrelated to ability to repay should not be considered in assessing the QM status of a loan under § 1026.43(e)(4). Most, however, also suggested that the guidance on what would be considered wholly unrelated to ability to repay should be clarified and the excluded items or categories expanded. Commenters agreed that failure to comply with post-consummation requirements should be excluded. As did the consumer group in the comment referenced above, some industry commenters requested that the Bureau make clear that items deemed related to ability to repay be limited to narrow issues of a borrower's ability to make the loan's payments, and that other risk-related factors be excluded. Specifically, commenters asked that factors related to willingness to repay (as opposed to ability to repay) and issues involving the attributes or defects of the collateral be excluded. Some commenters raised the issue of excluding jumbo loans.
In addition, commenters generally suggested that various other topics should be specifically listed as wholly unrelated to ability to repay, including: (1) Failure to comply with laws and regulations, including consumer protection laws and regulations; (2) purchase of a state-issued title guarantee for loans held in portfolio; (3) delayed note certification; (4) Ginnie Mae modification; (5) early buy-out programs; (6) non-material technical defects triggering repurchase or indemnification; and (7) “additional repurchase requirements.”
The two GSEs both commented on the proposed rule, and both discussed the “wholly unrelated to ability to repay” guidance. One specifically stated support for the guidance, and both urged the Bureau to state that collateral-related issues were wholly unrelated to ability to repay.
The Bureau adopts the guidance on issues of what is wholly unrelated to ability to repay substantially as proposed, but has adopted the standard in the regulatory text to harmonize the eligibility requirements that must be met for the temporary qualified mortgage definition under the rule with those permitted under the Commentary. In addition, comment 43(e)(4)–4 has been revised to state that matters wholly unrelated to ability to repay are those matters that are wholly unrelated to credit risk or the underwriting of the loan, and to provide more detailed guidance on applying the standard.
As stated in the proposed rule, underwriting is a complex process that involves assessment of the consumer's ability to repay the loan as well as a variety of other credit risk factors. The Bureau made a deliberate decision in the 2013 ATR Final Rule to base qualified mortgage status under § 1026.43(e)(4) on the GSEs' and agencies' general underwriting and credit risk analysis standards. While some of these factors may be more closely and directly focused on consumers' ability to repay than others, the Bureau continues to believe that attempting to disaggregate GSE and agency underwriting requirements based on degree of relationship to ability to repay would be an extraordinarily complex task that would defeat the purposes of the temporary definition in adopting widely recognized standards to facilitate compliance and access to responsible credit. Indeed, the statute itself requires consideration of a borrower's credit history, which could relate to willingness as well as ability to repay. Exclusion of requirements regarding collateral and other risk-related factors
The Bureau has revised the final comment to add an express general statement that matters wholly unrelated to ability to repay are those matters wholly unrelated to credit risk or the underwriting of the loan. The Bureau believes that this language, in conjunction with the reference to specific sets of requirements that are wholly unrelated to assessing ability to repay at the time of consummation (such as those related to selling, securitizing, or delivering consummated loans), provides useful guidance to stakeholders.
As stated in the proposed rule, and consistent with the final rule, QM status depends on eligibility for sale, insurance, or guarantee at consummation, not on an actual executed sale, insuring, or guarantee of the individual loan. Accordingly, the Bureau considers events occurring after consummation and GSE and agency requirements concerning execution of an actual sale, insuring, or guarantee of the loan to be wholly unrelated to ability to repay.
Although the Bureau has reviewed many of the requests for determinations as to particular requirements in the comments received, the Bureau notes that with respect to certain of these inquiries, there was not sufficient detail or background information to discern the precise nature of the request or question. For instance, commenters' bare suggestion that “additional purchase requirements” be deemed wholly unrelated to ability to repay was simply too vague to analyze, and would require further specification in order to apply the standard.
The Bureau also proposed to revise comment 43(e)(4)–4 to clarify eligibility as determined by an automated underwriting system of a GSE or one of the agencies. As explained in comment 43(e)(4)–4 as adopted in the 2013 ATR Final Rule, the AUSs and the written guides of the GSEs as well as the agencies can be used for eligibility purposes under § 1026.43(e)(4). The proposed revision of the comment explained that to rely upon an AUS recommendation to demonstrate qualified mortgage status a creditor must have (1) accurately inputted the loan information into the automated system, and (2) satisfied any accompanying requirements or conditions to the AUS approval that would otherwise invalidate the recommendation, unless, as discussed above, the conditions are wholly unrelated to the consumer's ability to repay. The comment as adopted in the 2013 ATR Final Rule assumed that any recommendation used for compliance would be valid, and these clarifications merely listed two criteria that should be monitored to ensure that validity. In particular, because the AUSs generate a list of conditions that must be met in support of the approval designation, the Bureau believed that those conditions must be satisfied to show eligibility for purchase, guarantee, or insurance. The Bureau sought comment on these revisions as well and also proposed technical edits to comment 43(e)(4)–4 for clarity and accuracy.
The consumer and community group commenters did not discuss the guidance in comment 43(e)(4)–4 requiring that an AUS determination be based on accurate inputs, and that the creditor comply with any requirements and conditions specified by the AUS. About half of the industry commenters that specifically discussed this guidance supported its inclusion. Industry commenters asked that the Bureau make clear that QM status will not be invalidated by minor inaccuracies and by inaccuracies that would not change the outcome of the AUS determination. One commenter stated that it will not be possible to determine whether or not a loan would have been approved with accurate inputs.
The Bureau adopts the comment as proposed, with minor edits for clarity. As stated in the regulation, a loan is a QM if it is eligible for purchase, insurance or guarantee by a GSE or agency other than with regard to issues wholly unrelated to ability to repay, and meets the other relevant requirements. For this reason, minor inaccuracies in input data that do not affect eligibility will not affect QM status. The Bureau believes the convenience and ease of compliance made possible by this provision are more important than avoiding those few situations in which it is difficult to determine which inaccuracies will affect the AUS outcome.
Although the reference to issues wholly unrelated to ability to repay in the main paragraph of the proposed comment applied to the requirements and conditions accompanying an AUS determination, and unquestionably do now that the standard is in the regulatory language, the Bureau believes that repeating such language in paragraph ii will enhance the clarity of the comment, and is doing so.
The Bureau also proposed to revise comment 43(e)(4)–4 in a third way to clarify further that a loan meeting eligibility requirements provided in a written agreement between the creditor and a GSE or agency that permits variation from the standards of the written guides and/or AUSs in effect at the time of consummation is also eligible for purchase or guarantee by the GSEs or insurance or guarantee by the agencies for the purposes of § 1026.43(e)(4). Thus, such loans would be qualified mortgages. The Bureau recognized that these agreements between creditors and the GSEs or agencies effectively constitute modification of, or substitutes for, the general manuals or AUSs with regard to these creditors. In many cases, the agreements allow the creditors to use other automated underwriting systems rather than the GSE or agency systems, subject to certain conditions or limitations on which loans the GSE or agency will accept as eligible for purchase, guarantee, or insurance. The Bureau believed that it was therefore appropriate for the purposes of § 1026.43(e)(4) to consider the agreements to be equivalent to the standard written guides for purposes of the specific creditor to which the agreement applies. Many of these agreements are necessary to accommodate local and regional market variations and other considerations that do not substantially relate to ATR-related underwriting criteria and
Two consumer and community group commenters discussed the use of variances with § 1026.43(e)(4). One comment, from a group of organizations, stated that allowing use of variances was a mistake because the agreements are private and this would make them very difficult for consumers to enforce when they are violated. This comment also suggested that if the variance provision is adopted the Bureau should make clear that a borrower would have access to such variance agreements by sending a qualified written request under RESPA. The other consumer group commenter, which operates a nonprofit lender, supported the use of variances as provided in the comment.
Industry commenters were very supportive of allowing the use of variances. However, one association representing credit unions opposed allowing the use of variances, stating that it would disadvantage smaller market participants. A real estate association commented that variances should be allowed but should be required to be made public so that any creditor could request use of their terms. Other industry commenters requested that the Bureau make clear that later assignees could rely on the QM status of loans originated pursuant to a variance. Another commenter asked that the Bureau specify that, in order to be relied on, a variance must be in effect at the time of consummation of the loan.
Several industry commenters pointed out that these variances are often used with correspondent lenders, and the creditor who has negotiated the variance agreement acts as an aggregator or sponsor, pooling loans originated by others. They stated that the comment as proposed would present a problem because it states that the variance can only be used by a creditor who is a party to the agreement with the GSE. They further stated that this problem could interfere with the origination of a large number of loans that meet the GSEs' standards, and argued that correspondent lenders should be allowed to rely on the variances of their sponsors or aggregators. One large bank, however, opposed the idea of allowing one creditor to rely on another's variance, stating that this might allow loans to become QMs after consummation.
One of the GSEs provided comment on the variance provision, strongly supporting it, and pointing out in addition that both GSEs sometimes grant individual loan waivers of their standards. The GSE stated that these waivers do not proceed from an increase in its appetite for risk, and are only granted “on an exceptional basis,” and that they should be treated the same as the negotiated variances. One industry association also asked that such individual waivers be treated this way.
The language regarding variances is adopted substantially as proposed, with two important changes. The Bureau agrees that disallowing correspondent use of variances would interfere unduly with the market, and is adding language to clarify use in such circumstances without allowing wholly unrelated entities to rely on some other creditor's agreement. Also, the Bureau believes that individual waivers granted by the GSEs should benefit from the same treatment as creditor-specific variances negotiated with the GSEs.
As with all the QM provisions, the status of a loan is determined at the time of consummation. The variance applied to a transaction must be in effect at the time a loan is consummated, and the loan must meet all relevant requirements at that time. For this reason, a loan cannot be retroactively made into a QM by a creditor or assignee. In addition, because the status is determined at consummation, later assignees can rely on that status if it is valid. Allowing correspondents to rely on the variances of their sponsors or aggregators in effect at the time of consummation will not change this situation, and it will help to alleviate concerns that only larger market participants may take advantage of negotiated variances. The language of comment 43(e)(4)–4 has been crafted to ensure that the correspondent is involved in a direct relationship with the variance holder and originating the QM pursuant to that relationship.
In addition, the Bureau does not believe that allowing use of variances will disadvantage smaller market participants, since it is intended only to maintain the current market situation. Although variances are private agreements, with the potential for attendant disadvantages described by commenters above such as difficulty of enforcement, the Bureau does not believe it is appropriate to regulate transparency for these agreements through this narrowly focused amendatory rulemaking, without further review. As always, the Bureau will monitor the effects of its rules on the marketplace going forward.
The Bureau has decided to allow loans benefitting from individual waivers granted by the GSEs to be treated the same as loans originated following negotiated variances. The Bureau has no reason to believe that these loans present undue risk to consumers, and notes that the GSEs are under government conservatorship.
The provision regarding variances is adopted as proposed, with the two changes discussed above.
The Bureau also proposed new comment 43(e)(4)–5 to provide additional clarification on how repurchase and indemnification demands by the GSEs and agencies may affect the qualified mortgage status of a loan. The proposed comment did not amend the meaning of the current rule but clarified how a determination of the qualified mortgage status of a loan should be understood in relation to claims that the loan was not eligible for purchase, insurance, or guarantee and therefore not a qualified mortgage. In making the proposal, the Bureau understood that facts upon which eligibility status was determined at or before consummation could later be found to be incorrect. Often, a repurchase or indemnification demand by a GSE or an agency involves such issues. However, the mere occurrence of a GSE or agency demand that a creditor repurchase a loan or indemnify the agency for an insurance claim does not necessarily mean that the loan is not a qualified mortgage.
Proposed comment 43(e)(4)–5 would have provided that a repurchase or indemnification demand by the GSEs, HUD, VA, USDA, or RHS is not dispositive in ascertaining qualified mortgage status. Much as qualified mortgage status under the general definition in § 1026.43(e)(2) may typically turn on whether the consumer's debt-to-income ratio at the time of consummation was equal to or less than 43 percent, qualified mortgage status under § 1026.43(e)(4) may typically turn on whether the loan was eligible for purchase, guarantee, or
To clarify this point further, proposed comment 43(e)(4)–5 included two examples of relevant evidence discovered after consummation. In the first example, one would assume that a loan's eligibility for purchase was based in part on the consumer's employment income of $50,000 per year. The creditor uses the income figure in obtaining an approve/eligible recommendation from DU. A quality control review, however, later determines that the documentation provided and verified by the creditor to comply with Fannie Mae requirements did not support the reported income of $50,000 per year. As a result, Fannie Mae demands that the creditor repurchase the loan. Assume that the quality control review is accurate, and that DU would not have issued an approve/eligible recommendation if it had been provided the accurate income figure. The Bureau believed that, given the facts and circumstances of this example, the DU determination at the time of consummation was invalid because it was based on inaccurate information provided by the creditor; therefore, the loan was never a qualified mortgage.
For the second example, one would assume that a creditor delivered a loan, which the creditor determined was a qualified mortgage at the time of consummation, to Fannie Mae for inclusion in a particular To-Be-Announced Mortgage Backed Security (MBS) pool of loans. The data submitted by the creditor at the time of loan delivery indicated that the various loan terms met the product type, weighted-average coupon, weighted-average maturity, and other MBS pooling criteria, and MBS issuance disclosures to investors reflected this loan data. However, after delivery and MBS issuance, a quality control review determines that the loan violates the pooling criteria. The loan still meets eligibility requirements for other Fannie Mae products and loan terms. Fannie Mae, however, requires the creditor to repurchase the loan due to the violation of MBS pooling requirements. Assume that the quality control review determination is accurate. The reason the creditor repurchases this loan would not be relevant to the loan's qualified mortgage status. The loan still meets other Fannie Mae eligibility requirements and therefore remains a qualified mortgage based on these facts and circumstances.
The Bureau invited comment on proposed comment 43(e)(4)–5 in general. The Bureau also solicited comment on whether additional examples or other particular situations should be provided or whether alternatives for eligibility other than relationship to ability-to-repay standards should be adopted that would determine the qualified mortgage status of a loan.
One consumer group and nonprofit lender commented on the explanation of how repurchase and indemnification demands should be understood in relation to QM status, stating support for the Bureau's rule but requesting more fully developed guidance on the issue.
Industry commenters overwhelmingly supported the addition of comment 43(e)(4)–5, but also had various suggestions for changes. One industry commenter, along with one of the GSEs, stated that the first example given, in which an accurate determination that the creditor-reported income did not support QM status meant that QM status was invalid, appeared to suggest that the repurchase demand was indeed dispositive. A trade association asked that the Bureau not include as “loans for which repurchase or indemnification demand has been made” those loans that are not eventually repurchased or indemnified.
Both GSEs commented on this guidance, and both supported the addition of comment 43(e)(4)–5. One GSE also suggested that the Bureau should delete the examples given because they would cause confusion. One also requested that the Bureau make clear that even if QM status under § 1026.43(e)(4) is invalidated, the loan may still have qualified for QM status under another provision.
Comment 43(e)(4)–5 is adopted as proposed, with two small edits to make clear that only QM status under § 1026.43(e)(4) is being discussed in the examples and that in the second example the critical fact is that the loan still meets Fannie Mae's eligibility requirements.
Regarding the first example in the comment, it is not the repurchase demand nor the quality control review that is dispositive as to QM status, but the fact that the finding that the income figure is unsupported by the documentation is stated to be “accurate.” The example is a hypothetical, and assuming the accuracy of an issue that would normally have to be established through an investigation of the facts and circumstances of the transaction allows for better explanation of how the rule works. As for the issue of what should be considered a repurchase or indemnification demand, the question is irrelevant to QM status. Repurchase or indemnification demands are potentially relevant to QM status only because they may indicate or lead to evidence that a loan did not qualify as a QM at the time of consummation. In addition, the Bureau believes that the examples will increase clarity for stakeholders, and not cause confusion. Accordingly, the Bureau considers the two examples presented as providing clear and appropriate guidance on the issue, with the edits mentioned above.
Under the general definition for qualified mortgages in § 1026.43(e)(2), a creditor must satisfy the statutory criteria restricting certain product features and points and fees on the loan, consider and verify certain underwriting requirements that are part of the general ability-to-repay standard, and confirm that the consumer has a total (or “back-end”) debt-to-income ratio (DTI) that is less than or equal to 43 percent. To determine whether the consumer meets the specific DTI requirement, the creditor must calculate the consumer's monthly DTI in accordance with appendix Q. The Bureau adopted the 43
Appendix Q, as adopted, contains detailed requirements for determining “debt” and “income” for the purposes of the DTI calculation based on the definitions of those terms set forth in HUD Handbook 4155.1,
In adopting appendix Q in the 2013 ATR Final Rule, the Bureau believed that using, to the extent possible, existing HUD/FHA underwriting guidelines as the foundation for determining “debt” and “income” for DTI purposes would provide creditors with well-established standards for determining whether a loan is a qualified mortgage under § 1026.43(e)(2).
Following publication of the 2013 ATR Final Rule, the Bureau received a number of inquiries from industry stakeholders regarding provisions codified in the appendix that they believed had been intended to function as flexible standards used by the FHA for insurance underwriting purposes, rather than codified as bright-line requirements for determining debt and income. Concerns were raised that these provisions may be properly suited for the purposes of a holistic and qualitative underwriting analysis but are not well-suited to function as regulatory requirements that are not subject to discretionary variance or waiver on an individual basis. Stakeholders also expressed concern that many of these provisions provided little clarity or guidance for creditors for compliance purposes. Similarly, stakeholders expressed concerns that the broad nature of these provisions could undermine the presumption of compliance available to creditors who make qualified mortgages and expose them to significant litigation risk.
In response to these concerns, the Bureau included certain proposed revisions to appendix Q in its proposed rule to facilitate compliance when determining DTI and to further the purposes of the ATR Final Rule. The Bureau agreed that certain provisions of appendix Q as adopted were not properly suited to function as regulations. The Bureau intended appendix Q to serve as a reliable mechanism for creditors to evaluate income and debts for the purpose of determining DTI and not as a general and flexible underwriting policy for assessing risk (as it is used by FHA in the context of insurance). The Bureau also recognized that it would not have the same level of discretion regarding the application of appendix Q.
The Bureau therefore proposed revisions to appendix Q on: (1) Stability of income, and the creditor requirement to evaluate the probability of the consumer's continued employment; (2) with regard to salary, wage, and other forms of consumer income, the creditor requirement to determine whether the consumer's income level can reasonably be expected to continue; (3) creditor analysis of consumer overtime and bonus income; (4) creditor analysis of consumer Social Security income; (5) requirements related to the analysis of self-employed consumer income; (6) requirements related to non-employment related consumer income, including creditor analysis of consumer trust income; and (7) creditor analysis of rental income.
The Bureau also proposed other revisions to clarify the application of appendix Q, as well as general technical and wording changes throughout appendix Q for consistency and clarification, including technical changes to conform to the specific purpose that appendix Q serves in the 2013 ATR Final Rule, as opposed to the function that the HUD Handbook serves for FHA underwriting.
Commenters, including both industry and consumer commenters, generally supported the Bureau's proposed changes to appendix Q. A bank for example stated that it appreciated the Bureau's efforts to establish clear and reliable standards within appendix Q, and that it generally believed the proposed amendments would allow creditors to underwrite loans with improved confidence that appendix Q standards have been met. A bank trade association stated that it appreciated the Bureau's efforts to clarify the ability-to-repay regulations and stated that it believed the Bureau's proposals would go a long way in improving the final rules. A state credit union association stated that it strongly supported the Bureau's proposed changes to appendix Q as certain provisions adopted in appendix Q are not suitable to function as regulations. A consumer organization stated its support for the Bureau's clarifications of appendix Q but also suggested the need for further clarifications. Most commenters suggested additional clarifications to appendix Q, some specific to the Bureau's proposals, and some beyond the Bureau's specific proposals—including general revisions.
The Bureau appreciates the comments received on its appendix Q proposals. The Bureau believes that the proposals as adopted in this final rule will further the purpose and intent of appendix Q by establishing clearer requirements for assessing the debt and income of consumers, while at the same time facilitating creditor compliance and access to credit for consumers. The comments received generally support the Bureau's view.
The Bureau proposed revising the criteria in appendix Q for determining whether a consumer's income is “stable” for the purposes of DTI.
Appendix Q as adopted required in section I.A.3.a that creditors evaluate the “probability of continued employment” by analyzing, among other things, (1) the consumer's past employment record; (2) the consumer's qualification for the position; (3) the consumer's previous training and education; and (4) the employer's confirmation of continued employment. Stakeholders had raised concerns that, beyond analysis of a consumer's past employment record and current employment status, each of these requirements was incompatible with appendix Q's purpose of providing clear rules for determining debt and income, and was likely to result in compliance difficulty and significant exposure to litigation risk for creditors attempting to avoid such risk by originating qualified mortgages and thereby taking advantage of the presumption of compliance. Stakeholders, for example, indicated
In response to these concerns, the Bureau proposed to amend appendix Q in section I.A.3.a to eliminate the requirements that creditors determine the “probability of continued employment” by considering a consumer's “qualifications for the position” and “previous training and education.” The Bureau proposed instead to amend the section to require creditors to examine a consumer's past and current employment. The Bureau also proposed to remove the requirement that creditors obtain the “employer's confirmation of continued employment” and instead require only that the creditor examine the “employer's confirmation of current, ongoing employment status.” The Bureau believed that requirements for a creditor to evaluate a consumer's training, education, and qualifications for his or her position are not well-suited to function as regulations designed to enable creditors to determine debts and income and in turn calculate DTI, and may increase exposure to litigation risk. Specifically, the Bureau indicated that it was not entirely clear what creditors would need to do in order to comply with these requirements, or how those determinations would affect a consumer's income for the purpose of calculating DTI.
The Bureau also stated its belief that requiring creditors to obtain an employer's confirmation of the consumer's continued employment would not function properly as a regulatory requirement because employers likely would be unwilling to provide any confirmation of employment continuing beyond current, ongoing employment. The Bureau pointed out that without the benefit of waiver or variance, such a requirement could serve to disqualify any such consumer's employment income from being included in the DTI calculation—which would frustrate access to credit.
The Bureau stated further that a confirmation of current, ongoing employment status is adequate to verify employment for purposes of determining income. To that end, the Bureau also proposed for clarification purposes a proposed note to section I.A.3 that states creditors may assume that employment is ongoing if a consumer's employer verifies current employment and does not indicate that employment has been, or is set to be terminated. The proposed note made clear, however, that creditors should not rely upon a verification of current employment that includes an affirmative statement that the employment is likely to cease, such as a statement that indicates the employee has given (or been given) notice of employment suspension or termination.
Finally, the Bureau also proposed several other technical, non-substantive changes to section I.A for clarification purposes.
Commenters, primarily from industry, who submitted comments concerning the Bureau's proposed changes to section I.A.3 were generally supportive of those changes although some clarification or additional guidance was suggested by several.
Several bank trade associations and a bank, in expressing support for the changes, noted that: (1) While it is reasonable to require an examination of current employment, provisions which require a creditor to speculate or predict future employment are problematic; (2) creditors should not be asked to second guess employer hiring decisions or be expert in establishing qualifications for positions; (3) the eliminated criteria could have a negative impact on consumers with “on the job” education; and (4) employers will not discuss certainty of continued employment for fear that it could create a new employment contract for at-will employees. These commenters also suggested that the Bureau provide guidance that verbal confirmation would satisfy the requirement that the creditor examine the employer's confirmation of the consumer's “current, ongoing employment status” as provided in I.A.3.a as proposed by the Bureau.
A state banking association commenter, in expressing support for the Bureau's proposal to replace the section I.A.3.a requirement that the creditor obtain an employer's “confirmation of continued employment” for an applicant with a requirement to “confirm current, ongoing employment,” requested that the Bureau provide additional clarification for instances in which employment is inherently dependent on contingencies outside the employee's or employer's control—such as applicants whose salaries are funded through ongoing grants, agency funded positions at a nonprofit organization or federal work programs, or applicants who are political appointees. A national banking association commenter requested similar clarification noting that flexibility is required to ensure that all populations are adequately served.
One commenter, a manufactured housing lender, with regard to the Bureau's proposed note amending section I.A.3.a, stated that the Bureau should make clear that the creditor has no obligation to inquire—either in writing or verbally—as to the employee's job performance and/or whether any suspension or termination is imminent.
A credit union commenter that indicated that it serves the education community stated, in referring to the Bureau's proposed note amending I.A.3.a, that the employment of many of its members who are teachers, professors and other educators is established by year-to-year contracts that generally include a termination date. The commenter noted that these contracts are generally renewable and negotiated through the teacher's association or other union representation. The commenter stated that the Bureau's proposed note would likely preclude it from relying upon a copy of a member's contract as evidence of stability of income since if the contract included a termination date the commenter would be unable to assume that the member's employment is “ongoing.” The commenter suggested the proposed note be expanded to consider fields of employment that may be viewed as “seasonal” or industries where employment is established by contract, such as the education community, so that a creditor could also examine past and current employment as part of its analysis of the stability of income.
The manufactured housing lender commenter also suggested that if the Bureau adopted its proposal to amend section I.A.3.a to eliminate the obligation of creditors to predict a consumer's likelihood of continued employment, that it remove existing section I.A.3.b. Section I.A.3.b provides that “creditors may favorably consider the stability of a consumer's income if he/she changes jobs frequently within the same line of work, but continues to advance in income or benefits. In this analysis, income stability takes precedence over job stability.” The commenter stated that this section existed as a caveat to the obligation of creditors to predict a consumer's future employment or advancement, and with the elimination of that requirement it is no longer necessary.
The Bureau is adopting the revisions to section I.A.3 as proposed. The Bureau agrees with commenters that elimination of the requirements that the creditor: (1) examine the consumer's qualifications for the position, previous training and education; and (2) examine the employer's confirmation of the consumer's continued employment—will provide clearer and more appropriate standards for creditors under appendix Q, and facilitate compliance with the Bureau's ATR Final Rule.
With regard to the comment suggesting that the Bureau amend its proposed note in section I.A.3.a to expand it to consider industries where employment is established by contract, including the education community, the Bureau appreciates the comment and recognizes the special circumstances confronted by contract employees. The Bureau believes, however, that additional revisions to section I.A.3.a are not necessary given the existing provisions of appendix Q with regard to the treatment of seasonal employment and income. That language, at sections I.A.2.b and I.B.5, provides the means for creditor assessment of the employment and stability of income of contract employees for purposes of appendix Q.
With regard to the comment requesting that the Bureau clarify that the creditor has no obligation to inquire about a consumer's job performance and/or whether any suspension or termination is imminent, the Bureau's revisions to I.A.3.a do not require creditors to affirmatively make such inquiries. That section, as revised, only provides that a creditor cannot rely on a verification of current employment if it includes an affirmative statement that employment is likely to cease.
Concerning the comment requesting that the Bureau provide guidance to explicitly allow verbal confirmation by employers of the consumer's current, ongoing employment status, the Bureau would like to review this request further to ensure that such guidance would be consistent with the purposes of appendix Q and the ATR Final Rule. Similarly, with regard to the comment requesting clarification that a creditor's obligation to only consider a consumer's past and current and ongoing (and not continual) employment as proposed by the Bureau includes employment in contingent situations outside of the employee's or employer's control, the Bureau plans to review this issue further to determine whether such clarification to the existing appendix Q requirements is necessary, and how any such clarification would be framed. As discussed above, the Bureau believes appendix Q provides creditors with the ability to assess the employment and stability of income of employees generally and contract employees in particular.
Finally, with regard to the comment recommending the deletion of section I.A.3.b as unnecessary with the adoption of the Bureau's proposed revisions to section I.A.3.a, the Bureau disagrees, as it believes that section I.A.3.b, as amended by the Bureau's proposed revisions, has continuing relevance in the determination of the stability of the consumer's income. As revised, section I.A.3.a requires an examination of the consumer's past employment record and a verification of current, ongoing employment status as a method of assessing stability of income. Section I.A.3.b provides creditors with an additional method of assessing stability of income, and of meeting the ability to repay and qualified mortgage requirements, in the situation where a consumer changes jobs frequently.
Section I.B.1.a of appendix Q, the “General Policy on Consumer Income Analysis,” as adopted in the ATR Final Rule stated that creditors must analyze the income for each consumer who will be obligated for the mortgage debt to determine whether his/her income level can be reasonably expected to continue “through at least the first three years of the mortgage loan.” Sections I.B.2 and I.B.3 of appendix Q as adopted similarly required that creditors determine whether overtime and bonus income “will likely continue” and that they “establish and document an earnings trend for overtime and bonus income.” The Bureau received inquiries from industry stakeholders on these sections of Appendix Q similar to those received regarding section I.A.1, noting, among other things, (1) that these provisions codify general, forward-looking standards that are better suited for the purposes of a holistic and qualitative underwriting analysis (such as the FHA guidelines for determining insurance eligibility) and may not function properly as regulations; and (2) because the Bureau may not have the flexibility to waive or grant variances on an individual basis regarding the application of appendix Q, these provisions will undermine the purpose of appendix Q to serve as a reliable mechanism for evaluating income and debts for the purpose of determining the qualified mortgage status of a loan, and also increase the risk of litigation.
In response to these issues raised by stakeholders, the Bureau proposed several amendments to section I.B of appendix Q to explain and clarify the criteria for calculating a consumer's employment income and to determine whether a consumer's income is continuing for the purposes of the DTI calculation.
The Bureau proposed to amend section I.B.1.a to require creditors to evaluate only whether a consumer's income level would not be reasonably expected to continue based on the documentation provided, with no three-year requirement. In support of this proposal, the Bureau stated its belief that the intended purpose of appendix Q would not be served by requiring creditors to predict a consumer's employment status up to three years after application. The Bureau stated further that creditors should be required to analyze recent and current employment, along with any evidence in the applicant's documentation indicating whether employment is likely to continue. The Bureau therefore, proposed to add a note to section 1.B.1.a to make clear that creditors should not assume that a consumer's wage or salary income can be reasonably expected to continue if the verification of current employment includes an affirmative statement that the employment is likely to cease, such as a statement that indicates the employee has given (or been given) notice of employment suspension or termination. The Bureau stated however, that if the consumer's application and the employment confirmation indicate that the consumer is currently employed and provide no such indication that employment will cease, the Bureau believed, as reflected in the proposed note, that the creditor should be able to use that consumer's income without an obligation to predict whether or not that consumer will be employed on some future date.
Various industry participants commented on the Bureau's proposed amendments to section 1.B.1.a of appendix Q, and the elimination of the 3-year requirement. These commenters
A joint bank trade association and a bank recommended revising section 1.B.1.a to require each consumer to disclose to the lender whether the consumer has reason to believe that their income level will not continue through the first three years of the mortgage. These commenters noted that consumers are in the best position to know whether they expect to retire, take a leave of absence or otherwise not have their income continue for the first three years of the mortgage loan, and that lenders have no way to reliably determine this. They stated further that questioning consumers about retirement or time off to raise children raises potential fair lending issues. They also requested guidance on the treatment of statements from consumers such as, “I might retire.”
Another bank trade association, in commenting on the Bureau's proposed elimination of the requirement to analyze whether the consumer's income level can reasonably be expected to continue through the first three years of the mortgage loan, requested clarification of how far into the future creditors must reasonably expect income to continue.
One bank commenter in stating its support for the Bureau's proposed changes in sections I.B.1, 2 and 3, stated that it agreed with the Bureau that creditors cannot be reasonably expected to evaluate and document whether a consumer's income level can be expected to continue for a three-year period.
Various other commenters suggested several other changes to section I.B. For example, similar to the joint bank trade association comment on I.B.1.a discussed above, several commenters raised possible fair lending issues with regard to the section I.B.1 notes, specifically, section i, which states that effective income for consumers planning to retire during the first three-year period must include documented retirement benefits, Social Security payments, and other payments expected to be received in retirement. One bank, for example, stated that while it supported the existing section i it recommended that, to mitigate potential fair lending risks based on age, the Bureau add a clarification that creditors should not ask consumers about future retirement plans, but should consider documented retirement benefits and payments if a consumer disclosed a plan to retire during the first three-year period. Another bank commenter similarly requested that the Bureau explicitly state, for fair lending reasons, that creditors are not expected to ask consumers if they plan to retire. This commenter also noted that it would be impracticable if not impossible to get documented benefits and payments if the consumer has yet to actually receive any retirement income and may not activate the source for up to a period of three years. The joint bank trade association commenter referred to above suggested adding language to section i of the notes indicating that effective income requirements for consumers planning to retire only applies to those who disclose such plans. A bank commenter, citing existing section ii of the notes, which prohibits creditors from asking consumers about possible future maternity leave, suggested, for fair lending reasons, that the Bureau add a clarification that creditors should not ask consumers about future medical leaves, and a joint bank trade association commenter suggested changing the term “maternity” leave to “medical” leave in section ii of the notes.
The Bureau is adopting the revisions to section I.B.1 as proposed. The Bureau continues to believe that the requirement in section I.B.1.a eliminated by the Bureau's proposal,
With regard to the commenter that requested clarification to appendix Q on how far into the future creditors must reasonably expect a consumer's income to continue, the Bureau believes that section I.B.1.a, as revised by the Bureau, effectively sets out the standard needed to be followed by creditors. As stated in new section iii of the notes, creditors can “assume that salary or wage income . . . can be reasonably expected to continue if the consumer's employer verifies current employment and income and does not indicate that employment has been or is set to be terminated.” That section, as revised by the Bureau, does not require creditors to make a determination that the consumer's income will continue through the first three years of the mortgage loan, or any other specified period.
The Bureau appreciates the recommendations from some commenters that section I.B.1 be amended to require consumers to disclose whether they have reason to believe their income level will not continue as the consumer is in the best position to know their future employment and income status. However, section I.B.1 already provides that creditors may assume that the consumer's salary or wage income can be reasonably expected to continue if the consumer's employer verifies current employment and income and does not indicate that employment has been, or is set to be terminated. Where no such appropriate verification is provided, the creditor must analyze the consumer's income and determine whether the consumer's income level can be reasonably expected to continue. In such cases, the Bureau believes that further analysis should be required of creditors, and that, as revised, section I.B provides creditors with an effective regulatory framework for carrying out that analysis.
With regard to the fair lending concerns raised by some commenters regarding questions presented to consumers relating to future retirement plans, the Bureau agrees that the final rule and appendix Q do not obligate creditors to ask consumers when they expect to retire. If, however, a consumer discloses a plan to retire during the first three-year period by making an affirmative statement of such plans, creditors should consider documented retirement benefits, Social Security payments, and other payments expected to be received in retirement. The Bureau similarly believes that the ATR Final Rule and appendix Q do not require
The Bureau also proposed changes to section 1.B.2 regarding overtime and bonus income.
Several industry commenters, including several banks, a joint trade association, several state bank associations, and a state credit union association provided comments specific to the Bureau's proposed change to section I.B.2.a. These commenters generally supported the Bureau's proposed changes. Some of these commenters suggested additional changes to sections I.B.2 and I.B.3.
A bank commenter, in stating support for the Bureau's proposed change eliminating language requiring creditors to determine whether overtime and bonus income will continue, and substituting language focusing on a two-year income history, commented that the change would facilitate better access to credit for consumers who rely on overtime and bonus income. Two state bank associations similarly expressed support for the Bureau's proposed change, with one stating that while most employers are not willing to indicate bonus income is likely to continue, they are willing to affirm such bonus payments were paid and if they have ceased to exist. This second bank association commenter stated further that in the absence of confirmation from the employer that a bonus program or overtime is no longer available to an employee, past history is an excellent predictive tool. Another bank commenter, in stating that the Bureau's analysis supporting its proposed change to I.B.2.a on overtime and bonus income was sound, recommended that the formulation for assessing overtime and bonus income in that section be applied to other parts of appendix Q, on different types of income.
A state credit union association commenter stated that while the Bureau's proposed change to section I.B.2.a is adequate to satisfy the qualified mortgage provision, there are still concerns from credit unions that warrant further guidance. Specifically, this commenter requested that the Bureau provide examples of documentation and/or further clarification to assist in determining whether bonus and overtime income is anomalous.
A joint trade association commenter suggested revisions to section I.B.2.a to provide that overtime and bonus income can be used if the consumer has received the income for the past two years and there is no evidence in the loan file that it will not continue. In support of this revision, the commenter stated that the lender should not be in a position to determine that the income will or will not continue. The commenter further stated that the two-year history should satisfy this element on its own absent evidence to the contrary.
A credit union commenter stated that in some lines of work such as nursing, overtime is a standard component of the overall compensation plan. It stated further that the requirement in section I.B.2.a, as revised by the Bureau's proposal, to document and evaluate at least two years of overtime income, could adversely impact certain consumers who are new to their field or recently hired and do not yet have two years of overtime history. The commenter urged the Bureau to reconsider the impact on nurses, firefighters and law enforcement personnel who are just beginning their careers, and to make appropriate adjustments to the proposed revision.
A mortgage lender specializing in the financing of manufactured housing commented on section I.B.2.b, which, in addition to requiring creditors to develop an average of bonus and overtime income for the past two years, states that “periods of overtime and bonus income less than two years may be acceptable provided the creditor can
Several industry commenters provided comments on section I.B.3. Section I.B.3.a requires a creditor to establish and document an earnings trend for overtime and bonus income and, if either type of income shows a continual decline, to document in writing a sound rationalization for including the income when qualifying the consumer. Section I.B.3.b provides that a period of more than two years must be used in calculating the average overtime and bonus income if the income varies significantly from year to year.
With regard to section I.B.3, a joint trade association commenter suggested removing and reformatting this section as part of a new I.B.2.c and I.B.2.d to provide that eligible bonus or overtime income be calculated as the lesser of the current year or the average of the previous two years, as long as there is no evidence in the loan file that the income will not continue, and the creditor documents in writing a sound rationalization for including the income. This commenter noted that income from bonuses and overtime, commissions and self-employment can be variable and susceptible to significant declines from circumstances within and outside of the control of the consumer. The commenter stated that the revisions it was proposing to this section and others in appendix Q would provide a new and simple qualitative test for determining the amount of income to include in the DTI analysis. The commenter stated that the test would require lenders to use the lesser amount of the average of two
With specific regard to section I.B.3.b, which states that `a period of more than two years must be used in calculating the average overtime and bonus income if the income varies significantly from year to year,” this joint trade association commenter stated that the word “significantly” in that section is too vague for a legal standard and will invite litigation. It stated further that lenders should only use the most recent income, not the average, for declining income and provide a rationale for the inclusion of the income. A bank similarly commented on section I.B.3.b, that as the term “varies significantly” in that section is not defined that the requirement in that section that a period of more than two years must be used in calculating the average overtime and bonus income either be eliminated or clarified.
The Bureau is adopting the revisions to section I.B.2 regarding overtime and bonus income as proposed. The Bureau believes that the revisions proposed to section I.B.2.a, eliminating language requiring creditors to determine whether overtime and bonus income will continue, and substituting language that states that such income can be used if the consumer has received it for the past two years and documentation submitted for the loan does not indicate this income will likely cease, will facilitate creditor compliance and, as stated by a commenter, better access to credit for consumers who are dependent upon overtime and bonus income. At the same time the Bureau believes that the changes to this section otherwise further the purpose and intent of appendix Q and the qualified mortgage provision through clear requirements for a creditor assessment of the consumer's receipt of the overtime or bonus income for the previous two years, and a review of the loan documentation for indications that the income will likely cease. As some commenters noted, employers may not be willing to indicate if bonus income, for example, is likely to continue, and in the absence of employer confirmation, past history can be used as a predictive tool.
With regard to other proposed changes to section I.B.2.a raised by commenters, such as a suggestion to substitute language that there is no evidence in the loan file that the overtime or bonus income will not continue, or possible changes to address the potential impact of the two-year requirement on new employees who depend on overtime or bonus income, the Bureau believes that the Bureau's revisions strike the right balance between facilitating compliance and ensuring an adequate assessment of consumer income for purposes of the DTI and the ATR requirements. For example, as revised by this final rule, section I.B.2.a provides that bonus or overtime income may be used if the documentation in the loan file does not indicate that the consumer's overtime or bonus income “will likely cease,” which is very similar to the language suggested by the commenter. To the extent that the commenter's proposed language would have a different effect, the Bureau believes that the final rule's approach provides clear, objective guidance to creditors that is consistent with the analysis required by the rest of appendix Q. As for the potential impact of the two-year requirement on new employees, the Bureau believes that current section I.B.2.b, as discussed further below, provides creditors with the ability to assess the overtime and bonus income of new employees.
As for comments on sections beyond the Bureau's specific proposed changes to section I.B.2.a, for example with regard to sections I.B.2.b and I.B.3, the Bureau does not believe any changes to those sections are warranted at this time. With regard to section I.B.2.b for example, the Bureau believes that section provides flexibility for creditors to justify and properly document the use of a period of overtime and bonus income of less than two years. The other requirements of section I.B.2.a (that documentation submitted for the loan does not indicate the overtime or bonus income will likely cease) and section I.B.3.a will continue to apply to the income analysis of the consumer. With regard to the comments on section I.B.3, suggesting a removal of that section and a reformatting into a new test in section I.B.2.c. for determining the amount of income to include in the DTI analysis, the Bureau appreciates the comment but believes that sections I.B.2, as amended by this final rule, and I.B.3, provide for a required income analysis consistent with the purposes and intent of appendix Q. Regarding the comments on section I.B.3.b, the Bureau will continue to review this section to determine if further clarification is needed with regard to a creditor determination of whether overtime or bonus income “varies significantly,” but is not making any changes at this time. The Bureau needs additional information in order to fully assess whether this standard requires additional clarification for creditors in making the necessary appendix Q determinations, and whether possible alternative standards would be adequate.
The Bureau proposed several clarifications to the provisions in section I.B.11 of appendix Q as adopted, explaining how to account for Social Security income.
Section I.B.11 as adopted by the ATR Final Rule required that (1) Social Security income either be verified by the Social Security Administration (SSA) or through Federal tax returns; (2) the creditor obtain a complete copy of the current awards letter; and (3) the creditor obtain proof of continuation of payments, given that not all Social Security income is for retirement-aged recipients. The Bureau proposed to amend section I.B.11 to remove the mention of Federal tax returns and instead require only that creditors obtain a benefit verification letter issued by the SSA. In support of this change the Bureau stated its belief that a Social Security benefit verification letter would provide easily accessible proof of the receipt of Social Security benefits and their continuance.
The Bureau also proposed to clarify in section I.B.11 that a creditor shall assume a benefit is ongoing and will not expire within three years absent evidence of expiration. The Bureau stated, in support of this change, its belief that this would provide a more workable and accurate standard for verification of Social Security income.
Several banks, national and state banking trade associations, a state credit union, and a consumer group submitted comments on the Bureau's proposal to amend section I.B.11 to remove the reference to Federal tax returns and to require creditors to obtain a benefit verification letter. Most industry commenters saw the change as reducing compliance flexibility, and the consumer group requested further changes to protect against falsification of income.
With regard to the industry commenters, a bank trade association stated that it could find no justification for what it saw as eliminating the flexibility of allowing the use of Federal tax returns in the current rule. It stated that while it agreed with the Bureau's explanation for the change,
One bank commenter stated that it supported the Bureau's proposal to require creditors to obtain a Social Security benefit verification letter to verify Social Security income, but recommended the adoption of language acknowledging that creditors may obtain federal tax returns in addition to verification letters. This commenter noted that tax returns may be useful to creditors to determine an applicable tax rate used to gross up non-taxable Social Security income, and that they may be needed to verify income received other than from Social Security. This commenter also stated its support for the Bureau's proposed clarification providing that Social Security income shall be assumed not to expire within three years, absent evidence of expiration, stating that it would reduce potential barriers to accessing credit for Social Security income recipients, while providing creditors clear guidance to mitigate fair lending risk.
A consumer group commenter stated that so long as the documentation requirements for Social Security income require that the Social Security benefit verification letter come directly from the SSA, this documentation is sufficient. It noted, however, that if the verification letter is delivered to the lender through a broker or originator working for the lender, this is not sufficient documentation as it may become a vehicle for falsification of income. The commenter therefore recommended that section I.B.11 be revised to require creditors to use either tax returns or bank statements showing the deposit of benefits into the bank account, in addition to requiring a verification letter—where the verification letter cannot be obtained directly from the government payor. The commenter noted that the additional information will provide more substantial verification in a form that is still readily available to applicants. It concluded on this point that this approach will ensure that homeowners have easy access to needed income documentation without providing a means for public benefit documentation to be used to inflate income on a loan. This commenter also suggested, referring to section ii of the notes to section I.B.11 (which allows some portion of Social Security income to be “grossed up” if deemed non-taxable by the IRS), that the Bureau should specify that grossing up of Social Security benefits should be done based on a tax bracket that is appropriate for the income received. It stated further on this point that the language currently in I.B.11 will lead to and support the existing practice of grossing up that allows, rather than prevents, many unaffordable loans, as many homeowners who receive Social Security benefits have their income grossed up to the top tax bracket.
The Bureau is adopting the revisions to section I.B.11 as proposed. The Bureau believes that the Social Security benefit verification letter provides the best method of verifying receipt of Social Security income by the consumer and its continuance. The Bureau understands the concerns expressed by various industry commenters regarding the potential limitation on compliance flexibility resulting from the removal of the supposed option to verify Social Security income through Federal tax returns. The Bureau notes, however, that section I.B.11 as adopted in the 2013 ATR Final Rule required, in addition to income verification by the SSA or Federal tax returns, a complete copy of the current awards letter, and documented continuation of payments. The proposed revisions to section I.B.11 simplify these requirements by providing that one document—the Social Security benefit verification letter—satisfies all needs for documentation. A Federal tax return is of less value in demonstrating a consumer's continued receipt of Social Security income and would not be available for consumers who only recently began to receive Social Security benefits. Section I.B.11 as revised by the final rule specifically provides that if the Social Security benefit verification letter does not indicate a defined expiration date within three years of loan origination, the creditor must consider the income effective and likely to continue. The consumer's bank statements, suggested by some commenters as an alternative means to verify income, also are of less value in demonstrating continuance of receipt. The Bureau notes moreover that continuing to require the Social Security benefits letter to verify that such benefits are not likely to cease parallels the general requirement of employer verification of current, ongoing employment.
As far as the concern expressed by a commenter that the Social Security benefit verification letter could become a vehicle for falsification of income if not required to be received directly from the government payor—and in which case it was suggested that tax returns or bank statements be required as additional verification—the Bureau believes that effective due diligence by creditors will limit such a possibility. The Bureau expects that creditors will exercise the same due diligence against fraud with regard to their review of Social Security benefit verification letters that they apply in their review of any mortgage loan related documents submitted to them. With regard to the comments received expressing concern about consumers who are unable to locate their Social Security Benefit verification letters, it is the Bureau's understanding that benefit verification letters may be requested on-line or over the phone toll-free from the SSA or from a local SSA office.
Finally, with regard to the comment requesting that the Bureau put limitations on the grossing up of Social Security benefits (as permitted under section I.B.11 in some instances), the Bureau is not addressing that issue at this time, as this requires further review and consideration. Other commenters made suggestions for changes with regard to section II.E, Non-Taxable and Projected Income, and the gross-up rate allowed for non-taxable income generally (discussed later in this preamble) which, in addition to Social Security income, includes Federal government employee retirement income, State government retirement income, military allowances, as well as
Section I.D of appendix Q, as adopted, permitted income from self-employed consumers to be considered income for the purposes of the DTI calculation if certain criteria were met, including various documentation requirements and analysis of the financial strength of the consumer's business. The documentation requirements in section I.D.4 included the requirement to provide a “business credit report for corporations and `S' corporations.” The analysis of the financial strength of the business in section I.D.6 required that the creditor carefully analyze the “source of the business's income” and the “general economic outlook of similar businesses in the area.” Following the publication of appendix Q the Bureau received inquiries from stakeholders concerning these requirements and also noted compliance difficulties and increased risk of litigation that could arise from them. Industry raised specific concerns that business credit reports can be expensive and difficult to obtain, and that a requirement to assess economic conditions for geographic areas can be both costly and difficult, as well as imprecise.
The Bureau proposed to make several amendments to these income stability requirements for self-employed consumers. The Bureau's first proposed amendment eliminated the requirement in current section I.D.4 that self-employed consumers provide a business credit report for corporations and “S” corporations. In proposing this amendment the Bureau stated that it recognized that business credit reports for many smaller businesses can be difficult or very expensive to obtain. The Bureau also stated its belief that while these reports may provide some valuable information for the purposes of an underwriting analysis, they are less suited to function as a requirement to determine income for self-employed consumers.
The Bureau's second proposed amendment eliminated two requirements under the requirement to analyze a business's financial strength in section I.D.6. Section I.D.6, as adopted, required creditors (1) to evaluate the sources of the business's income and (2) to evaluate the general economic outlook for similar businesses in the area. In proposing this amendment the Bureau stated its belief that both of these requirements demand that the creditor engage in complex analysis without providing clarity concerning what types of evaluations are satisfactory for the purpose of complying with the rule. The Bureau also stated that such a provision is better suited to function as part of an underwriting analysis subject to waiver, variance, and guidance rather than a regulatory rule.
The Bureau's proposal also made technical revisions to section I.D to accommodate removal of these requirements.
Industry commenters—several banks and national and state trade associations—submitted comments on the Bureau's proposed changes to sections I.D.4 and I.D.6. The commenters generally supported the Bureau's proposals.
A bank stated that it agreed with the Bureau's proposals to eliminate the requirement for business credit reports, citing the potential difficulty and expense associated with obtaining such reports. The bank stated that requiring a business credit report could increase the cost of credit or restrict access to credit for self-employed consumers. The bank also noted that appendix Q requires creditors to obtain year-to-date profit and loss statements and balance sheets from self-employed consumers, and suggested, in the alternative, that creditors be permitted to accept quarterly tax filings if the consumers most recent tax return is greater than four months old. This commenter also stated its agreement with the Bureau's proposal to eliminate creditor requirements to evaluate both the sources of consumer's business income and the general economic outlook for similar businesses in the area stating that it agreed with the Bureau's conclusion that such requirements are ill-suited to a regulatory rule designed for consumer transactions. The commenter added further that such requirements are too subjective for purposes of establishing documentation standards for income.
Another bank commenter expressed support for the Bureau's proposed elimination of the business credit report requirement in section I.D.4, and with regard to the Bureau's proposed elimination of the creditor requirements in section I.D.6 stated that it agreed that requiring creditors to analyze a business's financial strength is beyond the scope of the DTI standard. This commenter suggested the removal of section I.D.6 entirely from appendix Q, stating that the type of determination required by this section is highly subjective and that such subjectivity greatly undermines the certainty presumed to be tied to a safe harbor test. This commenter also suggested a change to section I.D.4.c to make clear that profit and loss statements will only be required if quarterly tax returns are not available.
A joint trade association commenter also suggested the entire deletion of section I.D.6, stating that subjective criteria should be removed in favor of documented income. This commenter also supported the elimination of the business credit report requirement in section I.D.4.d. It also suggested changes to section I.D.4.c, stating that profit and loss statements and balance sheets should only be required if they are needed because quarterly taxes are not available.
Two state banking association commenters also supported the Bureau's proposal to eliminate the requirements in section I.D.4.d, and I.D.6. One association, with regard to section I.D.4.d, noted that credit reports for small businesses can be difficult to obtain and quite expensive. The other association stated, with regard to I.D.6, that the creditor requirements proposed to be eliminated by the Bureau in that section would be inherently difficult for creditors to make and would carry no indication of accuracy. A state credit union association also expressed support for the Bureau's changes in these sections.
A national trade association that represents real estate agents commented that it supported the Bureau's proposals eliminating the requirements relating to self-employed consumers in I.D.4.d and I.D.6, stating that it agreed with the Bureau's assessment that these requirements are too expensive and complex, and without clarity. This commenter also suggested additional clarifications beyond the Bureau's proposals, to section I.D and section I.B.7, as those sections relate to many of its members who work as self-employed contractors working in association with real estate brokers, not as employees. In particular this commenter requested additional clarity on how creditors should consider real estate commission income.
The Bureau is adopting its revisions to section I.D.4 and I.D.6 as proposed.
With regard to the Bureau's revisions to section I.D.6 and the elimination of the requirements that creditors evaluate sources of the consumer's business income, and the general economic outlook for similar businesses in the area, the Bureau agrees with commenters who noted the subjective nature of these requirements, and recognizes the difficulty for creditors in making these assessments. The Bureau believes that these requirements are better suited to a flexible underwriting analysis than a regulatory rule. With regard to those commenters who recommended the elimination of section I.D.6 in its entirety, the Bureau believes that the revisions to that section adopted by the Bureau significantly improve this requirement as an assessment of the business's financial strength, and make this an effective and useful measure for purposes of the DTI analysis. Furthermore, the standard as revised is straightforward for creditors,
The Bureau notes the other changes to these sections beyond the Bureau's specific proposals recommended by some commenters, including, for example, that creditors be permitted to accept quarterly tax filings as an alternative to profit and loss statements and balance sheets under section I.D.4.c, and additional clarification on self-employed contractors, and real estate commission income, under I.D. and I.B.7. The Bureau appreciates those recommendations, but will need to fully evaluate them for purposes of consistency with and furtherance of the purposes of appendix Q, and the implications for all stakeholders.
Section II.B.2 of appendix Q as adopted permitted trust income to be considered income for the purposes of the DTI calculation “if guaranteed, constant payments will continue for at least the first three years of the mortgage term.” Appendix Q then provided a list of required documentation consumers must provide but did not otherwise specify the universe creditors must review to make and support the three-year determination.
The Bureau proposed an amendment to this section to delineate more clearly the breadth of the analysis for trust income by specifying that the analysis is limited to the documents appendix Q requires. Specifically, the proposal revised “if guaranteed, constant payments will continue for at least the first three years of the mortgage term” by adding “as evidenced by trust income documentation.” Under the requirements in section II.B.2 as adopted, there was no specific cut-off for the amount of diligence required or information that must be collected to satisfy the requirement. The Bureau stated its belief in proposing the amendment that it would facilitate compliance and help ensure access to credit by making the standard clear and easy to apply.
Section II.B.3.a of appendix Q as adopted required, for notes receivable income to be considered income, that the consumer provide a copy of the note and documentary evidence that payments have been consistently made over the prior 12 months. If the consumer is not the original payee on the note, however, section II.B.3.b required the creditor to establish that the consumer is “now a holder in due course, and able to enforce the note.” The Bureau proposed an amendment to eliminate the requirement that the consumer be a holder in due course, which requirement the Bureau believed may require further investigation than is necessary to establish that the income is effective for the purposes of the rule. The proposal would have amended appendix Q to require only that the consumer is able to enforce the note.
Industry commenters who submitted comments on the Bureau's proposal to revise section II.B.2 of appendix Q either supported the changes or requested additional clarification on existing language in the section.
A bank commenter, for example, stated that the change to section II.B.2.a concerning trust income provided clearer guidance with respect to the required documentation, and would help facilitate continued access to credit for recipients of such income. This commenter expressed concerns, however, with the requirement that trust income be “guaranteed” and recommended its elimination. This commenter stated that while trust income documentation may provide insight into periods of likely income continuance, it is unclear as to whether such documentation would provide evidence of an absolute guarantee of payment. Other commenters similarly objected to the word “guaranteed.” Another bank commenter stated that while it agreed with the Bureau's proposed changes to limit the analysis for trust income only to trust documentation, it encouraged the Bureau to remove “guaranteed” as it seems to imply that documentation will be available in the form of a guarantee or that an individual can be requested to provide such a guarantee. This commenter stated that the creditor should be expected to review the trust documentation to ensure the income is not clearly scheduled to end in the first three years of the mortgage. A joint trade association commenter also suggested the deletion of the word “guaranteed” in this section, stating that it is unclear who would provide the guarantee, and that this is not in keeping with current practice. A state banking association stated that it supported the Bureau's proposed addition of the phrase “as evidenced by the trust income documentation” to section II.B.2.a so long as the provision regarding required trust income documentation allows for the consumer to provide a trustee's statement confirming the amount of the trust, frequency of distribution and duration of payments. This state banking association commenter stated that reliance on a trustee's statement would allow its state's banks to take advantage of the protection afforded by state law (rather than having to collect a complete copy of the trust agreement).
With regard to the Bureau's proposed changes to section II.B.3, a bank commenter agreed with the Bureau's proposal to eliminate the requirement for creditors to establish that consumers are holders in due course if the consumer is not the original payee on the note. This commenter noted that creditors will be required to obtain a copy of the note, which should generally be sufficient to establish enforceability. This commenter also recommended shortening the documentation period to evidence consistency of payment receipts in section II.B.3.b from 12 months to six months. Finally, this commenter stated that the list of acceptable documentation in section II.B.3.b to establish that evidence of receipt of
The Bureau is adopting the revisions to sections II.B.2 and II.B.3 as proposed with two modifications. The changes proposed by the Bureau to both sections were generally accepted by commenters. However, with regard to section II.B.2 the Bureau agrees with commenters that the use of the word “guarantee” in that section,
With regard to section II.B.3, the Bureau agrees with the commenters that suggested a modification of the list of acceptable documentation in section II.B.3.ii to take into account common electronic payment methods. The Bureau is therefore modifying this list to include, in addition to deposit slips, cancelled checks and tax returns, also deposit receipts and bank or other account statements. Finally, with regard to the comment recommending shortening the documentation period in section II.B.3.b from 12 months to six months, the Bureau appreciates the comment but believes this requires further evaluation to ensure consistency with the purposes of appendix Q and the ATR Final Rule.
Appendix Q, as adopted, allowed creditors to consider certain rental income payable to the consumer taking out the loan for the purposes of the DTI calculation in section II.D. Section II.D.3.a stated that it is not acceptable to consider income from roommates in a single-family property occupied as the consumer's primary residence as “income” for the purposes of determining the consumer's DTI, but that it is acceptable to consider rental income payable to the consumer from boarders related by blood, marriage, or law. The Bureau originally adopted this provision of appendix Q for consistency with existing FHA standards used by industry.
Following publication of the 2013 ATR Final Rule, the Bureau became aware of concerns regarding requirements that boarders be related to the homeowner in order for rental income payable to the consumer to be considered “income” for DTI purposes. The Bureau did not believe that the relation requirement was useful in determining whether or not the rental income should be used in determining DTI. The Bureau therefore proposed to eliminate the requirement that boarders be related by blood, marriage, or law from section II.D.3.a.
Commenters generally supported the Bureau's proposed change to section II.D.3.a, eliminating the prohibition on considering rental income payable to a consumer from boarders in a single-family property who are not related by blood, marriage or by law. Various commenters recommended further clarifications to this section.
A joint trade association commenter in recommending the same change to section II.D.3.a. as proposed by the Bureau, stated that rental income evidenced on tax returns should be given equal treatment regardless of the relationship status of renters. Another national trade association commenter stated that it generally agreed with the Bureau's proposed changes to this section, but that it believed that the guidelines need to be further modified to be workable. Specifically this commenter stated that the requirements as currently written will be difficult to administer because they depend on distinctions and varying definitions of the terms “roommate” and “boarder.” The commenter noted that these terms are not defined in the regulation, and they have no set meaning in law or custom. The commenter stated that it did not believe that these regulations should impose or dictate the types of habitation agreements that people choose to enter. A state bank association commenter noted that the Bureau's proposal retains the prohibition on using rental income paid by roommates, and that neither the rule nor appendix Q provides a definition of roommate or boarder. Stating that the provision to limit rental income to boarders is unnecessarily restrictive, the commenter requested that creditors be permitted to consider rental income received from roommates or boarders, provided such income is shown on the applicant's tax return. A similar comment from another state bank association stated that if the distinction between rental income received from roommates and boarders is retained it requested that the Bureau define within the regulation the terms “roommate” and “boarder.”
The Bureau agrees with those commenters on the Bureau's proposed revisions to section II.D.3 that the requirements as proposed would be difficult to administer and comply with as they depend on distinctions between “roommate” and “boarder” which are undefined terms in that section, and in appendix Q generally. The Bureau believes that rental income established through tax returns is the relevant factor for purposes of a DTI analysis, and that the distinction between the terms roommate and boarder is not relevant to that determination. Therefore the Bureau is modifying section II.D.3.a to eliminate the prohibition on the acceptability of income from roommates in a single family property occupied as the consumer's primary residence, and to provide that income from either roommates or boarders is acceptable. The Bureau retains the section II.D.3.b requirement that rental income may be considered effective if shown on the consumer's tax return, and states further that, if not on the tax return, rental income paid by the roommate or boarder may not be used in qualifying.
As noted above, the Bureau proposed various other technical and wording changes in appendix Q, for consistency and clarification. The Bureau is adopting those revisions as proposed.
As noted previously, various commenters submitted comments on aspects of appendix Q that were not the subject of the Bureau's specific
Several banks and a joint trade association commenter recommended that the Bureau either allow creditors to use GSE guidelines in certain instances not addressed by appendix Q, or to look to and adopt certain existing GSE guideline language. Specifically, one bank commenter urged the Bureau to expressly allow creditors to use GSE guidelines for any matter not addressed by appendix Q, as GSE guidance is widely used by industry and is consistent with prudent underwriting. This commenter stated, for example, that appendix Q does not specify how to annuitize assets, but that GSE guidance spells out how to annuitize a consumer's assets in qualifying a borrower. It also stated that, as a general matter, appendix Q should be revised to allow creditors to “add back” amounts deducted from a borrower's income, consistent with a Fannie Mae worksheet. This commenter also noted several other specific areas where adoption of GSE guidance on add-backs was requested, for example, certain add-backs permitted by the GSEs with regard to section I.E. Income Analysis: Individual Tax Returns (IRS Form 1040); and with regard to section II.D.5. Rental Income, Analyzing IRS Form 1040 Schedule E. In addition this commenter recommended with regard to section II.E.4. Projected Income for a New Job, adoption of the GSEs' approach in assessing the projected income of certain teachers. A joint trade association commenter similarly recommended replacing, for reasons of clarity, appendix Q language in section I.B.12. Automobile Allowances and Expense Account Payments, with GSE guidance, and replacing language in sections I.E, F, G and H with a requirement to follow GSE guidelines for self-employed cash flow analysis, including the use of several GSE forms, and the adoption of GSE requirements in section II.E.2. Adding Non-Taxable Income to a Consumer's Gross Income. This commenter also recommended that appendix Q follow current GSE guidelines for an identified list of areas where it stated appendix Q is silent and where it was seeking additional clarity.
Another bank commenter stated that there are instances in which the Appendix Q guidelines fail to reflect the level of detail needed to underwrite in the current mortgage market, and noted that the GSEs have adopted guidelines which provide greater detail and in some instances would be clearer and better suited to setting a regulatory requirement. This commenter encouraged the Bureau to review certain specifically identified sections of the GSE guidelines which it stated might provide more clarity than the present appendix Q rules. This commenter stated, however, that it was not recommending that the Bureau defer to the GSE guidelines which are subject to change without opportunity for notice and comment. It requested the Bureau review, for example, GSE guidelines with regard to “income from other sources” in section I.B.1.b, giving as an example GSE guidelines on documenting of tips and foreign income. Like the previously discussed commenters, it also suggested review of sections I.E, F, G and H.
Several commenters suggested major revisions to appendix Q to address what the commenters viewed as standards that require creditors to make subjective determinations on a consumer's debt and income. For example, a joint trade association commenter stated that it was concerned that appendix Q mandates a calculation of DTI that will require lenders to establish essentially a manual underwriting process due to the numerous subjective determinations prescribed by the rule. It stated further that if qualified mortgages will comprise a significant fraction of mortgage originations, the proper calculation of DTI under appendix Q must be able to be incorporated into an automated underwriting system. The commenter therefore urged the Bureau to revise appendix Q to minimize the requirements for subjective determinations by lenders and to provide sufficient certainty to allow its integration into automated underwriting systems. It stated further that, for appendix Q to be an effective bright-line rule, the application of appendix Q should ideally deliver the same result regardless of the lender implementing it. However, the commenter noted, to do that would mean requirements for quantitative inputs, with supporting documentation, that eliminate any need for subjective determinations. This commenter concluded that appendix Q will be relied upon to verify the sufficiency of the lender's determination whether a loan is a qualified mortgage and should be able to be conclusively proven by written evidence, such as a loan file, in a court of law. This commenter supplemented its comment with a detailed chart with suggested revisions and comments on the Bureau's proposals, and on a number of other appendix Q provisions beyond the Bureau's specific proposals.
A bank commenter echoed the comments of the joint trade association commenter that appendix Q needs to be revised to remove requirements for subjective determinations. This commenter stated, however, that it believes the structure and form of appendix Q can be retained while making tailored changes to its provisions as necessary to allow it to serve the intended purposes of appendix Q and the ATR Final Rule. A lender specializing in manufactured housing financing requested that the Bureau examine all of appendix Q with the goal of providing clarity and reducing litigation, and commented further that in order to incentivize lenders to gravitate towards qualified mortgages, the guidelines for making a qualified mortgage must be as objective as possible. To that end this commenter stated that should the Bureau ultimately decide not to remove the DTI requirements and appendix Q, it should amend certain sections of appendix Q that the commenter believes may not function properly as regulations.
A GSE commenter recommended that the Bureau treat appendix Q as guidance rather than regulation that is subject to notice and comment rulemaking as it is the commenter's opinion that there are provisions of appendix Q that are not properly suited to be regulations. This commenter stated that such guidance could be revised as needed, and in relatively short order, in response to changing market conditions and industry practices, and that, in contrast, if appendix Q remains as a regulation subject to notice and comment it loses such flexibility. Another GSE commenter also recommended that the Bureau issue appendix Q in the form of a handbook or other written guidance, akin to the manner in which FHA provides underwriting standards to lenders, citing the Bureau's loss of flexibility and ability to respond promptly, if appendix Q remains a regulation subject to notice and comment rulemaking.
A consumer group commenter stated that while it supported the Bureau's proposed clarifications to appendix Q it recommended that the Bureau go further to clarify it in a way that is consistent with automated underwriting. This commenter stated further that while manual underwriting is used by some lenders, lenders should not be required to underwrite in this manner simply to comply with the definitions of debt and income included in appendix Q.
In addition to the comments discussed above, various commenters had comments on certain specific sections in appendix Q, relating to matters not included in the Bureau's proposals. As noted, a joint trade association commenter supplemented its comment letter with a detailed chart of suggested changes to a variety of appendix Q sections both with regard to sections which were included in the Bureau's specific proposals, and sections that were not included. Various bank commenters stated that they endorsed the comments made by this commenter. Included in the joint trade association commenter's suggested changes of sections outside of the Bureau's proposals, for example, were changes to sections II.A. Alimony, Child Support, and Maintenance Income Criteria; II.C. Military Government Agency and Assistance and Program Income; and III.2. Debt to Income Ratio Computation for Recurring Obligations. As discussed above, this commenter also identified a list of areas where it stated appendix Q is silent and where it was seeking additional guidance. In its comment letter, this commenter also suggested a new quantitative test for determining the amount of consumer income to include in the DTI analysis, which it suggested not only be applied to overtime and bonus income, but other income analysis in appendix Q as well. Another Bank association commenter identified various areas with regard to sources of income that it stated appendix Q did not address, or did not adequately address, and for which it was seeking additional clarification, including, for example, asset amortization, stock options, capital gain income, foreign income, relocation earnings, and contractor and other irregular income situations. This commenter also requested additional guidance on section I.C. Consumers Employed by a Family Owned Business, and suggested changes with regard to section II.E. Non-Taxable and Projected Income to allow creditors to use a 25 percent “gross-up” rate for all non-taxable income. Other commenters that raised issues on sections outside of those sections that were the subject of the Bureau's specific proposals included a consumer commenter that recommended that the 12-month maximum for defining projected obligations (in section V.1) should be extended for loans with predictable repayment requirements and inflexible repayment terms, such as private student loans and student loan repayment programs.
The Bureau appreciates the comments received on other aspects of appendix Q that were not the subject of the Bureau's specific proposals. These comments will assist the Bureau in its efforts to ensure the continuing effectiveness and utility of appendix Q as a part of the DTI analysis.
The Bureau notes that a substantial number of industry commenters cited particular areas of appendix Q that they asserted either provided no guidance, or insufficient guidance, to enable creditors to make the required income and debt determinations. As described above, many of these commenters suggested that the Bureau adopt, allow creditors to use, or look to GSE guidelines with regard to certain types of income and/or debt not specifically addressed by appendix Q in order to, in effect, provide a means for filling this gap. The Bureau believes in general that the long history and experience of other federal agencies as well as the GSEs in matters addressed by appendix Q can be helpful in this context and acknowledges that requirements established by the other federal agencies and the GSEs already play a significant role in the mortgage market.
Indeed, the Bureau notes that the temporary qualified mortgage status established by the ATR Final Rule provides creditors with the option to issue qualified mortgages without relying on the standards set forth in Appendix Q. Under Section 1026.43(e)(4), creditors who prefer federal agency or GSE underwriting rules can use those rules to obtain qualified mortgage status by ensuring that, among other things, their loans either are eligible for purchase or guarantee by the GSEs or to be insured or guaranteed by the agencies.
The Bureau notes further, however, that while appendix Q does not specifically refer to every possible type of debt or income, it does set forth basic guidelines for the treatment of debt and income. Section I of appendix Q addresses consumer employment related income, and section I.B.1 sets out standards for analysis of salary, wage, and other consumer employment related income. Section I.B.1.b provides that income from sources other than salaries or wages “can be considered as effective” when it is “properly verified and documented by the creditor.” This provision sets the rule for the treatment of types of income whose treatment is not otherwise more specifically addressed by appendix Q. Likewise, section III.2.a provides as a general rule that recurring charges extending ten months or more for specified recurring obligations and “other continuing obligations” must be treated as debt.
In light of these circumstances, the Bureau has revised the introduction to appendix Q to make two points. First, where guidance issued by federal agencies including the U.S. Department of Housing and Urban Development, the U.S. Department of Veterans Affairs, the U.S. Department of Agriculture, or the Rural Housing Service, or issued by the GSEs, Fannie Mae and Freddie Mac, while operating under the conservatorship or receivership of the Federal Housing Finance Agency, or issued by a limited-life regulatory entity succeeding the charter of either Fannie Mae or Freddie Mac (collectively, Agency or GSE guidance) is in accordance with appendix Q, creditors may look to that guidance as a helpful resource in applying appendix Q. Thus, where only the broad principle contained in section I.B.1.b applies to a particular type of income, a creditor may look to Agency or GSE guidance that is in accordance with appendix Q's standards in determining whether that income has been properly documented and verified. For example, appendix Q does not specifically address additional steps a creditor might take to document and verify wage or salary income when it is earned from foreign sources and paid in foreign currency. Agency or GSE guidance may therefore be used to provide more specific standards with regard to verification or calculation of such income, as long as the guidance used is not inconsistent with the requirements of appendix Q. Similarly, where the treatment of a particular recurring obligation is not specifically addressed in appendix Q, the creditor may look to Agency or GSE guidance for purposes of determining how to assess that obligation, as long as that guidance is in accordance with the requirements of section III of appendix Q.
Second, in the event that there may be consumer situations that present questions that appendix Q simply does not presently address at all, the Bureau is adding language to the introduction providing that when the standards contained in appendix Q do not resolve the treatment of a specific kind of debt or income, the creditor may either (1) exclude the income or include the debt, or (2) treat the income or debt in accordance with guidance issued by the federal agencies or GSEs. The introduction makes clear, however, that the Bureau expects that the above-
With regard to the request by some commenters for a major revision to appendix Q, including, for example, the removal of all requirements for subjective determinations, the Bureau believes that the revisions made by today's final rule, including the default rule and the optional safe harbor just described, will provide creditors with the means necessary to effectively carry out the analysis required by appendix Q. The Bureau will continue to review the implementation of appendix Q to ensure that creditors can readily comply with its requirements, but the Bureau believes that, with today's final rule, appendix Q currently meets that standard.
As discussed, some commenters suggested that the appendix Q requirements be revised to allow its integration into automated underwriting systems. After the Bureau's rules go into effect in January 2014, the Bureau, in reviewing the implementation of those rules, including the ATR Final Rule, will give additional consideration to the suggestions raised by these commenters. In the meantime, the Bureau believes that the temporary qualified mortgage provisions established by the ATR Final Rule should provide the needed flexibility for creditors. Regarding the comments suggesting that the Bureau treat appendix Q as guidance rather than as a regulation subject to notice and comment in order to respond to changing market conditions and industry practices, as previously stated, the Bureau “did not intend for appendix Q to function as a general flexible underwriting policy for assessing risk (as it is used by FHA in the context of insurance), and recognizes that the Bureau will not have the same level of discretion regarding the application of appendix Q.”
The amendments in this rule are effective January 10, 2014, except for the change to § 1026.35(e). The amendment to § 1026.35(e) is effective immediately on publication of this rule in the
In developing the final rule, the Bureau has considered potential benefits, costs, and impacts.
As noted above, this rule makes amendments to some of the final mortgage rules issued by the Bureau in January of 2013.
The analysis in this section relies on data that the Bureau has obtained and the record established by the Board and Bureau during the development of the 2013 Title XIV Final Rules. However, the Bureau notes that for some analyses, there are limited data available with which to quantify the potential costs, benefits, and impacts of this final rule. In particular, the Bureau did not receive comments specifically addressing the Section 1022 analysis in the proposed rule. Still, general economic principles together with the limited data that are available provide insight into the benefits, costs, and impacts and where relevant, the analysis provides a qualitative discussion of the benefits, costs, and impacts of the final rule.
The Bureau believes that, compared to the baseline established by the final rules issued in January 2013,
More specifically, the provisions that clarify: (1) That the preemption provisions in Regulation X do not preempt the field of regulation of the practices covered by RESPA and Regulation X; (2) the timing of required disclosures for adjustable-rate mortgages; and, (3) the exclusion of construction loans, bridge loans, and reverse mortgages from the requirements of the ability-to-repay and prepayment penalty provisions in § 1026.35(e) generally conform the rules to the policies articulated by the final rules already issued. The discussion of benefits, costs, or impacts discussed in part VII of each of the January rules included consideration of each of these provisions.
The final rule also modifies the text of the Regulation Z servicing rule to clarify the scope and application of the small servicer exemption. Specifically, it clarifies the application of the small servicer exemption with regard to servicer/affiliate and master servicer/subservicer relationships and excludes mortgage loans voluntarily serviced for an unaffiliated entity without remuneration, reverse mortgage transactions, mortgage loans secured by consumers' interest in timeshare plans, from being considered when determining whether a servicer qualifies as a small servicer. In total, these changes are expected to grant the small servicer exemption to a larger number of firms. These entities should benefit from lower costs while their customers may lose some of the protections embedded in the relevant rules. The nature and magnitude of these protections and their potential costs are described in part VII of both of the 2013 Mortgage Servicing Final Rules.
The provisions that clarify and amend the definition of qualified mortgage should also add clarity to the rules and thus lower costs of compliance. These include the clarification of the test that they be eligible for purchase or guarantee by the GSEs or insured or guaranteed by the agencies, the clarification that a repurchase or indemnification demand by the GSEs, FHA, VA, USDA, or RHS is not determinative of qualified mortgage status, and the revisions clarifying that a loan meeting eligibility requirements provided in a written agreement with one of the GSEs, HUD, VA, USDA, or RHS is also eligible as are loans receiving individual waivers from GSEs or agencies.
These provisions make explicit that matters wholly unrelated to ability to repay will not be relevant to determination of QM status and that a creditor is not required to satisfy certain mandates concerning loan delivery and other requirements that are wholly unrelated to assessing a consumer's ability to repay the loan. They also clarify that loans meeting GSE or agency eligibility requirements set forth in an applicable written contract variance or individual waiver at the time of consummation are eligible for GSE or agency purchase, guarantee, or insurance under § 1026.43(e)(4). As such, these provisions should lower the burden for these loans to be qualified mortgages. The Bureau believes that these changes provide useful guidance to industry and generally conform the rules to the policies intended by the final rules issued in January. Accordingly, the discussion of benefits, costs, or impacts discussed in part VII of each of the January rules included consideration of the effects of each of these provisions.
The amendments to appendix Q in this final rule reduce the creditor's requirements to obtain affirmative confirmation that several types of income will continue in the future. Under these amendments, creditors may assume in the absence of contrary evidence, that certain past, current, and/or ongoing conditions can be reasonably expected to continue. Other provisions clarify the types of evidence that creditors may rely on to verify income, while another expands the types of rental income that may be used in the DTI calculation. The Bureau is also revising the introduction to appendix Q to clarify that creditors may look to guidance from certain federal agencies and the GSEs in applying appendix Q so long as that guidance is in accordance with the standards in appendix Q and to provide a default rule of excluding income and including debts and an optional safe harbor for reliance on GSE or Agency guidance when appendix Q's standards do not otherwise resolve how to treat a particular type of debt or income. As noted earlier, the Bureau believes that these provisions will establish clearer requirements for assessing the debt and income of consumers while at the same time facilitating creditor compliance. More specifically, these provisions should increase the probability that certain loans are originated as qualified mortgages and receive a presumption of compliance with the ability-to-repay standards. For such loans, the costs of origination may be slightly lower as a result of the slightly decreased liability for the lender and any assignees and for possibly decreased compliance costs. Consumers may benefit from slightly increased access to credit and lower costs on the affected loans; however, these consumers will also not have the added consumer protections that accompany loans made under the general ability-to-repay provisions. A more detailed discussion of these effects is contained in the discussion of benefits, costs, and impacts in part VII of the 2013 ATR Final Rule.
The final rule is generally not expected to have a differential impact on depository institutions and credit unions with $10 billion or less in total assets as described in section 1026 or on consumers in rural areas. The main exception is for those depository institutions and credit unions, which by virtue of their size, are more likely to qualify for the small servicer exemption and to benefit from the reduction in compliance burden.
Given the nature of the changes made by the final rule, the Bureau does not believe that the final rule will materially reduce consumers' access to consumer products and services. Rather, the reduced burden in many of the changes in this rule should generally help to improve access to credit.
The Regulatory Flexibility Act (RFA) generally requires an agency to conduct an initial regulatory flexibility analysis (IRFA) and a final regulatory flexibility analysis (FRFA) of any rule subject to notice-and-comment rulemaking requirements.
This rulemaking is part of a series of rules that have revised and expanded the regulatory requirements for entities that originate or service mortgage loans. In January 2013, the Bureau adopted the 2013 ATR Final Rule and the 2013 Mortgage Servicing Final Rules, along with other related rules mentioned above. Part VIII of the supplementary information to each of these rules set forth the Bureau's analyses and determinations under the RFA with respect to those rules.
Because these rules qualify as “a series of closely related rules,” for purposes of the RFA, the Bureau relies on those analyses and determines that it has met or exceeded the IRFA and FRFA requirements.
In the alternative, the Bureau also concludes that the final rule will not have a significant impact on a substantial number of small entities. As noted, this final rule generally clarifies the existing rules. These changes will not have a material impact on small entities. In the instance of the small servicer exemption, the rule likely reduces burden for the affected firms. In addition, the changes to appendix Q will likely reduce compliance costs by increasing clarity and providing more objective standards for evaluating certain kinds of income. The changes to appendix Q should also increase the probability that certain loans are originated as qualified mortgages and receive a presumption of compliance with the ability-to-repay standards. Therefore, the undersigned certifies that the rule will not have a significant impact on a substantial number of small entities.
This final rule amends 12 CFR 1026 (Regulation Z), which implements the Truth in Lending Act (TILA), and 12 CFR 1024 (Regulation X), which implements the Real Estate Settlement Procedures Act (RESPA). Regulations Z and X currently contain collections of information approved by OMB. The Bureau's OMB control number for Regulation Z is 3170–0015 and for Regulation X is 3170–0016. However, the Bureau has determined that this final rule will not materially alter these collections of information or impose any new recordkeeping, reporting, or disclosure requirements on the public that would constitute collections of information requiring approval under the Paperwork Reduction Act, 44 U.S.C. 3501
Condominiums, Consumer protection, Housing, Mortgage servicing, Mortgages, Recordkeeping requirements, Reporting.
Advertising, Consumer protection, Credit, Credit unions, Mortgages, National banks, Reporting and recordkeeping requirements, Savings associations, Truth in lending.
For the reasons set forth in the preamble, the Bureau amends Regulation X, 12 CFR part 1024, as amended by the final rule published on February 14, 2013, 78 FR 10695, and Regulation Z, 12 CFR part 1026, as amended by the final rules published on January 30, 2013, 78 FR 6407 and February 14, 2013, 78 FR 10901 as set forth below:
12 U.S.C. 2603–2605, 2607, 2609, 2617, 5512, 5532, 5581.
(c)
(2) Upon request by any person, the Bureau is authorized to determine if inconsistencies with State law exist; in doing so, the Bureau shall consult with appropriate Federal agencies.
(i) The Bureau may not determine that a State law or regulation is inconsistent with any provision of RESPA or this part, if the Bureau determines that such law or regulation gives greater protection to the consumer.
(ii) In determining whether provisions of State law or regulations concerning affiliated business arrangements are inconsistent with RESPA or this part, the Bureau may not construe those provisions that impose more stringent limitations on affiliated business arrangements as inconsistent with RESPA so long as they give more protection to consumers and/or competition.
(3) Any person may request the Bureau to determine whether an inconsistency exists by submitting to the address established by the Bureau to request an official interpretation, a copy of the State law in question, any other law or judicial or administrative opinion that implements, interprets or applies the relevant provision, and an explanation of the possible inconsistency. A determination by the Bureau that an inconsistency with State law exists will be made by publication of a notice in the
(4) A specific preemption of conflicting State laws regarding notices and disclosures of mortgage servicing transfers is set forth in § 1024.33(d).
1. State laws that are inconsistent with the requirements of RESPA or
12 U.S.C. 2601, 2603–2605, 2607, 2609, 2617, 5511, 5512, 5532, 5581; 15 U.S.C. 1601
(e)
(3)
(a)
(e) * * *
(4) * * *
(ii)
(A) Services, together with any affiliates, 5,000 or fewer mortgage loans, for all of which the servicer (or an affiliate) is the creditor or assignee; or
(B) Is a Housing Finance Agency, as defined in 24 CFR 266.5.
(iii)
(A) Mortgage loans voluntarily serviced by the servicer for a creditor or assignee that is not an affiliate of the servicer and for which the servicer does not receive any compensation or fees.
(B) Reverse mortgage transactions.
(C) Mortgage loans secured by consumers' interests in timeshare plans.
(e) * * *
(4) * * *
(ii) * * *
(A) A loan that is eligible, except with regard to matters wholly unrelated to ability to repay:
(B) A loan that is eligible to be insured, except with regard to matters wholly unrelated to ability to repay, by the U.S. Department of Housing and Urban Development under the National Housing Act (12 U.S.C. 1707
(C) A loan that is eligible to be guaranteed, except with regard to matters wholly unrelated to ability to repay, by the U.S. Department of Veterans Affairs;
(D) A loan that is eligible to be guaranteed, except with regard to matters wholly unrelated to ability to repay, by the U.S. Department of Agriculture pursuant to 42 U.S.C. 1472(h); or
(E) A loan that is eligible to be insured, except with regard to matters wholly unrelated to ability to repay, by the Rural Housing Service.
Section 1026.43(e)(2)(vi) provides that, to satisfy the requirements for a qualified mortgage under § 1026.43(e)(2), the ratio of the consumer's total monthly debt payments to total monthly income at the time of consummation cannot exceed 43 percent. Section 1026.43(e)(2)(vi)(A) requires the creditor to calculate the ratio of the consumer's total monthly debt payments to total monthly income using the following standards, with additional requirements for calculating debt and income appearing in § 1026.43(e)(2)(vi)(B). Where guidance issued by the U.S. Department of Housing and Urban Development, the U.S. Department of Veterans Affairs, the U.S. Department of Agriculture, or the Rural Housing Service, or issued by the Federal National Mortgage Association (Fannie Mae) or the Federal Home Loan Mortgage Corporation (Freddie Mac) while operating under the conservatorship or receivership of the Federal Housing Finance Agency, or issued by a limited-life regulatory entity succeeding the charter of either Fannie Mae or Freddie Mac (collectively, Agency or GSE guidance) is in accordance with appendix Q, creditors may look to that guidance as a helpful resource in applying appendix Q. Moreover, when the following standards do not resolve how a specific kind of debt or income should be treated, the creditor may either (1) exclude the income or include the debt, or (2) rely on Agency or GSE guidance to resolve the issue. The following standards resolve the appropriate treatment of a specific kind of debt or income where the standards provide a discernible answer to the question of how to treat the debt or income. However, a creditor may not rely on Agency or GSE guidance to reach a resolution contrary to that provided by the following standards, even if such Agency or GSE guidance specifically addresses the particular type of debt or income but the following standards provide more generalized guidance.
1.
2.
a. The creditor must verify the consumer's employment for the most recent two full years, and the creditor must require the consumer to:
i. Explain any gaps in employment that span one or more months, and
ii. Indicate if he/she was in school or the military for the recent two full years, providing evidence supporting this claim, such as college transcripts, or discharge papers.
b. Allowances can be made for seasonal employment, typical for the building trades and agriculture, if documented by the creditor.
A consumer with a 25 percent or greater ownership interest in a business is considered self-employed and will be evaluated as a self-employed consumer.
3.
a. When analyzing a consumer's employment, creditors must examine:
i. The consumer's past employment record; and
ii. The employer's confirmation of current, ongoing employment status.
Creditors may assume that employment is ongoing if a consumer's employer verifies current employment and does not indicate that employment has been, or is set to be terminated. Creditors should not rely upon a verification of current employment that includes an affirmative statement that the employment is likely to cease, such as a statement that indicates the employee has given (or been given) notice of employment suspension or termination.
b. Creditors may favorably consider the stability of a consumer's income if he/she changes jobs frequently within the same line of work, but continues to advance in income or benefits. In this analysis, income stability takes precedence over job stability.
4.
a. Is employed in the current job for six months or longer; and
b. Can document a two year work history prior to an absence from employment using:
i. Traditional employment verifications; and/or
ii. Copies of IRS Form W–2s or pay stubs.
An acceptable employment situation includes individuals who took several years off from employment to raise children, then returned to the workforce.
c. Important: Situations not meeting the criteria listed above may not be used in qualifying. Extended absence is defined as six months.
1.
a. The income of each consumer who will be obligated for the mortgage debt and whose income is being relied upon in determining ability to repay must be analyzed to determine whether his/her income level can be reasonably expected to continue.
b. In most cases, a consumer's income is limited to salaries or wages. Income from other sources can be considered as effective, when properly verified and documented by the creditor.
i. Effective income for consumers planning to retire during the first three-year period must include the amount of:
a. Documented retirement benefits;
b. Social Security payments; or
c. Other payments expected to be received in retirement.
ii. Creditors must not ask the consumer about possible, future maternity leave.
iii. Creditors may assume that salary or wage income from employment verified in accordance with section I.A.3 above can be reasonably expected to continue if a consumer's employer verifies current employment and income and does not indicate that employment has been, or is set to be terminated. Creditors should not assume that income can be reasonably expected to continue if a verification of current employment includes an affirmative statement that the employment is likely to cease, such as a statement that indicates the employee has given (or been given) notice of employment suspension or termination.
2.
a. Overtime and bonus income can be used to qualify the consumer if he/she has received this income for the past two years, and documentation submitted for the loan does not indicate this income will likely cease. If, for example, the employment verification states that the overtime and bonus income is unlikely to continue, it may not be used in qualifying.
b. The creditor must develop an average of bonus or overtime income for the past two years. Periods of overtime and bonus income less than two years may be acceptable, provided the creditor can justify and document in writing the reason for using the income for qualifying purposes.
3.
a. The creditor must establish and document an earnings trend for overtime and bonus income. If either type of income shows a continual decline, the creditor must document in writing a sound rationalization for including the income when qualifying the consumer.
b. A period of more than two years must be used in calculating the average overtime and bonus income if the income varies significantly from year to year.
4.
a. Part-time and seasonal income can be used to qualify the consumer if the creditor documents that the consumer has worked the part-time job uninterrupted for the past two years, and plans to continue. Many low and moderate income families rely on part-time and seasonal income for day to day needs, and creditors should not restrict consideration of such income when qualifying the income of these consumers.
b. Part-time income received for less than two years may be included as effective income, provided that the creditor justifies and documents that the income is likely to continue.
c. Part-time income not meeting the qualifying requirements may not be used in qualifying.
For qualifying purposes, “part-time” income refers to employment taken to supplement the consumer's income from regular employment; part-time employment is not a primary job and it is worked less than 40 hours.
5.
a. Seasonal income is considered uninterrupted, and may be used to qualify the consumer, if the creditor documents that the consumer:
i. Has worked the same job for the past two years, and
ii. Expects to be rehired the next season.
b. Seasonal employment includes, but is not limited to:
i. Umpiring baseball games in the summer; or
ii. Working at a department store during the holiday shopping season.
6.
a. When a consumer's primary employment is less than a typical 40-hour work week, the creditor should evaluate the stability of that income as regular, on-going primary employment.
b. Example: A registered nurse may have worked 24 hours per week for the last year. Although this job is less than the 40-hour work week, it is the consumer's primary employment, and should be considered effective income.
7.
a. Commission income must be averaged over the previous two years. To qualify commission income, the consumer must provide:
i. Copies of signed tax returns for the last two years; and
ii. The most recent pay stub.
b. Consumers whose commission income was received for more than one year, but less than two years may be considered favorably if the underwriter can:
i. Document the likelihood that the income will continue, and
ii. Soundly rationalize accepting the commission income.
i. Unreimbursed business expenses must be subtracted from gross income.
ii. A commissioned consumer is one who receives more than 25 percent of his/her annual income from commissions.
iii. A tax transcript obtained directly from the IRS may be used in lieu of signed tax returns.
8.
a. Commission income earned for less than one year is not considered effective income. Exceptions may be made for situations in which the consumer's compensation was changed from salary to commission within a similar position with the same employer.
b. A consumer's income may also qualify when the portion of earnings not attributed to commissions would be sufficient to qualify the consumer for the mortgage.
9.
If the employer subsidizes a consumer's mortgage payment through direct payments, the amount of the payments:
a. Is considered gross income, and
b. Cannot be used to offset the mortgage payment directly, even if the employer pays the servicing creditor directly.
10.
Retirement income must be verified from the former employer, or from Federal tax returns. If any retirement income, such as employer pensions or 401(k)'s, will cease within the first full three years of the mortgage loan, such income may not be used in qualifying.
11.
Social Security income must be verified by a Social Security Administration benefit verification letter (sometimes called a “proof of income letter,” “budget letter,” “benefits
ii. Some portion of Social Security income may be “grossed up” if deemed nontaxable by the IRS.
12.
a. Only the amount by which the consumer's automobile allowance or expense account payments exceed actual expenditures may be considered income.
b. To establish the amount to add to gross income, the consumer must provide the following:
i. IRS Form 2106, Employee Business Expenses, for the previous two years; and
ii. Employer verification that the payments will continue.
c. If the consumer uses the standard per-mile rate in calculating automobile expenses, as opposed to the actual cost method, the portion that the IRS considers depreciation may be added back to income.
d. Expenses that must be treated as recurring debt include:
i. The consumer's monthly car payment; and
ii. Any loss resulting from the calculation of the difference between the actual expenditures and the expense account allowance.
1.
In addition to normal employment verification, a consumer employed by a family owned business is required to provide evidence that he/she is not an owner of the business, which may include:
a. Copies of signed personal tax returns, or
b. A signed copy of the corporate tax return showing ownership percentage.
A tax transcript obtained directly from the IRS may be used in lieu of signed tax returns.
1.
A consumer with a 25 percent or greater ownership interest in a business is considered self-employed.
2.
There are four basic types of business structures. They include:
a. Sole proprietorships;
b. Corporations;
c. Limited liability or “S” corporations; and
d. Partnerships.
3.
a. Income from self-employment is considered stable, and effective, if the consumer has been self-employed for two or more years.
b. Due to the high probability of failure during the first few years of a business, the requirements described in the table below are necessary for consumers who have been self-employed for less than two years.
4.
Self-employed consumers must provide the following documentation:
a. Signed, dated individual tax returns, with all applicable tax schedules for the most recent two years;
b. For a corporation, “S” corporation, or partnership, signed copies of Federal business income tax returns for the last two years, with all applicable tax schedules; and
c. Year to date profit and loss (P&L) statement and balance sheet.
5.
a. When qualifying income, the creditor must establish the consumer's earnings trend from the previous two years using the consumer's tax returns.
b. If a consumer:
i. Provides quarterly tax returns, the income analysis may include income through the period covered by the tax filings, or
ii. Is not subject to quarterly tax returns, or does not file them, then the income shown on the P&L statement may be included in the analysis, provided the income stream based on the P&L is consistent with the previous years' earnings.
c. If the P&L statements submitted for the current year show an income stream considerably greater than what is supported by the previous year's tax returns, the creditor must base the income analysis solely on the income verified through the tax returns.
d. If the consumer's earnings trend for the previous two years is downward and the most recent tax return or P&L is less than the prior year's tax return, the consumer's most recent year's tax return or P&L must be used to calculate his/her income.
6.
The creditor must consider the business's financial strength by examining annual earnings. Annual earnings that are stable or increasing are acceptable, while businesses that show a significant decline in income over the analysis period are not acceptable.
1.
The amount shown on a consumer's IRS Form 1040 as adjusted gross income must either be increased or decreased based on the creditor's analysis of the individual tax return and any related tax schedules.
2.
The table below contains guidelines for analyzing IRS Form 1040:
1.
A corporation is a State-chartered business owned by its stockholders.
2.
a. Corporate compensation to the officers, generally in proportion to the percentage of ownership, is shown on the:
i. Corporate tax return IRS Form 1120; and
ii. Individual tax returns.
b. When a consumer's percentage of ownership does not appear on the tax returns, the creditor must obtain the
3.
a. In order to determine a consumer's self-employed income from a corporation the adjusted business income must:
i. Be determined; and
ii. Multiplied by the consumer's percentage of ownership in the business.
b. The table below describes the items found on IRS Form 1120 for which an adjustment must be made in order to determine adjusted business income.
1.
a. An “S” corporation is generally a small, start-up business, with gains and losses passed to stockholders in proportion to each stockholder's percentage of business ownership.
b. Income for owners of “S” corporations comes from IRS Form W–2 wages, and is taxed at the individual rate. The IRS Form 1120S, Compensation of Officers line item is transferred to the consumer's individual IRS Form 1040.
2.
a. “S” corporation depreciation and depletion may be added back to income in proportion to the consumer's share of the corporation's income.
b. In addition, the income must also be reduced proportionately by the total obligations payable by the corporation in less than one year.
c. Important: The consumer's withdrawal of cash from the corporation may have a severe negative impact on the corporation's ability to continue operating, and must be considered in the income analysis.
1.
a. A partnership is formed when two or more individuals form a business, and share in profits, losses, and responsibility for running the company.
b. Each partner pays taxes on his/her proportionate share of the partnership's net income.
2.
a. Both general and limited partnerships report income on IRS Form 1065, and the partners' share of income is carried over to Schedule E of IRS Form 1040.
b. The creditor must review IRS Form 1065 to assess the viability of the business. Both depreciation and depletion may be added back to the income in proportion to the consumer's share of income.
c. Income must also be reduced proportionately by the total obligations payable by the partnership in less than one year.
d. Important: Cash withdrawals from the partnership may have a severe negative impact on the partnership's ability to continue operating, and must be considered in the income analysis.
Alimony, child support, or maintenance income may be considered effective, if:
1. Payments are likely to be received consistently for the first three years of the mortgage;
2. The consumer provides the required documentation, which includes a copy of the:
i. Final divorce decree;
ii. Legal separation agreement;
iii. Court order; or
iv. Voluntary payment agreement; and
3. The consumer can provide acceptable evidence that payments have been received during the last 12 months, such as:
i. Cancelled checks;
ii. Deposit slips;
iii. Tax returns; or
iv. Court records.
i. Periods less than 12 months may be acceptable, provided the creditor can adequately document the payer's ability and willingness to make timely payments.
ii. Child support may be “grossed up” under the same provisions as non-taxable income sources.
1.
a. Interest and dividend income may be used as long as tax returns or account statements support a two-year receipt history. This income must be averaged over the two years.
b. Subtract any funds that are derived from these sources, and are required for the cash investment, before calculating the projected interest or dividend income.
2.
a. Income from trusts may be used if constant payments will continue for at least the first three years of the mortgage term as evidenced by trust income documentation.
b. Required trust income documentation includes a copy of the Trust Agreement or other trustee statement, confirming the:
i. Amount of the trust;
ii. Frequency of distribution; and
iii. Duration of payments.
c. Trust account funds may be used for the required cash investment if the consumer provides adequate documentation that the withdrawal of funds will not negatively affect income. The consumer may use funds from the trust account for the required cash investment, but the trust income used to determine repayment ability cannot be affected negatively by its use.
3.
a. In order to include notes receivable income, the consumer must provide:
i. A copy of the note to establish the amount and length of payment, and
ii. Evidence that these payments have been consistently received for the last 12 months through deposit slips, deposit receipts, cancelled checks, bank or other account statements, or tax returns.
b. If the consumer is not the original payee on the note, the creditor must establish that the consumer is able to enforce the note.
4.
Follow the steps in the table below to calculate an investment property's income or loss if the property to be subject to a mortgage is an eligible investment property.
1.
a. Military personnel not only receive base pay, but often times are entitled to additional forms of pay, such as:
i. Income from variable housing allowances;
ii. Clothing allowances;
iii. Flight or hazard pay;
iv. Rations; and
v. Proficiency pay.
b. These types of additional pay are acceptable when analyzing a consumer's income as long as the probability of such pay to continue is verified in writing.
The tax-exempt nature of some of the above payments should also be considered.
2.
a. Direct compensation for service-related disabilities from the Department of Veterans Affairs (VA) is acceptable, provided the creditor receives documentation from the VA.
b. Education benefits used to offset education expenses are not acceptable.
3.
a. Income received from government assistance programs is acceptable as long as the paying agency provides documentation indicating that the income is expected to continue for at least three years.
b. If the income from government assistance programs will not be received for at least three years, it may not be used in qualifying.
c. Unemployment income must be documented for two years, and there must be reasonable assurance that this income will continue. This requirement may apply to seasonal employment.
Social Security income is acceptable as provided in section I.B.11.
4.
a. If a government entity subsidizes the mortgage payments either through direct payments or tax rebates, these payments may be considered as acceptable income.
b. Either type of subsidy may be added to gross income, or used directly to offset the mortgage payment, before calculating the qualifying ratios.
5.
a. A monthly subsidy may be treated as income, if a consumer is receiving subsidies under the housing choice voucher home ownership option from a public housing agency (PHA). Although continuation of the homeownership voucher subsidy beyond the first year is subject to Congressional appropriation, for the purposes of underwriting, the subsidy will be assumed to continue for at least three years.
b. If the consumer is receiving the subsidy directly, the amount received is treated as income. The amount received may also be treated as nontaxable income and be “grossed up” by 25 percent, which means that the amount of the subsidy, plus 25 percent of that subsidy may be added to the consumer's income from employment and/or other sources.
c. Creditors may treat this subsidy as an “offset” to the monthly mortgage payment (that is, reduce the monthly mortgage payment by the amount of the home ownership assistance payment before dividing by the monthly income to determine the payment-to-income and debt-to-income ratios). The subsidy payment must not pass through the consumer's hands.
d. The assistance payment must be:
i. Paid directly to the servicing creditor; or
ii. Placed in an account that only the servicing creditor may access.
Assistance payments made directly to the consumer must be treated as income.
1.
a. Rent received for properties owned by the consumer is acceptable as long as the creditor can document the stability of the rental income through:
i. A current lease;
ii. An agreement to lease; or
iii. A rental history over the previous 24 months that is free of unexplained gaps greater than three months (such gaps could be explained by student, seasonal, or military renters, or property rehabilitation).
b. A separate schedule of real estate is not required for rental properties as long as all properties are documented on the Uniform Residential Loan Application.
The underwriting analysis may not consider rental income from any property being vacated by the consumer, except under the circumstances described below.
2.
a. The rent for multiple unit property where the consumer resides in one or more units and charges rent to tenants of other units may be used for qualifying purposes.
b. Projected rent for the tenant-occupied units only may:
i. Be considered gross income, only after deducting vacancy and maintenance factors, and
ii. Not be used as a direct offset to the mortgage payment.
3.
a. Rental income from roommates or boarders in a single family property occupied as the consumer's primary residence is acceptable.
b. The rental income may be considered effective if shown on the consumer's tax return. If not on the tax return, rental income paid by the roommate or boarder may not be used in qualifying.
4.
Analysis of the following required documentation is necessary to verify all consumer rental income:
a. IRS Form 1040 Schedule E; and
b. Current leases/rental agreements.
5.
a. The IRS Form 1040 Schedule E is required to verify all rental income. Depreciation shown on Schedule E may be added back to the net income or loss.
b. Positive rental income is considered gross income for qualifying purposes, while negative income must be treated as a recurring liability.
c. The creditor must confirm that the consumer still owns each property listed, by comparing Schedule E with the real estate owned section of the Uniform Residential Loan Application (URLA).
6.
a. The consumer can provide a current signed lease or other rental agreement for a property that was acquired since the last income tax filing, and is not shown on Schedule E.
b. In order to calculate the rental income:
i. Reduce the gross rental amount by 25 percent for vacancies and maintenance;
ii. Subtract PITI and any homeowners association dues; and
iii. Apply the resulting amount to income, if positive, or recurring debts, if negative.
7.
i. This policy assures that a consumer either has sufficient income to make both mortgage payments without any rental income, or has an equity position not likely to result in defaulting on the mortgage on the property being vacated.
ii. This applies solely to a principal residence being vacated in favor of another principal residence. It does not apply to existing rental properties disclosed on the loan application and confirmed by tax returns (Schedule E of form IRS 1040).
8.
When a consumer vacates a principal residence in favor of another principal residence, the rental income, reduced by the appropriate vacancy factor, may be considered in the underwriting analysis under the circumstances listed in the table below.
1.
Certain types of regular income may not be subject to Federal tax. Such types of non-taxable income include:
a. Some portion of Social Security, some Federal government employee retirement income, Railroad Retirement Benefits, and some State government retirement income;
b. Certain types of disability and public assistance payments;
c. Child support;
d. Military allowances; and
e. Other income that is documented as being exempt from Federal income taxes.
2.
a. The amount of continuing tax savings attributed to regular income not subject to Federal taxes may be added to the consumer's gross income.
b. The percentage of non-taxable income that may be added cannot exceed the appropriate tax rate for the income amount. Additional allowances for dependents are not acceptable.
c. The creditor:
i. Must document and support the amount of income grossed up for any non-taxable income source, and
ii. Should use the tax rate used to calculate the consumer's last year's income tax.
If the consumer is not required to file a Federal tax return, the tax rate to use is 25 percent.
3.
a. Projected or hypothetical income is not acceptable for qualifying purposes. However, exceptions are permitted for income from the following sources:
i. Cost-of-living adjustments;
ii. Performance raises; and
iii. Bonuses.
b. For the above exceptions to apply, the income must be:
i. Verified in writing by the employer; and
ii. Scheduled to begin within 60 days of loan closing.
4.
a. Projected income is acceptable for qualifying purposes for a consumer scheduled to start a new job within 60 days of loan closing if there is a guaranteed, non-revocable contract for employment.
b. The creditor must verify that the consumer will have sufficient income or cash reserves to support the mortgage payment and any other obligations between loan closing and the start of employment. Examples of this type of scenario are teachers whose contracts begin with the new school year, or physicians beginning a residency after the loan closes.
c. The income does not qualify if the loan closes more than 60 days before the consumer starts the new job.
1.
a. All installment loans;
b. Revolving charge accounts;
c. Real estate loans;
d. Alimony;
e. Child support; and
f. Other continuing obligations.
2.
a. The creditor must include the following when computing the debt to income ratios for recurring obligations:
i. Monthly housing expense; and
ii. Additional recurring charges extending ten months or more, such as
a. Payments on installment accounts;
b. Child support or separate maintenance payments;
c. Revolving accounts; and
d. Alimony.
b. Debts lasting less than ten months must be included if the amount of the debt affects
Monthly payments on revolving or open-ended accounts, regardless of the balance, are counted as a liability for qualifying purposes even if the account appears likely to be paid off within 10 months or less.
3.
a. 5 percent of the balance; or
b. $10.
If the actual monthly payment is documented from the creditor or the creditor obtains a copy of the current statement reflecting the monthly payment, that amount may be used for qualifying purposes.
4.
1.
2.
3.
a. Has been sold or traded within the last 12 months without a release of liability, or
b. Is to be sold on assumption without a release of liability being obtained.
4.
a. Originating creditor of the mortgage being underwritten obtains, from the servicer of the assumed loan, a payment history showing that the mortgage has been current during the previous 12 months, or
b. Value of the property, as established by an appraisal or the sales price on the HUD–1 Settlement Statement from the sale of the property, results in a loan-to-value (LTV) ratio of 75 percent or less.
5.
a. Contingent liability applies, and the debt must be included in the underwriting analysis, if an individual applying for a mortgage is a cosigner/co-obligor on:
i. A car loan;
ii. A student loan;
iii. A mortgage; or
iv. Any other obligation.
b. If the creditor obtains documented proof that the primary obligor has been making regular payments during the previous 12 months, and does not have a history of delinquent payments on the loan during that time, the payment does not have to be included in the consumer's monthly obligations.
a. Debt payments, such as a student loan or balloon-payment note scheduled to begin or come due within 12 months of the mortgage loan closing, must be included by the creditor as anticipated monthly obligations during the underwriting analysis.
b. Debt payments do not have to be classified as projected obligations if the consumer provides written evidence that the debt will be deferred to a period outside the 12-month timeframe.
c. Balloon-payment notes that come due within one year of loan closing must be considered in the underwriting analysis.
Obligations not considered debt, and therefore not subtracted from gross income, include:
a. Federal, State, and local taxes;
b. Federal Insurance Contributions Act (FICA) or other retirement contributions, such as 401(k) accounts (including repayment of debt secured by these funds):
c. Commuting costs;
d. Union dues;
e. Open accounts with zero balances;
f. Automatic deductions to savings accounts;
g. Child care; and
h. Voluntary deductions.
11. In Supplement I to Part 1026—Official Interpretations:
A. Under
i. Under
a. Under
b. Under
B. Under
i. Under
The revisions and additions read as follows:
1.
2.
i. A servicer services 3,000 mortgage loans, all of which it or an affiliate owns or originated. An affiliate of the servicer services 4,000 other mortgage loans, all of which it or an affiliate owns or originated. Because the number of mortgage loans serviced by a servicer is determined by counting the mortgage loans serviced by a servicer together with any affiliates, both of these servicers are considered to be servicing 7,000 mortgage loans and neither servicer is a small servicer.
ii. A service services 3,100 mortgage loans—3,000 mortgage loans it owns or originated and 100 mortgage loans it neither owns nor originated, but for which it owns the mortgage servicing rights. The servicer is not a small servicer because it services mortgage loans for which the servicer (or an affiliate) is not the creditor or assignee, notwithstanding that the servicer services fewer than 5,000 mortgage loans.
3.
i. A credit union services 4,000 mortgage loans, all of which it originated or owns. The credit union retains a credit union service organization, that is not an affiliate, to subservice 1,000 of the mortgage loans. The credit union is a small servicer and, thus, can gain the benefit of the small servicer exemption for the 3,000 mortgage loans the credit union services itself. The credit union service organization is not a small servicer because it services mortgage loans it does not own or did not originate. Accordingly, the credit union service organization does not gain the benefit of the small servicer exemption and, thus, must comply with any applicable mortgage servicing requirements for the 1,000 mortgage loans it subservices.
ii. A bank holding company, through a lender subsidiary, owns or originated 4,000 mortgage loans. All mortgage servicing rights for the 4,000 mortgage loans are owned by a wholly owned master servicer subsidiary. Servicing for the 4,000 mortgage loans is conducted by a wholly owned subservicer subsidiary. The bank holding company controls all of these subsidiaries and, thus, they are affiliates of the bank holding company pursuant 12 CFR 1026.32(b)(2). Because the master servicer and subservicer service 5,000 or fewer mortgage loans, and because all the mortgage loans are owned or originated by an affiliate, the master servicer and the subservicer both qualify for the small servicer exemption for all 4,000 mortgage loans.
iii. A nonbank servicer services 4,000 mortgage loans, all of which it originated or owns. The servicer retains a “component servicer” to assist it with servicing functions. The component servicer is not engaged in “servicing” as defined in 12 CFR 1024.2; that is, the component servicer does not receive any scheduled periodic payments from a borrower pursuant to the terms of any mortgage loan, including amounts for escrow accounts, and does not make the payments to the owner of the loan or other third parties of principal and interest and such other payments with respect to the amounts received from the borrower as may be required pursuant to the terms of the mortgage servicing loan documents or servicing contract. The component servicer is not a subservicer pursuant to 12 CFR 1024.31 because it is not engaged in servicing, as that term is defined in 12 CFR 1024.2. The nonbank servicer is a small servicer and, thus, can gain the benefit of the small servicer exemption with regard to all 4,000 mortgage loans it services.
i. A servicer that begins servicing more than 5,000 mortgage loans (or begins servicing one or more mortgage loans it does not own or did not originate) on October 1, and services more than 5,000 mortgage loans (or services one or more mortgage loans it does not own or did not originate) as of January 1 of the following year, would no longer be considered a small servicer on January 1 of that following year and would have to comply with any requirements from which it is no longer exempt as a small servicer on April 1 of that following year.
ii. A servicer that begins servicing more than 5,000 mortgage loans (or begins servicing one or more mortgage loans it does not own or did not originate) on February 1, and services more than 5,000 mortgage loans (or services one or more mortgage loans it does not own or did not originate) as of January 1 of the following year, would no longer be considered a small servicer on January 1 of that following year and would have to comply with any requirements from which it is no longer exempt as a small servicer on that same January 1.
iii. A servicer that begins servicing more than 5,000 mortgage loans (or begins servicing one or more mortgage loans it does not own or did not originate) on February 1, but services less than 5,000 mortgage loans (or no longer services mortgage loans it does not own or did not originate) as of January 1 of the following year, is considered a small servicer for that following year.
3.
4.
Accordingly, a covered transaction is eligible for purchase or guarantee by Fannie Mae or Freddie Mac, for example, if:
i. The loan conforms to the relevant standards set forth in the Fannie Mae Single-Family Selling Guide or the Freddie Mac Single-Family Seller/Servicer Guide in effect at the time, or to standards set forth in a written agreement between the creditor or a sponsor or aggregator of the creditor and Fannie Mae or Freddie Mac in effect at that time that permits variation from the standards of those guides;
ii. The loan has been granted an individual waiver by a GSE, which will allow purchase or guarantee in spite of variations from the applicable standards; or
iii. The creditor inputs accurate information into the Fannie Mae or Freddie Mac AUS or another AUS pursuant to a written agreement between the creditor and Fannie Mae or Freddie Mac that permits variation from the GSE AUS; the loan receives one of the recommendations specified below in paragraphs A or B from the corresponding GSE AUS or an equivalent recommendation pursuant to another AUS as authorized in the written agreement; and the creditor satisfies any requirements and conditions specified by the relevant AUS that are not wholly unrelated to ability to repay, the non-satisfaction of which would invalidate that recommendation:
A. An “Approve/Eligible” recommendation from Desktop Underwriter (DU); or
B. A risk class of “Accept” and purchase eligibility of “Freddie Mac Eligible” from Loan Prospector (LP).
5.
i. Assume eligibility to purchase a loan was based in part on the consumer's employment income of $50,000 per year. The creditor uses the income figure in obtaining an approve/eligible recommendation from DU. A quality control review, however, later determines that the documentation provided and verified by the creditor to comply with Fannie Mae requirements did not support the reported income of $50,000 per year. As a result, Fannie Mae demands that the creditor repurchase the loan. Assume that the quality control review is accurate, and that DU would not have issued an approve/eligible recommendation if it had been provided the accurate income figure. The DU determination at the time of consummation was invalid because it was based on inaccurate information provided by the creditor; therefore, the loan was never a qualified mortgage under § 1026.43(e)(4).
ii. Assume that a creditor delivered a loan, which the creditor determined was a qualified mortgage at the time of consummation under § 1026.43(e)(4), to Fannie Mae for inclusion in a particular To-Be-Announced Mortgage Backed Security (MBS) pool of loans. The data submitted by the creditor at the time of loan delivery indicated that the various loan terms met the product type, weighted-average coupon, weighted-average maturity, and other MBS pooling criteria, and MBS issuance disclosures to investors reflected this loan data. However, after delivery and MBS issuance, a quality control review determines that the loan violates the pooling criteria.
The loan still meets eligibility requirements for Fannie Mae products and loan terms. Fannie Mae, however, requires the creditor to repurchase the loan due to the violation of MBS pooling requirements. Assume that the quality control review determination is accurate. Because the loan still meets Fannie Mae's eligibility requirements, it remains a qualified mortgage based on these facts and circumstances.Securities and Exchange Commission.
Final rule.
We are adopting amendments to our rules to implement Section 926 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Section 926 requires us to adopt rules that disqualify securities offerings involving certain “felons and other `bad actors'” from reliance on Rule 506 of Regulation D. The rules must be “substantially similar” to Rule 262 under the Securities Act, which contains the disqualification provisions of Regulation A under the Securities Act, and must also cover matters enumerated in Section 926 of the Dodd-Frank Act (including certain state regulatory orders and bars).
Comments may be submitted by any of the following methods:
• Use the Commission's Internet comment form
(
• Send an email to
• Please include File Number S7–21–11 on the subject line; or
• Use the Federal eRulemaking Portal (
instructions for submitting comments.
• Send paper comments on the Paperwork Reduction Act analysis in triplicate to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090.
Johanna Vega Losert, Special Counsel, Karen C. Wiedemann, Attorney Fellow, or Gerald J. Laporte, Office Chief, Office of Small Business Policy, Division of Corporation Finance, at (202) 551–3460, Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549–3628.
We are adopting amendments to Rules 145,
Section 926 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), entitled “Disqualifying felons and other `bad actors' from Regulation D offerings,” requires the Commission to adopt rules to disqualify certain securities offerings from reliance on Rule 506 of Regulation D.
Rule 506 is one of three exemptive rules for limited offerings under Regulation D.
Rule 506 historically has permitted sales to an unlimited number of accredited investors
“Bad actor” disqualification requirements, sometimes called “bad boy” provisions, disqualify securities offerings from reliance on exemptions if the issuer or other relevant persons (such as underwriters, placement agents and the directors, officers and significant shareholders of the issuer) have been convicted of, or are subject to court or administrative sanctions for, securities fraud or other violations of specified laws. Rule 506 in its current form does not impose any bad actor disqualification requirements.
Section 926 of the Dodd-Frank Act instructs the Commission to issue disqualification rules for Rule 506 offerings that are “substantially similar” to the bad actor disqualification provisions contained in Rule 262 of Regulation A,
• Felony and misdemeanor convictions in connection with the purchase or sale of a security or involving the making of a false filing with the Commission (the same criminal conviction standard as in Section 926 of the Dodd-Frank Act) within the last five years in the case of issuers and ten years in the case of other covered persons;
• Injunctions and court orders within the last five years against engaging in or continuing conduct or practices in
• U.S. Postal Service false representation orders within the last five years;
• Filing, or being named as an underwriter in, a registration statement or Regulation A offering statement that is the subject of a proceeding to determine whether a stop order should be issued, or as to which a stop order was issued within the last five years; and
• For covered persons other than the issuer:
○ being subject to a Commission order:
revoking or suspending their registration as a broker, dealer, municipal securities dealer, or investment adviser;
placing limitations on their activities as such;
barring them from association with any entity; or
barring them from participating in an offering of penny stock; or
○ being suspended or expelled from membership in, or suspended or barred from association with a member of, a registered national securities exchange or national securities association for conduct inconsistent with just and equitable principles of trade.
The disqualifying events specifically required by Section 926 are:
• Final orders issued by state securities, banking, credit union, and insurance regulators, federal banking regulators, and the National Credit Union Administration that either
○ bar a person from association with an entity regulated by the regulator issuing the order, or from engaging in the business of securities, insurance or banking, or from savings association or credit union activities; or
○ are based on a violation of any law or regulation that prohibits fraudulent, manipulative, or deceptive conduct within a ten-year period; and
• Felony and misdemeanor convictions in connection with the purchase or sale of a security or involving the making of a false filing with the Commission.
On May 25, 2011, we proposed amendments to Rules 501 and 506 of Regulation D and Form D to implement Section 926.
Today we are adopting amendments to Rules 501 and 506 of Regulation D and to Form D to implement Section 926 of the Dodd-Frank Act.
• Disqualification will apply only for triggering events that occur after the effective date of the amendments; however, pre-existing matters will be subject to mandatory disclosure;
• The rule includes additional disqualifying events for certain orders of the Commodity Futures Trading Commission (“CFTC”) and for Commission cease-and-desist orders arising out of scienter-based anti-fraud violations and violations of Section 5 of the Securities Act;
• Instead of covering all officers of the issuer and of any compensated solicitors of purchasers of securities, the rule is limited to executive officers and officers who participate in the offering;
• Rather than covering beneficial owners of 10% or more of any class of the issuer's securities, the rule covers beneficial owners of 20% or more of the issuer's outstanding voting equity securities, calculated on the basis of voting power;
• For issuers that are pooled investment funds, the rule covers the funds' investment managers and their principals; and
• Disqualification will not apply if the authority issuing the relevant judgment, order or other triggering directive or statement determines and advises the Commission that disqualification from reliance on Rule 506 should not arise as a result.
Part III of the proposing release requested comment on a number of potential further rule amendments that would result in more uniform bad actor disqualification rules, including the application of the new bad actor disqualification standards to offerings under Regulation A, Regulation E and Rules 504 and 505 of Regulation D. Commenters were divided in their views with respect to uniform bad actor standards. Some commenters supported uniformity on the basis that it would enhance investor protection, increase clarity and consistency in our regulations and avoid the creation of opportunities for regulatory arbitrage.
We note that the JOBS Act requires us to adopt rules for two new exemptions from the Securities Act—one for “crowdfunding” offerings, contained in Title III of the JOBS Act, and one for offerings of up to $50 million in a 12-month period under Section 3(b) of the Securities Act, contained in Title IV of the JOBS Act. The statutory requirements for these exemptions contemplate bad actor disqualifications with language similar to that in Section 926 of the Dodd-Frank Act.
Section 926(1) of the Dodd-Frank Act requires the Commission to adopt disqualification rules that are substantially similar to Rule 262, the bad actor disqualification provisions applicable to offerings under Regulation A, and that also cover the triggering events specified in Section 926. In general, we understand this mandate to mean that the provisions we adopt to implement Section 926 should have similar effects as Rule 262, except to the extent that circumstances, such as the different context for the use of Rule 506 compared to Regulation A and the need to update or otherwise revise the provisions of Regulation A, dictate a different approach.
We proposed amendments to Rule 506 of Regulation D to apply the disqualification provisions required under Section 926 to the following categories of persons:
• The issuer and any predecessor of the issuer or affiliated issuer;
• Any director, officer,
• Any beneficial owner of 10% or more of any class of the issuer's equity securities;
• Any promoter connected with the issuer in any capacity at the time of the sale;
• Any person that has been or will be paid (directly or indirectly) remuneration for solicitation of purchasers in connection with sales of securities in the offering; and
• Any director, officer, general partner, or managing member of any such compensated solicitor.
In the proposing release, we solicited comment on whether the rules should cover a broader or narrower group of persons. We specifically requested comment on whether the new disqualification provisions should cover all officers of issuers and covered financial intermediaries, as Rule 262 currently does, or only some officers (such as executive officers
Two commenters advocated that the new rules mirror Rule 262's coverage of “officers,” as proposed.
We also requested comment on whether the coverage of “officers” should be limited to officers who participate in or are involved with the offering. Two commenters addressed this point, acknowledging that it may be appropriate to cover participating officers to address investor protection concerns
We agree with the majority of commenters that, in the context of Rule 506 offerings, an “officer” test based solely on job title would be unduly burdensome and overly restrictive. Consequently, the final rule covers only executive officers of covered entities and officers who participate in the offering. We believe that this coverage is an appropriate adaptation of the Rule 262 list of covered persons, taking into account the larger and more complex organizations that are involved in many Rule 506 transactions
Many issuers will already have determined who their executive officers are (among other reasons, to provide disclosure about executive officers in the offering materials), and the officers participating in an offering will be a question of fact. Participation in an offering would have to be more than transitory or incidental involvement, and could include activities such as participation or involvement in due diligence activities, involvement in the preparation of disclosure documents, and communication with the issuer, prospective investors or other offering participants. We anticipate that issuers should be able to determine which of their own officers are participating in an offering without undue difficulty, and can exercise control over which officers participate. We also believe that it is reasonable to expect that compensated solicitors should be prepared to confirm which of their officers are participating in an offering as part of any engagement.
Some commenters also supported including only voting equity securities, rather than all equity securities, in determining which securityholders should be covered persons, generally arguing that only voting interests confer control.
Other commenters supported the proposed inclusion of 10% beneficial owners of any class of the issuer's equity securities, based on their presumptive control of the issuer and the mandate to adopt rules that are “substantially similar” to Rule 262, which covers 10% beneficial owners.
We are persuaded, with the majority of commenters, that the Rule 262 standard of 10% ownership of any class of the issuer's equity securities could be overinclusive, pulling in securityholders who do not control the activities of the issuer and whose prior bad conduct may not reflect on the issuer or the current offering. It may
We agree with most commenters that it would be appropriate to limit the coverage of securityholders under new Rule 506(d) to those having voting rights. In light of the range of possible structures and control arrangements among issuers relying on Rule 506, however, we have not adopted a specific definition of “voting securities.” We intend that the term should be applied based on whether securityholders have or share the ability, either currently or on a contingent basis, to control or significantly influence the management and policies of the issuer through the exercise of a voting right.
We are also concerned that measuring ownership based on the percentage beneficial ownership of any class of an issuer's securities, rather than of the issuer's total outstanding securities, may be both overinclusive and underinclusive. Where a class of securities represents a very small percentage of the issuer's outstanding equity securities or voting power, even a large percentage ownership of the class may not confer the kind of control or influence over the issuer that the bad actor disqualification rules are intended to address. At the same time, in the case of a class of supervoting or high vote securities, ownership of a relatively small percentage of that class may carry with it control over a relatively large percentage of total voting power. Accordingly, rather than including beneficial owners of any class of the issuer's equity securities, the final rule includes beneficial owners of a specified percentage of the issuer's total outstanding voting equity securities, calculated on the basis of voting power. This change will focus the rule on securityholders that have or share the ability to direct a substantial portion of a vote, and will avoid the potential overinclusiveness and underinclusiveness of a share-based or class-based calculation.
After considering commenters' concerns, we have also determined to raise the beneficial ownership threshold from 10% to 20%, which we believe is a reasonable and measured approach in the context of Rule 506 offerings that preserves investor protection and provides an efficient and clear “bright-line” test.
Accordingly, the rules we adopt today cover beneficial owners of 20% or more of the issuer's outstanding equity securities, calculated on the basis of voting power, rather than 10% beneficial owners of any class of securities, as originally proposed.
We considered, but are not adopting, a standard based on actual control of the issuer. We share the concern voiced by some commenters
Assessing beneficial share ownership based on ownership of total outstanding voting securities, based on voting power, rather than ownership of any class, and increasing the ownership threshold from 10% to 20% should ease the burden of compliance because there will be fewer beneficial owners to track. Nevertheless, we do not believe that the change will diminish the investor protection benefits of Rule 506(d) in the circumstances posing the highest potential risk to investors, when securityholders exercise actual control over the issuer, because such securityholders are likely to be covered persons in some other capacity. Under the functional definitions of “director” and “executive officer,” anyone who performs the functions of a director; controls a principal business unit, division or function of the issuer or performs policy making functions for the issuer will be a covered person as a director or executive officer of the issuer. In addition, as discussed below, shareholders that are “promoters” involved with the issuer will be covered in that capacity.
Most operating companies making Rule 506 offerings are corporations or limited liability companies that function through their officers, directors and managing members. By comparison, most pooled investment funds making Rule 506 offerings are partnerships or other flow-through entities that have few, if any, employees, and function through their investment managers and the managers' personnel. In order to provide equivalent treatment of operating companies and pooled investment funds, the final rule establishes a new “bright-line” category of presumed control persons for pooled investment fund issuers. This should make the final rule clearer and easier to apply, and will more effectively protect investors from bad actors that exercise influence or control over a pooled investment fund.
Some commenters argued that adding fund investment managers was unnecessary, given that fund investment advisers are generally subject to regulation either at the state or the federal level. We believe our Securities Act disqualification rules are, in many respects, designed to supplement and build upon other enforcement and regulatory efforts. For instance, registered broker-dealers subject to limitations on their activities as a result of disciplinary proceedings could separately be disqualified from participating in a Rule 506 offering under the amendments we adopt today. We do not believe that the regulatory scheme to which a pooled investment fund's investment manager may be subject is a substitute for bad actor disqualification.
We appreciate that the bad actor provisions in Rule 262 do not cover investment managers of issuers that are pooled investment funds. Regulation A, however, is generally not available to or used by pooled investment funds,
We also recognize that, depending on the circumstances, some investment managers of pooled investment funds and certain of their personnel would be covered already under Rule 506(d), even if we did not expand the coverage of the rule. For example, some investment manager firms would be deemed to be “promoters” of a pooled investment fund issuer, and some of their individual principals would be deemed the functional equivalent of “directors,” “executive officers” or “promoters” of the issuer. Nevertheless, since we have concluded that such persons should be covered, we believe it is preferable to cover them directly, rather than indirectly. This treatment will avoid the necessity for issuers or others to engage in a potentially time-consuming, fact-intensive inquiry to determine whether or not they are within another category of covered persons.
We determined not to make any changes in the definition or coverage of promoters. The category of “promoter” is broad, and captures all individuals and entities that have the relationships with the issuer or to the offering specified in Rule 405.
As adopted, the disqualification provisions of Rule 506(d) will cover the following persons, which we refer to in this release as “covered persons”:
• The issuer and any predecessor of the issuer or affiliated issuer;
• Any director, executive officer, other officer participating in the offering, general partner or managing member of the issuer;
• Any beneficial owner of 20% or more of the issuer's outstanding voting equity securities, calculated on the basis of voting power;
• Any investment manager to an issuer that is a pooled investment fund and any director, executive officer, other officer participating in the offering, general partner or managing member of any such investment manager, as well as any director, executive officer or officer participating in the offering of any such general partner or managing member;
• Any promoter connected with the issuer in any capacity at the time of the sale;
• Any person that has been or will be paid (directly or indirectly) remuneration for solicitation of purchasers in connection with sales of securities in the offering (which we refer to as a “compensated solicitor”); and
• Any director, executive officer, other officer participating in the offering, general partner, or managing member of any such compensated solicitor.
We are also adopting a provision under which events relating to certain affiliated issuers are not disqualifying if they pre-date the affiliate relationship.
We also solicited comment on whether we should apply the disqualification rules differently to entities that have undergone a change of control. Five commenters supported differential treatment following a change of control, primarily arguing that entities act only through their personnel, and disqualifying events would no longer be relevant if the persons responsible for the events are no longer in control.
Section 926 of the Dodd-Frank Act requires our Rule 506 disqualification provisions to be “substantially similar” to those set forth in Rule 262 of Regulation A, and also to cover certain criminal convictions and regulatory orders enumerated in Section 926. In the proposal, the disqualifying events from Rule 262 and Section 926 were combined and integrated in a proposed rule that included the following disqualifying events:
• Criminal convictions (felony or misdemeanor), entered within the last five years in the case of issuers and ten years in the case of other covered persons, in connection with the purchase or sale of any security; involving the making of a false filing with the Commission; or arising out of the conduct of the business of an underwriter, broker, dealer, municipal securities dealer, investment adviser or paid solicitor of purchasers of securities;
• Court injunctions and restraining orders, including any order, judgment or decree of any court of competent jurisdiction, entered within five years before such sale, that, at the time of such sale, restrains or enjoins such person from engaging or continuing to engage in any conduct or practice in connection with the purchase or sale of any security; involving the making of a false filing with the Commission; or arising out of the conduct of the business of an underwriter, broker, dealer, municipal securities dealer, investment adviser or paid solicitor of purchasers of securities;
• Final orders issued by state banking, credit union, and insurance regulators, federal banking regulators, and the National Credit Union Administration that either create a bar from association with any entity regulated by the regulator issuing the
• Commission disciplinary orders entered pursuant to Section 15(b) or 15(B)(c) of the Securities Exchange Act of 1934 (the “Exchange Act”) or Section 203(e) or (f) of the Investment Advisers Act of 1940 (the “Advisers Act”) that, at time of the sale, suspend or revoke a person's registration as a broker, dealer, municipal securities dealer or investment adviser; place limitations on the activities, functions or operations of such person; or bar such person from being associated with any entity or from participating in the offering of any penny stock;
• Suspension or expulsion from membership in, or suspension or a bar from association with a member of, an SRO,
• Stop orders applicable to a registration statement and orders suspending the Regulation A exemption for an offering statement that an issuer filed or in which the person was named as an underwriter within the last five years and being the subject at the time of sale of a proceeding to determine whether such a stop or suspension order should be issued;
• U.S. Postal Service false representation orders including temporary or preliminary orders entered within the last five years.
We solicited comment on a number of possible modifications to the list of disqualifying events, such as including additional events and lengthening or shortening the look-back period associated with each event. Following is a discussion of each of the disqualifying events originally proposed, the comments on the proposal and the disqualifying event as adopted today.
Section 926(2)(B) of the Dodd-Frank Act provides for disqualification if any covered person “has been convicted of any felony or misdemeanor in connection with the purchase or sale of any security or involving the making of any false filing with the Commission.” This essentially mirrors the language of Rule 262(a)(3), which covers criminal convictions of issuers, and Rule 262(b)(1), which covers criminal convictions of other covered persons. In the proposing release, we identified two differences between the felony and misdemeanor conviction provisions of Section 926(2)(B) and Rule 262. First, Section 926(2)(B) does not include a specific time limit (or “look-back period”) on convictions that trigger disqualification, whereas Rule 262 provides a five-year look-back period for criminal convictions of issuers and a ten-year look-back period for criminal convictions of other covered persons. Second, Rule 262 includes a reference to criminal convictions “arising out of the conduct of the business of an underwriter, broker, dealer, municipal securities dealer or investment adviser,” which does not appear in Section 926.
The proposed rule was based on Rule 262, and provided that a covered person would be disqualified if such covered person has been convicted, within ten years before such sale (or five years, in the case of issuers, their predecessors and affiliated issuers), of any felony or misdemeanor in connection with the purchase or sale of any security; involving the making of any false filing with the Commission; or arising out of the conduct of the business of an underwriter, broker, dealer, municipal securities dealer, investment adviser or paid solicitor of purchasers of securities.
The proposed rule included look-back periods of five years for criminal convictions of issuers (including predecessors and affiliated issuers) and ten years for other covered persons, which correspond to Rule 262.
Commenters were divided in their reaction to this aspect of the proposal. Most commenters argued that the Commission should stay close to the language of Section 926 and Rule 262.
On the length of look-back periods, some commenters argued for a uniform ten-year period,
In sum, most commenters agreed that the final rules should be closely based on Rule 262. To the extent that commenters advocated changes from the proposal, however, there was no consensus about what changes would be desirable or appropriate. We do not believe that the shift from Regulation A to potentially larger and more complex transactions under Rule 506 warrants either expanding or narrowing the scope of coverage of criminal convictions, or modifying the existing five- and ten-year look-back periods. Given that the rule is required to be “substantially similar” to Rule 262, and that there are no changes warranted by the application to the Rule 506 context, we are adopting the provision as proposed.
Under current Rule 262(a)(4), an issuer is disqualified from reliance on Regulation A if it, or any predecessor or affiliated issuer, is subject to a court injunction or restraining order against “engaging in or continuing any conduct or practice in connection with the purchase or sale of any security or involving the making of any false filing with the Commission.”
The proposed provision reflected the substance of these two provisions in a simplified, combined format. Rule 506 transactions may involve compensated solicitors, rather than traditional underwriters, so the proposed rule also covered orders arising out of the conduct of the business of such compensated solicitors. Under the proposal, an offering would be disqualified if any covered person is subject to any order, judgment or decree of any court of competent jurisdiction, entered within five years before any sale in the offering that, at the time of such sale, restrains or enjoins such person from engaging or continuing to engage in any conduct or practice in connection with the purchase or sale of any security; involving the making of any false filing with the Commission; or arising out of the conduct of the business of an underwriter, broker, dealer, municipal securities dealer, investment adviser or paid solicitor of purchasers of securities.
Five commenters recommended adoption of the provisions as proposed.
One commenter requested clarification that disqualification will apply only for persons specifically named in an order, and not to all who may be within a class of persons brought within the scope of an order.
We are adopting the provision as proposed. We see no basis for departing from the coverage and look-back periods that apply under existing Rule 262. In particular, we have determined not to impose due process requirements, such as notice and an opportunity to appear, or to require that all appeals have been exhausted or the time for appeal expired, as a condition to disqualification. We are sensitive to the concerns raised by commenters about the risk that ex parte orders may trigger disqualification. Nevertheless, in light of the statutory mandate and the Commission's waiver authority, we are not narrowing the provision. We believe that disqualifying events that arise out of such circumstances are better addressed through the waiver process.
We are also not persuaded that the shift to potentially larger, more complex transactions under Rule 506 or other considerations justifies such a change from the Rule 262 standards. Nor do we want to add a significant new burden of inquiry, requiring issuers to determine not just that a covered person is subject to an order, but also that the order is procedurally adequate. On balance, we believe that the risk that disqualification may arise from ex parte proceedings could be better addressed through the waiver process, rather than through additional requirements for factual inquiry that would affect all offerings. As for appealable orders, as noted in the proposing release, we are concerned that suspending disqualification during the pendency of a potentially lengthy appeals process may significantly undermine the intended benefits of the rule.
With regard to who would be viewed as subject to an order, we intend to apply the new provisions consistently with the way that Rule 262 has historically been applied. For disqualification purposes, the staff has interpreted Rule 262 to limit those considered “subject to” an order to only the persons specifically named in the order.
The text of Section 926(2)(A) of the Dodd-Frank Act provides that Commission requirements for Rule 506 offerings must disqualify any covered person that
(A) is subject to a final order of a State securities commission (or an agency or officer of a State performing like functions), a State authority that supervises or examines banks, savings associations, or credit unions, a State insurance commission (or an agency or officer of a State performing like functions), an appropriate Federal banking agency, or the National Credit Union Administration, that—
(i) bars the person from—
(I) association with an entity regulated by such commission, authority, agency, or officer;
(II) engaging in the business of securities, insurance, or banking; or
(III) engaging in savings association or credit union activities; or
(ii) constitutes a final order based on a violation of any law or regulation that prohibits fraudulent, manipulative, or deceptive conduct within the 10-year period ending on the date of filing of the offer or sale.
As we noted in the proposing release, Section 926(2)(A) is essentially identical to Section 15(b)(4)(H) of the Exchange Act and Section 203(e)(9) of the Advisers Act. The only difference is that Section 926(2)(A)(ii) contains a ten-year look-back period for final orders based on violations of laws and regulations that prohibit fraudulent, manipulative and deceptive conduct, while the Exchange Act and Advisers Act provisions have no express time limit for such orders.
We proposed to reflect Section 926(2)(A) as new Rule 506(c)(1)(iii), with three changes from the text of Section 926(2)(A), which were intended to eliminate potential ambiguities and allow for easier application of the rule. First, the proposal specified that an order must bar the covered person “at the time of [the] sale,” to clarify that a bar would be disqualifying only for as long as it has continuing effect. Second, the provision measured the look-back period from the date of the relevant sale, not from “the date of filing of the offer or sale,” as provided in Section 926 of the Dodd-Frank Act, so it would align with the other look-back periods in the rule. Finally, the provision required that orders must have been “entered” within the look-back period, to clarify that the date of the order, and not the date of the underlying conduct, was relevant for that determination.
Under the proposal, an offering would be disqualified if any covered person is subject to a final order of a state securities commission (or an agency or officer of a state performing like functions); a state authority that supervises or examines banks, savings associations, or credit unions; a state insurance commission (or an agency or officer of a state performing like functions); an appropriate federal banking agency; or the National Credit Union Administration that at the time of such sale, bars the person from association with an entity regulated by such commission, authority, agency, or officer; engaging in the business of securities, insurance or banking; or engaging in savings association or credit union activities; or constitutes a final order based on a violation of any law or regulation that prohibits fraudulent, manipulative, or deceptive conduct entered within ten years before such sale.
We solicited comment on a number of aspects of the proposed provision, including the treatment of bars, the definition of the terms “final order” and “fraudulent, manipulative and deceptive conduct,” and the potential to cover orders of other regulators in addition to those mandated by Section 926 of the Dodd-Frank Act, particularly the Commission and the Commodity Futures Trading Commission (“CFTC”). As discussed in more detail below, we are adopting the provision substantially as proposed, but adding the CFTC to the list of regulators whose regulatory bars and other final orders will trigger disqualification.
We are persuaded that appropriate CFTC orders should be included as a disqualification trigger in new Rule 506(d). As we noted in the proposing release, the conduct that would typically give rise to CFTC sanctions is similar to the type of conduct that would result in disqualification if it were the subject of sanctions by another financial services industry regulator. For that reason, CFTC orders trigger consequences under other Commission rules (for example, both registered broker-dealers and investment advisers may be subject to Commission disciplinary action based on violations of the Commodity Exchange Act).
We have decided to include CFTC orders in the bad actor disqualification scheme by adding the CFTC to the list of regulators in Rule 506(d)(1)(iii). As a result, disqualification will be triggered
Several commenters urged us to provide additional guidance about what constitutes a bar.
Consistent with the proposal, the final rule provides that an order must bar the person “at the time of [the] sale” from one or more of the specified activities, to make clear that a bar is disqualifying only for as long as it has continuing effect.
We recognize that, in the proposal and in the final rule, the treatment of court injunctions and restraining orders, on one hand, and regulatory bars and orders, on the other hand, is different in some respects. Court injunctions and restraining orders are subject to a five-year look-back period, which functions as a cut-off (
The proposing release requested comment on other potential approaches to the term “final order,” such as whether the rule should consider orders final only if they are non-appealable, and whether the rule should cover only orders issued in a process that provides for certain due process rights, such as notice, a right to be heard, and a requirement for a record with written findings of fact and conclusions of law. We also queried whether disqualifying matters that arose in the context of a settlement with a regulatory authority should be treated the same as non-settled matters. The proposing release also discussed whether the Commission should defer to the regulator issuing the order to determine whether the issued order was a “final order” for purposes of disqualification in Rule 506.
Several commenters agreed that a definition of “final order” would be helpful in promoting uniform and predictable treatment of regulatory actions.
Two commenters suggested adding minimum procedural standards to the definition of “final order.”
Taking into account the potential impact of disqualification on issuers and other market participants, we are persuaded that the definition of “final order” should be limited to orders issued under statutory authority—including statutes, rules and regulations—that provides for notice and an opportunity for hearing.
We believe that focusing on the nature of the relevant legal authority for an order rather than the particular facts and circumstances surrounding the order will provide more certainty to issuers seeking to determine whether a covered person subject to an order is in fact subject to a “final order” that would be disqualifying. An issuer would only need to determine whether the statutory authority provided for these procedural safeguards, not whether in fact notice was given and an opportunity for hearing was provided. This approach is consistent with comment we received stressing the importance of making the disqualification provisions clear and simple to administer, based on “bright line” provisions or an “objective test” wherever possible.
We do not believe that limiting final orders in this way will compromise investor protection because, in most instances,
Commenters were divided on the question of whether orders should be deemed final if they are still subject to appeal. Three commenters objected to adding a requirement that final orders be non-appealable, generally on the basis that the resulting delay could compromise investor protection.
As adopted, the definition of “final order” contained in new Rule 501(g) provides that “final order” shall mean a written directive or declaratory statement issued by a federal or state agency described in § 230.506(d)(1)(iii) under applicable statutory authority that provides for notice and an opportunity for hearing, which constitutes a final disposition or action by that federal or state agency.
In the proposing release we solicited comment on whether the rule should provide a definition for “fraudulent, manipulative or deceptive conduct” and, if we provided a definition, what should be included in such a definition. Recognizing that Section 926(2)(A)(ii) refers to the final orders of the relevant regulators, the proposing release also requested comment on whether the “fraudulent, manipulative or deceptive conduct” determination should be considered and decided only by the relevant regulator issuing the final order. In particular, we asked whether “fraudulent, manipulative or deceptive conduct” should be understood to require knowing misconduct or scienter, and noted the concern expressed by some commenters that “technical or administrative violations” should not be a source of disqualification.
Some commenters believed that the Commission should provide standards for fraudulent, manipulative or deceptive conduct to clarify and limit the types of orders by state and federal regulators that will trigger disqualification.
We do not believe that Section 926(A)(ii) is limited to matters involving scienter. Scienter is not a requirement under Section 15(b)(4)(H) of the Exchange Act or Section 203(e)(9) of the Advisers Act, from which the language of Section 926 is drawn. Commission orders are issued under these sections based only on the existence of a relevant state or federal regulatory order; the Commission has stated that, while the degree of scienter involved is a factor in determining what sanction is appropriate,
Final Rule. As adopted, Rule 506(d)(1)(iii) provides that disqualification will arise if a covered person is subject to a final order of a state securities commission (or an agency or officer of a state performing like functions); a state authority that supervises or examines banks, savings associations, or credit unions; a state insurance commission (or an agency or officer of a state performing like functions); an appropriate federal banking agency; the U.S. Commodity Futures Trading Commission; or the National Credit Union Administration that:
• At the time of the sale, bars the person from association with an entity regulated by such commission, authority, agency, or officer; engaging in the business of securities, insurance or banking; or engaging in savings association or credit union activities; or
• Constitutes a final order based on a violation of any law or regulation that prohibits fraudulent, manipulative, or deceptive conduct entered within ten years before the sale.
Rule 262(b)(3) of Regulation A imposes disqualification on an issuer if any covered person is subject to an order of the Commission “entered pursuant to section 15(b), 15B(a), or 15B(c) of the Exchange Act, or section 203(e) or (f) of the Investment Advisers Act.”
Our proposed rule was based on Rule 262(b)(3), but eliminated the anomalous reference to Section 15B(a), which is not a source of sanctioning authority, and codified the prior interpretive position that disqualification would continue only for as long as some act is prohibited or required to be performed pursuant to the order (with the consequence that censures and orders to pay civil money penalties, assuming the penalties are paid in accordance with the order, are not disqualifying, and a disqualification based on a suspension or limitation of activities expires when the suspension or limitation expires).
We requested comment on the appropriateness of codifying the interpretive position and imposing any look-back period for Commission disciplinary sanctions. Specifically, we requested comment on whether the rules should provide that orders to pay civil money penalties are disqualifying if the penalties are not paid as ordered. The proposal drew relatively little comment, all of which was supportive.
Section 926 of the Dodd-Frank Act mandates that bad actor disqualification result from final orders issued within a ten-year period by the state and federal regulators identified in Section 926(2)(A) of the Dodd-Frank Act. The state and federal regulators listed in Section 926 include: State authorities that supervise banks, savings associations, or credit unions; state insurance regulators; appropriate federal banking agencies; and the National Credit Union Administration. The Commission is not included in the Section 926(2)(A) list of regulators. Although we did not propose specific amendments to the rule to include the Commission, we explained that adding the Commission's cease-and–desist orders to the disqualification provisions could further enhance the investor protection intent of the disqualification provisions and would contribute to creating an internally consistent set of rules that would treat relevant sanctions
Our request for comment covered a range of issues, including whether it was appropriate to include the Commission in the list of regulators and if so, what types of Commission cease-and-desist orders should give rise to Rule 506 disqualification. In the proposing release, we presented possible approaches to including Commission orders as a disqualifying event and requested comment on those approaches. We requested comment on whether it would be appropriate to include cease-and-desist orders issued by the Commission for violations of the anti-fraud provisions of the federal securities laws, and whether requiring scienter and including cease-and-desist orders related to violations of Section 5 of the Securities Act would be appropriate. Given that Rule 506 offerings provide an exemption from Section 5 registration, we noted that on that basis, persons who violate Section 5 should potentially lose the benefit of exemptive relief for some period afterward.
The request for comment generated a substantial response. Five comment letters favored covering all Commission orders, including cease-and-desist orders (subject in some cases to a scienter requirement).
Five comment letters opposed adding Commission cease-and-desist orders, generally arguing that the Commission lacks authority to expand on the Section 926 statutory scheme in that way.
We believe that including certain Commission cease-and-desist orders in the bad actor disqualification scheme would enhance its investor protection benefits and make the overall scheme of Rule 506 of Regulation D more internally consistent. We believe an injunctive or restraining order issued by a federal court and a Commission cease-and-desist order arising out of the same legal violation equally demonstrate disqualifying conduct and should have the same consequences under our disqualification rules. The benefits associated with screening bad actors out of the Rule 506 market should not depend on whether a particular enforcement action is brought in court or through a Commission cease-and-desist proceeding. For that reason, the final rules include a provision that makes certain Commission cease-and-desist orders a disqualifying event.
We disagree with the commenters who argue that the Commission lacks authority, as part of this rulemaking, to add additional disqualification triggers not provided in Section 926. In our view, Section 926 does not limit the existing authority we previously used to create other bad actor provisions.
In expanding the list of disqualification triggers beyond those required in Section 926, we are mindful of our mandate to promote investor protection and capital formation. In particular, we are mindful of the concerns expressed by commenters about the potentially negative impact on capital raising of overbroad disqualification standards.
The additional disqualification trigger will be subject to the same five-year look-back period that applies to court restraining orders and injunctions,
As adopted, Rule 506(d)(1)(v) imposes disqualification if any covered person is subject to any order of the Commission entered within five years before such sale that, at the time of such sale, orders the person to cease and desist from committing or causing a violation or future violation of any scienter-based anti-fraud provision of the federal securities laws (including without limitation Section 17(a)(1) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b–5 thereunder, Section 15(c)(1) of the Exchange Act and Section 206(1) of the Advisers Act, or any other rule or regulation thereunder) or Section 5 of the Securities Act.
Rule 262(b)(4) disqualifies an offering if any covered person is suspended or expelled from membership in, or suspended or barred from association with a member of, a securities self-regulatory organization or “SRO” (
The proposal drew little comment,
Paragraphs (a)(1) and (2) of Rule 262 impose disqualification on an offering if the issuer, or any predecessor or affiliated issuer, has filed a registration statement or Regulation A offering statement that was the subject of a Commission refusal order, stop order or order suspending the Regulation A exemption within the last five years, or is the subject of a pending proceeding to determine whether such an order should be issued.
The proposal drew only one comment,
Paragraphs (a)(5) and (b)(5) of Rule 262 impose disqualification on an offering if the issuer or another covered person is subject to a U.S. Postal Service false representation order entered within the preceding five years, or to a temporary restraining order or preliminary injunction with respect to conduct alleged to have violated the false representation statute that applies to U.S. mail.
The proposal included an exception from disqualification for offerings where the issuer establishes that it did not know and, in the exercise of reasonable care, could not have known that a disqualification existed because of the presence or participation of another covered person.
The proposal also included an instruction to the reasonable care exception explaining that an issuer would not be able to establish that it had exercised reasonable care unless it made a factual inquiry into whether any disqualifications existed. As proposed, the instruction noted that the nature and scope of the inquiry would vary based
The proposing release did not prescribe or delineate what steps an issuer would be required to take to show reasonable care. Rather, it noted that the steps an issuer would take would vary according to the circumstances of the covered persons and the offering, taking into account the risk of having a bad actor, the impact of other screening and compliance mechanisms already in place, and the cost and burden of the inquiry. We requested comment on the appropriateness of the reasonable care exception and whether the rule should specify what factual inquiry is required or provide examples of specific factual inquiries that would be deemed to constitute reasonable care. The proposing release also recognized that requiring large issuers or large financial institutions acting as compensated solicitors to conduct factual inquiries on potentially lengthy lists of officers could be burdensome, and therefore we requested comment on whether the rules should provide specific steps to establish reasonable care in these circumstances.
In the proposing release, we discussed the reasonable care exception in the NASAA-approved Model Accredited Investor Exemption (“MAIE”), which serves as a standard in blue sky law and has been adopted in some form by a majority of the states. The MAIE requires the issuer to conduct a “factual inquiry” before asserting the reasonable care exception but does not provide specific information on what steps are required for the factual inquiry. We also noted in the proposing release that, as part of the proposed amendments to Regulation D in 2007, the Commission proposed disqualification provisions that included a reasonable care exception based on the MAIE, without any express reference to factual inquiry.
The proposed reasonable care exception attempted to address the potential difficulty for issuers in establishing whether any covered persons are the subject of disqualifying events, particularly given that there is no central repository that aggregates information from all the federal and state courts and regulatory authorities that would be relevant in determining whether covered persons have a disqualifying event in their past. We believe such a reasonable care exception will facilitate the continued utility of Rule 506 in light of the new disqualification requirements.
Commenters who addressed the issue were unanimous in their support for a reasonable care exception.
Other commenters stressed the importance of conditioning the availability of the reasonable care exception on the issuer's factual inquiry.
We continue to believe that the concept of reasonable care necessarily includes inquiry by the issuer into the relevant facts, and we are adopting the provision and its accompanying instruction substantially as proposed.
Accordingly, as we stated in the proposing release, the steps an issuer should take to exercise reasonable care will vary according to the particular facts and circumstances. For example, we anticipate that issuers will have an in-depth knowledge of their own executive officers and other officers participating in securities offerings gained through the hiring process and in the course of the employment relationship, and in such circumstances,
The timeframe for inquiry should also be reasonable in relation to the circumstances of the offering and the participants. Consistent with this standard, the objective should be for the issuer to gather information that is complete and accurate as of the time of the relevant transactions, without imposing an unreasonable burden on the issuer or the other participants in the offering. With that in mind, we expect that issuers will determine the appropriate dates to make a factual inquiry, based upon the particular facts and circumstances of the offering and the participants involved, to determine whether any covered persons are subject to disqualification before seeking to rely on the Rule 506 exemption.
In general, issuers should make factual inquiry of the covered persons, but in some cases—for example, in the case of a registered broker-dealer acting as placement agent—it may be sufficient to make inquiry of an entity concerning the relevant set of covered officers and controlling persons, and to consult publicly available databases concerning the past disciplinary history of the relevant persons.
If the circumstances give an issuer reason to question the veracity or accuracy of the responses to its inquiries, then reasonable care would require the issuer to take further steps or undertake additional inquiry to provide a reasonable level of assurance that no disqualifications apply.
Some commenters requested specific guidance from the Commission on factual inquiry procedures for continuous offerings such as those by hedge funds and some other pooled investment funds.
We believe that for continuous, delayed or long-lived offerings, reasonable care includes updating the factual inquiry on a reasonable basis. Again, the frequency and degree of updating will depend on the circumstances of the issuer, the offering and the participants involved, but in the absence of facts indicating that closer monitoring would be required (for example, notice that a covered person is the subject of a judicial or regulatory proceeding or knowledge of weaknesses in an organization's screening procedures), we would expect that periodic updating could be sufficient. We expect that issuers will manage this through contractual covenants from covered persons to provide bring-down of representations, questionnaires and certifications, negative consent letters, periodic re-checking of public databases, and other steps, depending on the circumstances.
Consistent with the requirement of Section 926 that the Commission promulgate disqualification provisions “substantially similar” to Regulation A, the proposal included a waiver provision based on current Rule 262, under which the Commission could grant a waiver of disqualification if it determined that the issuer had shown good cause “that it is not necessary under the circumstances that the [registration] exemption . . . be denied.”
The proposing release requested comment on whether the proposed rule should include a provision such as in the one in the MAIE that provides an exception from disqualification if the state authority that issued the disqualifying order waives the disqualification. The proposing release also requested comment on whether the Commission should provide guidance as to the circumstances that would likely give rise to the grant or denial of a waiver and whether the Commission should exercise waiver authority for cases involving final orders of state regulators.
Under current rules, the Commission has delegated authority to grant disqualification waivers under Regulation A and Rule 505 to the Director of the Division of Corporation Finance.
Commenters who addressed the issue were universally supportive of including a waiver provision in the bad actor disqualification provisions applicable to Rule 506.
Given the expectation of a short time frame for many Rule 506 offerings, a number of commenters expressed concern over the timeliness of waiver application reviews by the Commission and the risk that a lengthy review process may disadvantage issuers seeking speedy access to capital.
Several commenters requested clear guidance on circumstances that would give rise to the grant of a waiver from disqualification.
In response to our request for comment on how the Commission should handle waiver applications involving final orders of state regulators, three commenters recommended that the Commission retain its authority to waive disqualification arising out of such orders.
We are persuaded that the second leg of the MAIE/ULOE exception to disqualification, under which disqualification does not apply if the regulator issuing the relevant order determines that Rule 506 disqualification is not necessary under the circumstances, strikes an appropriate balance. It allows the relevant authorities to determine the impact of their orders and conserves Commission resources (which might otherwise be devoted to consideration of waiver applications) in cases where the relevant authority determines that disqualification from Rule 506 offerings is not warranted. Accordingly, the final rule contains a provision based on MAIE paragraph (D)(2)(b), under which disqualification will not arise if, before the relevant sale is made in reliance on Rule 506, the court or regulatory authority that entered the relevant order, judgment or decree advises in writing, whether in the relevant judgment, order or decree or separately to the Commission or its staff, that disqualification under Rule 506 should not arise as a consequence of such order, judgment or decree.
We are not, however, including a provision based on the first leg of the MAIE/ULOE test, which prevents disqualification if the triggering event occurs with respect to a regulated person, such as a broker-dealer, and such person continues to be licensed or registered to conduct securities-related business in the relevant state. As a practical matter, this approach eliminates from the MAIE/ULOE disqualification scheme all orders that are not bars or revocation of registration or licensure. We believe such an approach would be incompatible with the language of Section 926, which, by its terms, covers both bars and other final orders. For that reason, we have not adopted it. We may, however, take the fact that registration or licensure has not been suspended or revoked into account when considering waiver applications.
Under the proposal, the new disqualification provisions would have applied to all sales made under Rule 506 after the effective date of the rule amendments. Offerings made after the effective date would have been subject to disqualification for all disqualifying events that occurred within the relevant look-back periods, regardless of whether the events occurred before enactment of the Dodd-Frank Act, or the proposal or effectiveness of the amendments to Rule 506.
We requested comment on this approach, both in broad terms and as to specific aspects, such as whether we should make special provision for orders issued in the context of negotiated settlements and whether we should provide for extensions of waivers granted with respect to bad actor disqualification under Regulation A, Rule 505 of Regulation D or
Five commenters supported including prior bad actor disqualifying events in the disqualification provisions, generally arguing, on investor protection grounds, that the purpose of the rule is to prevent all bad actors from participating in Rule 506 offerings.
On the other hand, 15 comment letters requested that the Commission not apply the rules to past triggering events, or else provide for widespread grandfathering.
In light of the views expressed by commenters, including concerns about potential unfairness, we have determined not to trigger Rule 506 disqualification on the basis of preexisting events. Accordingly, the amendments we are adopting today include a provision specifying that disqualification will not arise as a result of triggering events that occurred before the effective date of the rule amendments.
In the proposing release, we solicited comment on whether we should require disclosure, rather than disqualification, for bad actor triggering events that occurred before the effective date of the new rules. Several commenters were supportive.
In lieu of imposing disqualification for pre-existing triggering events, the rule amendments require written disclosure of matters that would have triggered disqualification, except that they occurred before the effective date of the new disqualification provisions.
The disclosure requirement in new Rule 506(e) will apply to all offerings under Rule 506, regardless of whether purchasers are accredited investors. Issuers will be required to provide disclosure “a reasonable time prior to sale,” which is the same timing that currently applies to disclosures to non-accredited investors under Rule 502(b)(1).
If disclosure is required and not adequately provided to an investor, we do not believe that relief will be available under Rule 508, under which “insignificant deviations” from Regulation D requirements do not necessarily result in loss of the Securities Act exemption with regard to an offer or sale of securities to a particular individual or entity.
Rule 506(e) does, however, provide that the failure to furnish required disclosure on a timely basis will not prevent an issuer from relying on Rule 506 if the issuer establishes that it did not know, and in the exercise of reasonable care could not have known, of the existence of the undisclosed matter or matters. This “reasonable care” exception to the disclosure requirement is similar to the “reasonable care” exception to disqualification we are also adopting today, and will preserve an issuer's claim to reliance on Rule 506 if disclosure is required but the issuer can establish that it did not know and in the exercise of reasonable care could not have known of the matters required to be disclosed. The provision also includes an instruction, similar to the instruction to Rule 506(d)(2)(iv), clarifying that reasonable care requires factual inquiry.
Under our proposal, the new bad actor disqualification rules would have been implemented without any deferral period. We solicited comment on whether deferral would be appropriate. While two commenters opposed any delayed implementation, citing investor protection concerns,
As adopted, the bad actor disqualification provisions of Rule 506(d) will take effect 60 days after publication in the
As we discussed in the proposing release, sales of securities made before the applicable effective dates will not be affected by any disqualification or disclosure requirement, even if such sales are part of an offering that continues after the relevant effective date. Only sales made after the effective date of the amendments will be subject to disqualification and mandatory disclosure.
Disqualifying events that occur while an offering is underway will be treated in a similar fashion. Sales made before the occurrence of the disqualification trigger will not be affected by it, but sales made afterward will not be entitled to rely on Rule 506 unless the disqualification is waived or removed, or, if the issuer is not aware of a triggering event, the issuer can rely on the reasonable care exception.
This approach is consistent with our other rules and we believe provides appropriate incentives to issuers and other covered persons. We solicited comment on other possible approaches, including not applying the new rules to offerings that are underway at the time of effectiveness of the new disqualification provisions. Several commenters supported complete or partial grandfathering for offerings that are underway at the time of effectiveness.
We are adopting as proposed the conforming amendment to Form D. Under the amendment, the signature block of the Form D will contain a certification, similar to the current certification by Rule 505 issuers, whereby issuers claiming a Rule 506 exemption will confirm that the offering is not disqualified from reliance on Rule 506 for one of the reasons stated in Rule 506(d).
The mandatory disclosure provisions required under the final rules contain “collection of information” requirements within the meaning of the Paperwork Reduction Act of 1995 (“PRA”).
• “Regulation D Rule 506(e) Felons and Other Bad Actors Disclosure Statement.” We are requesting comment on the collection of information requirements in this adopting release, and are submitting these requirements to the Office of Management and Budget (“OMB”) for review in accordance with the PRA and its implementing regulations.
As adopted, the amendments to Rule 506 require that the issuer furnish to each purchaser, a reasonable time prior to sale, a written description of any matters that occurred before effectiveness of the final amendments and within the time periods described in the list of disqualification events set forth in Rule 506(d)(1) of Regulation D, in regard to the issuer or any other “covered person” associated with the offering. For purposes of the mandatory disclosure provision of Rule 506(e), issuers will be required to ascertain whether any disclosures are required in respect of covered persons involved in their offerings, prepare any required disclosures and furnish them to purchasers.
The Commission adopted the Regulation D Rule 506(e) Felons and Other Bad Actors Disclosure Statement under the Securities Act. The Regulation D Rule 506(e) Felons and Other Bad Actors Disclosure Statement required to be furnished to investors does not involve submission of a form
The disclosure or paperwork burden imposed on issuers appears in Rule 506(e) and pertains to events that occurred before effectiveness of the final rules but which would have triggered disqualification had they occurred after effectiveness. Issuers relying on Rule 506 must furnish disclosure of any relevant past events listed in Rule 506(e) that relate to the issuer or any other covered person. If there are any such events, a disclosure statement is required to be furnished, a reasonable time before sale, to all purchasers in the offering. The disclosure requirement serves to protect purchasers by ensuring that they receive information regarding any covered persons that were subject to such disqualifying events.
The disclosure requirement does not apply to triggering events occurring after the effective date of the rule amendments adopted today, because those events will result in disqualification from reliance on Rule 506 (absent a waiver or other exception provided in Rule 506(d)), rather than any disclosure obligation.
The steps that issuers will take to comply with the disclosure requirement are expected to mirror the steps they take to determine whether they are disqualified from relying on Rule 506. We expect that issuers planning or conducting a Rule 506 offering will undertake a factual inquiry to determine whether they are subject to any disqualification. Disqualification and mandatory disclosure are triggered by the same types of events in respect of the same covered persons, with disqualification arising from triggering events occurring after these rules take effect and mandatory disclosure applicable to events occurring before that date. Therefore, we expect that factual inquiry into potential disqualification can simply be extended to cover the period before the rules become effective. On that basis, we expect that the factual inquiry process for the disclosure statement requirement will impose a limited incremental burden on issuers.
As stated earlier, we expect that the size of the issuer and the circumstances of the particular Rule 506 offering will determine the scope of the factual inquiry and require tailored and offering-specific data gathering approaches. It should not generally be necessary for any issuer or any compensated solicitor to make inquiry of any covered individual with respect to ascertaining the existence of events that require disclosure more than once, because the period to be covered by the inquiry ends with the effective date of the new disqualification rules (so future events are unlikely to affect the inquiry or change the disclosures that have to be made). We do, however, expect that issuers may be required to revise their factual inquiry for each Rule 506 offering due to changes in management or intermediaries, other changes to the group of covered persons or if questions arise about the accuracy of previous responses. We also expect that the disclosure requirement may serve the additional function of helping issuers develop processes and procedures for the factual inquiry required to establish reasonable care under the disqualification provisions of Rule 506(d), which will be effective prospectively.
We anticipate that the disclosure requirement will result in an incremental increase in the burdens and costs for issuers that rely on the Rule 506 exemption by requiring these issuers to conduct factual inquiries into the backgrounds of covered persons with regard to events that occurred before effectiveness of the final bad actor disqualification rules. For purposes of the PRA, we estimate the total annual increase in paperwork burden for all affected Rule 506 issuers to comply with our proposed collection of information requirements to be approximately 22,108 hours of company personnel time and approximately $264,000 for the services of outside professionals. These estimates include the incremental time and cost of conducting a factual inquiry to determine whether the Rule 506 issuers have any covered persons with past disqualifying events. The estimates also include the cost of preparing a disclosure statement that issuers are required to furnish to each purchaser a reasonable time prior to sale.
In deriving our estimates, we assume that:
• Approximately 19,908 Rule 506 issuers
• On the basis of the factual inquiry, approximately 220
• For purposes of the disclosure statement, 220 Rule 506 issuers will retain outside professional firms to spend three hours on disclosure preparation at an average cost of $400 per hour.
It is difficult to provide any standardized estimates of the costs involved with the factual inquiry. There is no central repository that aggregates information from all federal and state courts and regulators that would be relevant in determining whether a covered person has a disqualifying event in his or her past. In this regard, we are currently unable to accurately estimate the burdens and costs for issuers in a verifiable way. We expect, however, that the costs to issuers may be higher or lower depending on the size of the issuer and the number and roles of covered persons. We realize there may be a wide range of issuer size, management structure, and offering participants involved in Rule 506 offerings and that different issuers may develop a variety of different factual inquiry procedures.
Where the issuer or any covered person is subject to an event listed in Rule 506(e) existing before the effective date of these rules, the issuer will be required to prepare disclosure for each relevant Rule 506 offering. The estimates include the time and the cost of data gathering systems, the time and cost of preparing and reviewing disclosure by in-house and outside counsel and executive officers, and the time and cost of delivering or furnishing documents and retaining records.
Issuers conducting ongoing or continuous offerings will be required to update their factual inquiry and disclosure as necessary to address additional covered persons. The annual incremental paperwork burden, therefore, depends on an issuer's Rule 506 offering activity and the changes in covered persons from offering to offering. For example, some issuers may only conduct one Rule 506 offering during a year while other issuers may have multiple, separate Rule 506 offerings during the course of the same year involving different financial intermediaries, may hire new executive officers or may have new 20% shareholders, any of which will result in a different group of covered persons. In deriving our estimates, we recognize that the burdens will likely vary among individual companies based on a number of factors, including the size and complexity of their organizations. We believe that some companies will experience costs in excess of this estimated average and some companies may experience less than the estimated average costs.
Pursuant to 44 U.S.C. 3506(c)(2)(B), we request comment to:
• Evaluate whether the proposed collections of information are necessary for the proper performance of the functions of the Commission, including whether the information will have practical utility;
• Evaluate the accuracy of our estimate of the burden of the proposed collections of information;
• Determine whether there are ways to enhance the quality, utility, and clarity of the information to be collected;
• Evaluate whether there are ways to minimize the burden of the collections of information on those who respond, including through the use of automated collection techniques or other forms of information technology; and
• Evaluate whether the proposed amendments will have any effects on any other collections of information not previously identified in this section.
Any member of the public may direct to us any comments concerning the accuracy of these burden estimates and any suggestions for reducing the burdens. Persons who wish to submit comments on the collection of information requirements should direct their comments to OMB, Attention: Desk Officer for the Securities and Exchange Commission, Office of Information and Regulatory Affairs, Room 10102, New Executive Office Building, Washington, DC 20503 and should send a copy to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090, with reference to File No. S7–31–10. Requests for materials submitted to the OMB by us with regard to these collections of information should be in writing, refer to File No. S7–31–10 and be submitted to the Securities and Exchange Commission, Office of Investor Education and Advocacy, 100 F Street NE., Washington, DC 20549–0213. Because OMB is required to make a decision concerning the collections of information between 30 and 60 days after publication, your comments are best assured of having their full effect if OMB receives them within 30 days of publication.
As discussed above, we are adopting amendments to implement the requirements of Section 926 of the Dodd-Frank Act, relating to the disqualification of “felons and other `bad actors' ” from participation in Rule 506 offerings. Section 926 of the Dodd-Frank Act requires the Commission to issue rules that disqualify issuers making securities offerings involving felons and other bad actors from relying on Rule 506 of Regulation D. These rules are required to be “substantially similar” to the disqualification rules in Rule 262 (which apply to Regulation A offerings as well as offerings under Rule 505 of Regulation D) and also to cover the matters enumerated in Section 926 (including certain state regulatory orders and bars). We believe the rules we are adopting comply with that mandate. The final rules include the following provisions not specifically required under Section 926:
• A reasonable care exception;
• Mandatory disclosure of triggering events pre-dating the effective date of the rule amendments;
• The inclusion of additional triggering events for certain orders of the CFTC and for Commission cease-and-desist orders relating to scienter-based anti-fraud violations and violations of Section 5 of the Securities Act;
• The addition of coverage of investment managers of pooled investment funds and directors, executive officers, other officers participating in the offering, general partners and managing members of such investment managers and directors, executive officers and other officers participating in the offering of such general partners and managing members;
• Narrower coverage of officers of issuers and financial intermediaries (covering only executive officers and officers participating in the offering, rather than all officers);
• Narrower coverage of shareholders of the issuer (covering only beneficial owners of at least 20% of the issuer's outstanding voting securities, calculated on the basis of voting power, rather than 10% of any class of the issuer's equity securities); and
• A provision under which disqualification will not be triggered by regulatory orders if the authority that issued the order advises in writing that Rule 506 disqualification should not arise.
While commenters had differing views on whether disqualification under Rule 506 could or should be applied to events that occurred before the effective date of the rule amendments, we determined to apply disqualification only to events that occur after effectiveness of the rule amendments.
We are sensitive to the costs and benefits imposed by our rules. The discussion below attempts to address both the costs and benefits of Section 926 of the Dodd-Frank Act itself, as well as the incremental costs and benefits of the rules and rule amendments associated with the exercise of our discretion in implementing Section 926. The costs and benefits attributable to the statutory mandate and those attributable to our discretion may not be entirely separable to the extent that our discretion is exercised to realize the benefits that we believe were intended by the Dodd-Frank Act.
Section 2(b) of the Securities Act
The baseline analysis that follows is in large part based on information collected from Form D filings submitted by issuers relying on Regulation D to raise capital. As we describe in more detail below, we believe that we do not have a complete view of the Rule 506 market, particularly with respect to the amount of capital raised. Currently, issuers are required to file a Form D within 15 days of the first sale of securities, and are required to report additional sales through amended filings only under certain conditions. In addition, issuers may not report all required information, either due to error or because they do not wish to make the information public. Commenters have suggested and we also have evidence that some issuers do not file a Form D for their offerings in compliance with Rule 503.
Exempt offerings play a significant role in capital formation in the United States. Offerings conducted in reliance on Rule 506 account for 99% of the capital reported as being raised under Regulation D from 2009 to 2012, and represent approximately 94% of the number of Regulation D offerings.
In 2011, the estimated amount of capital (including both equity and debt) reported as being raised in Rule 506 offerings was $849 billion compared to $985 billion raised in registered offerings.
At present, issuers
The amendments to Rule 506 we are adopting today will affect a number of different market participants. Issuers of securities in Rule 506 offerings include both reporting and non-reporting operating companies and pooled investment funds. Investment advisers organize and sponsor pooled investment
Based on the information submitted in 112,467 new and amended Form D filings between 2009 and 2012, there were 67,706 new Regulation D offerings by 49,740 unique issuers during this four-year period.
Some information about issuer size is available from Item 5 in Form D, which calls for issuers in Regulation D offerings to report their size in terms of revenue ranges or, in the case of certain pooled investment funds, net asset value ranges. All issuers can currently choose not to disclose this size information, however, and a significant majority of issuers that are not pooled investment funds declined to disclose their revenue ranges in the Forms D that they filed between 2009 and 2012. For those that did, most reported a revenue range of less than $1 million (Figure 3).
During this period, pooled investment funds conducted approximately 24% of the total number of Regulation D offerings and raised approximately 81% of the total amount of capital raised in Regulation D offerings.
Between 2009 and 2012, approximately 66% of Regulation D offerings were of equity securities, and almost two-thirds of these were by issuers other than pooled investment funds.
We have relatively little information on the types and number of investors in Rule 506 offerings. Form D currently requires issuers in Rule 506 offerings to provide information about the total number of investors who have already invested in the offering and the number of persons who do not qualify as accredited investors.
Information collected from Form D filings indicates that most Rule 506 offerings do not involve broad investor participation. More than two-thirds of these offerings have ten or fewer investors, while less than 5% of these offerings have more than 30 investors. Although Rule 506 currently allows for the participation of non-accredited investors who meet certain sophistication requirements, such non-accredited investors reportedly purchased securities in only 11% of the Rule 506 offerings conducted between 2009 and 2012.
As stated above, between 2009 and 2012, the size of the median Regulation D offering, based on the information in Form D filings, was approximately $1.5 million. The presence of so many relatively small offerings suggests that a sizable number of current investors in Rule 506 offerings are natural persons or legal entities in which all equity owners are natural persons. This is because smaller offerings may not provide sufficient scale for institutional investors to earn a sizable return. Institutional investors typically have a larger investible capital base and more formal screening procedures compared to investors who are natural persons, and the associated costs of identifying potential investments and monitoring their investment portfolio lead them to make larger investments than natural persons.
While we do not know what percentage of investors in Rule 506 offerings are natural persons, the vast majority of Regulation D offerings are conducted without the use of an intermediary,
Our analysis, however, leads us to believe that only a small percentage of these households are likely to participate in securities offerings, especially exempt offerings. First, as mentioned above, data from Form D filings in 2012 suggests that fewer than 234,000 investors (of which an unknown subset are natural persons) participated in Regulation D offerings, which is small compared to the 8.7 million households that qualify as accredited investors. Second, evidence suggests that only a small fraction of the total accredited investor population has significant levels of direct stockholdings. Based on an analysis of retail stock holding data for 33 million brokerage accounts in 2010, only 3.7 million accounts had at least $100,000 of direct investments in equity securities issued by public companies listed on domestic national securities exchanges, while only 664,000 accounts had at least $500,000 direct investments in such equity securities (Figure 7).
Based on Form ADVs that were filed with the Commission as of June 2013, there were 7,772 SEC reporting investment advisers that have clients that are private funds, registered investment companies business development companies, or other pooled investment vehicles. These investment advisers include:
• Registered investment advisers. Data filed for 2012 show that there were approximately 5,400 Commission-registered investment advisers with pooled investment fund clients that filed Form ADV with the Commission. These 5,400 investment advisers represent approximately $45.3 trillion total assets under management for pooled investment funds, or average assets under management of $8.4 billion per adviser. Of these, 4,044 investment advisers had clients that were private funds, with total assets under management of $35.2 billion and average assets under management of $8.6 billion.
• Exempt reporting advisers. These are investment advisers that are required to report on Form ADV but not to register with the Commission (for example, investment advisers to venture capital funds). Based on ADV data, there were 2,303 exempt reporting advisers in 2012, all of which had pooled investment funds as clients, with approximately $1.6 trillion of assets under management.
We do not have information regarding investment advisers with assets under management of less than $100 million, which are not generally required to register with the Commission, or investment managers that advise pooled investment funds with respect to investments in assets other than securities, such as commodities or real estate.
As of December 2012, there were 4,450 broker-dealers registered with the Commission who file on Form X–17A–5, with average total assets of approximately $1.1 billion per broker-dealer. The aggregate total assets of these registered broker-dealers are approximately $4.9 trillion. Of these registered broker-dealers, 410 are dually registered as investment advisers. The dually registered broker-dealers are larger (average total assets of $6.4 billion) than those that are not dually registered. Among the dually registered broker-dealers, we identified 24 that currently have or have had private funds that submitted Form D filings between 2002 and 2012.
The economic impact of the rule amendments primarily depends on the extent to which they succeed in reducing fraud in the Rule 506 marketplace. This, in turn, depends on multiple factors, including the incidence of bad actors in Rule 506 offerings, the recidivism rate of such bad actors and the potential deterrent effect of disqualification as a sanction.
The disqualification rules should reduce the participation of both new and existing bad actors in Rule 506 offerings. Offerings will no longer be eligible to rely on Rule 506 if they involve a covered person that becomes a bad actor because of a triggering event that occurs after the new rules take effect. While triggering events existing before effectiveness of the rule will not be disqualifying, issuers will be required to provide disclosure about such events to investors. Participation in Rule 506 offerings by bad actors not disqualified by the rules we adopt today may, therefore, also be limited if issuers or investors are reluctant to transact with bad actors or participate in transactions involving bad actors once they become aware of the bad act through the required disclosure.
The effects of disqualification also depend on the likelihood that participation of bad actors in Rule 506 offerings would lead to the recurrence in perpetration of triggering events. This depends on the recidivism rates among bad actors.
Finally, the passage of the rule, through the deterrent effect of a potential threat of disqualification, could have the indirect impact of reducing the number of bad actors in the securities markets and the conduct resulting in sanctions that trigger disqualification.
Although it is impossible to predict future market participant behavior that may arise in response to the adopted rules, we can quantify, in certain instances, past occurrences of certain triggering events to provide an estimate of the historical incidence of bad actors—as determined under the new rules—in securities markets as a general matter.
• Injunctions and court orders (which we refer to collectively as “injunctions”) against conduct or practices in connection with the purchase or sale of a security, involving the making of a false filing with the Commission, or arising out of the conduct of business of certain financial intermediaries, as provided in Rule 506(d)(1)(ii);
• Commission disciplinary orders under Section 15(b) or 15B(c) of the Exchange Act or Section 203(e) or (f) of the Advisers Act that suspend or revoke registration, limit activities or bar a person from association with a regulated entity or from participation in a penny stock offering, as provided in Rule 506(d)(1)(iv); and
• Commission cease-and-desist orders relating to violations of scienter-based anti-fraud provisions of the federal securities laws or violations of Section 5 of the Securities Act, as provided in Rule 506(d)(1)(v).
Our search of Commission enforcement actions identified a sample of 2,578 persons, including both individuals and entities, that received injunctions, disciplinary orders, and/or cease-and-desist orders, issued in a total of 1,485 enforcement cases over the five-year period. We found that an aggregate of 3,053 disqualifying sanctions (1,943 injunctions, 853 disciplinary orders, and 257 cease-and-desist orders) were imposed upon these persons. In some instances, a person received more than one sanction, which in most cases consisted of a combination of an injunction and a disciplinary order.
While all of the 2,578 identified bad actors would disqualify any offering in which they were involved from reliance on Rule 506, not all of the bad actors would be expected to be involved with Rule 506 offerings. Many of the triggering events, such as insider trading, involve bad actors engaged in secondary market transactions. These persons may present a lesser risk of entering primary issuance markets such as Rule 506. Hence, the aggregate number of bad actors may overestimate the incidence of bad actors operating in the Rule 506 market. To more accurately estimate the likelihood that a bad actor might be involved in the issuance of securities, we identify triggering events involving a Section 5 violation.
To assess the quality of the search results, from the 1,485 cases previously identified, we selected a random sample of 190 cases, a sample that is large enough to provide a low margin of error. Because a single case produces multiple triggering events if multiple persons are named, the sample of 190 cases included 529 potential triggering events and allows for a margin of error of less than 5% in our analysis.
For purposes of the review, defendants or respondents were categorized as “issuers,” “intermediaries,” and “other persons.” “Issuers” are entities that issue securities and the individuals who were affiliated with that issuer. “Intermediaries” are entities and individuals that facilitate securities offerings and investments, like brokers and non-affiliated investment advisers. “Other persons” are persons who are neither issuers nor intermediaries; the staff found that, in general, these were persons found liable for trading on inside information.
The following table summarizes the staff's findings with respect to these cases:
Of the 529 bad actors in the sample, staff found that 278 were issuers, 189 were intermediaries, 17 were entities that could qualify as either an issuer or an intermediary (such as a promoter who is employed by an issuer), and 45 were other persons.
Based on projections from our review of this sample, we estimate that during the 2007 to 2011 review period, 549 cases (37% of the 1,485 total cases) involved an unregistered offering and approximately 1,212 bad actors (47% of the 2,578 total bad actors identified) participated in those unregistered offerings. We consider these estimates as a lower bound for the number of bad actors because our analysis does not take into account bad actor triggering events other than those in subsections (ii), (iv), and (v) of Rule 506(d)(1) or offerings involving bad actors that did not give rise to enforcement activity. Taking those into account, the total number of bad actors is likely to be higher.
We considered other data sources regarding the number of bad actor triggering events not involving Commission action. NASAA's 2012 Enforcement Report presents some data on orders by state securities regulators between 2009 and 2011,
Section 926 of the Dodd-Frank Act requires the Commission to adopt rules excluding felons and other bad actors from participation in Rule 506 offerings. The disqualification provisions of Rule 506 were intended to
In the proposing release, we solicited comment on the costs and benefits of the proposed rules. While no comment letters provided quantitative data or directly addressed the cost-benefit analysis included in the proposing release, a number of commenters did mention potential costs and benefits of the proposed rule. Our response to these comments is discussed in Section II above, and we briefly discuss these comments where they are relevant in the discussion below.
To the extent the new disqualification provisions result in a reduction of fraud in the Rule 506 offering market, investor losses to fraud will be reduced and investor willingness to participate in the
The new disqualification provisions may also benefit investors by reducing the burden of the “due diligence” investigation they conduct on persons and entities involved in the offerings in which they invest. Without bad actor disqualification, investors seeking information about the background of issuers and the people involved with them would have to perform separate investigations due to the cost of coordinating collective action. Requiring issuers to determine whether any persons or entities are subject to an event that triggers disqualification may, for some investors, obviate the need to do their own investigation, which may eliminate some of the redundancies in these separate investigations. Given the issuer's advantage in accessing much of the relevant information, issuers should be able to perform the task at a lower cost than most individual investors.
The disqualification requirements also impose costs on issuers, covered persons and investors. In our analysis under the Paperwork Reduction Act in Part III.B above, we estimate that most issuers will bear an additional cost of $400 to conduct a factual inquiry to determine whether any covered persons had a disqualifying event that occurred before the effective date of the rule amendments.
Issuers that are disqualified from reliance on Rule 506 will bear costs to the extent that alternative means of raising capital are unavailable or involve higher transaction costs that result in a higher cost of capital. In some circumstances, issuers may postpone or forgo capital raising, deferring engagement in potentially value-enhancing projects. This could entail forgone investment opportunities for disqualified issuers and for investors who otherwise would have invested in such issuers. Issuers that pursue alternative capital raising methods may incur higher costs associated with their capital raising. For example, all other things being equal, transaction costs are likely to be higher for issuers that raise capital in reliance on Section 4(a)(2) of the Securities Act outside of Rule 506 because of higher costs to comply with state securities law requirements and greater legal uncertainty about the requirements of the exemption. In addition, issuers eligible to rely on new Rule 506(c) will be able to use general solicitation and general advertising to find potential investors if all purchasers in their offering are accredited investors and the issuer takes reasonable steps to verify their accredited investor status,
Issuers may also incur costs in connection with changes to personnel, governance structures and capital raising plans as a result of disqualification. For example, issuers may incur costs from terminating disqualified individuals or from reassigning them to positions where they will not trigger a disqualification in the context of an offering, and hiring new personnel or retraining existing personnel to replace them. They may also incur costs incident to restructuring their governance and control arrangements if, for example, a general partner, managing member or investment manager of a pooled investment fund issuer is a bad actor whose involvement would result in the disqualification of the offering. Issuers may also incur costs in connection with terminating an engagement with a placement agent or other covered financial intermediary, and entering into a new engagement. Smaller issuers and issuers with limited operating histories may not be able to readily find a new placement agent or other financial intermediary.
The final rule will include as covered persons the beneficial owners of 20% or more of the issuer's outstanding voting equity, calculated on the basis of voting power. This reflects a change from the 10% or more beneficial ownership of any class of the issuer's equity originally proposed. The higher ownership standard, limitation to voting securities and calculation focused on voting power would increase the likelihood that the disqualified investor is more closely affiliated with the issuer and has greater input or control over the management of the issuer.
At the same time, determining whether a securityholder is covered based on ownership of voting securities, calculating ownership based on voting power across all outstanding securities rather than a single class and raising the threshold from 10% to 20% could reduce investor protection benefits, as securityholders whose ownership does not meet the threshold provided in the final rule, but who exercise control of an issuer, would not be covered. The inclusion of directors, officers and their functional equivalents under the definition of covered persons, however, may mitigate this effect; the rule will cover investors who serve those functions in relation to the issuer, regardless of their level of ownership.
With respect to 20% beneficial owners that are subject to triggering events, issuers may incur costs to buy out or otherwise induce such persons to reduce their ownership positions. Issuers may also incur costs in connection with taking steps to prevent bad actors from becoming 20% beneficial owners, such as exercising rights of first refusal and excluding bad actors from financing rounds. For certain issuers, finding investors to replace the capital represented by these shareholders or potential investors, as the case may be, could be challenging and expensive. Some commenters also expressed concerns about the aggregate costs of the proposed bad actor rule, saying that its provisions are generally unduly complex, unclear or not based on objective, bright-line standards.
Issuers may also incur costs in connection with seeking waivers of disqualification from the Commission, or determinations by other authorities (such as state securities regulators) that their orders should not give rise to disqualification under Rule 506(d).
The new disqualification standards may also impose costs on other market participants that are subject to triggering events, such as financial intermediaries, by making them ineligible to participate in the market for Rule 506 offerings. For affected individuals, this may result in demotion or termination of employment, limitations on career advancement and fewer employment opportunities generally. For affected firms, this may result in revenue reductions and loss of market share, and could threaten the continued operation of firms that are heavily dependent on Rule 506 offerings as a source of revenue. Firms that are not themselves disqualified but whose officers, directors, general partners and managing members are subject to disqualifying events may incur additional costs from terminating or reassigning such individuals and from hiring new personnel or retraining existing personnel to replace them.
Bad actor disqualification rules may also impose costs on issuers and other market participants beyond the context of Rule 506 offerings. For example, imposing a new disqualification standard only on offerings under Rule 506, rather than on a more uniform basis, may result in higher costs for issuers relying on other exemptive rules, to the extent that differing disqualification standards create confusion and a more difficult compliance regime. Adopting uniform disqualification provisions throughout the Securities Act was cited by some commenters as a benefit, in that it could simplify compliance and increase overall investor protection.
In addition, non-uniform application of the new disqualification standards may encourage bad actors to migrate to offerings under other exemptions. Investors may perceive a higher risk of fraud in such offerings, which would be detrimental to their marketability and result in greater issuance costs of all offerings under the exemptions that are not subject to the new standards, whether or not bad actors are involved. This could have an effect on competition by putting issuers that are not eligible to use Rule 506 at a competitive disadvantage.
Finally, there is a potential cost to investors of overreliance on Rule 506(d) in assessing the risks associated with an offering. Fraud can still occur without prior incidence of bad acting on the part of the issuer or covered persons, and in some cases it is possible that prior bad actions went undetected or did not otherwise result in a sanction, or may have resulted in a sanction that does not constitute a triggering event for disqualification.
The amendments not specifically required under the Section 926 mandate involve costs and benefits as analyzed below.
Commenters uniformly supported the reasonable care exception, but also urged the Commission to provide greater clarity and specificity about what steps would constitute reasonable care. Some commenters raised concerns about compliance costs if the requirements of the “reasonable care” exception are too burdensome.
A potential cost of a reasonable care exception is that it may increase the likelihood that bad actors will be able to participate in Rule 506 offerings, because issuers may take fewer steps to make inquiry about offering participants than they would if a strict liability standard applied. If this occurs, it will decrease the deterrent effect of the bad actor disqualification rules. To the extent that the reasonable care exception fails to prevent participation by bad actors in Rule 506 offerings, the effectiveness of the new disqualification standard will be impaired.
Issuers may also incur costs associated with conducting and documenting their factual inquiry into possible disqualifications, so they can demonstrate the exercise of reasonable care. The fact that the rule does not specify what steps are required may increase such costs to the extent that issuers do more to conduct and document their inquiry than otherwise may be necessary, because of this uncertainty.
Under the amendments we are adopting, issuers will be subject to disqualification only for triggering events that occur after the new rules take effect. On one hand, this approach will reduce costs that would otherwise have been incurred by issuers and other market participants subject to pre-existing triggering events, had they been disqualified from participating in Rule 506 offerings. On the other hand, this approach will permit offerings involving past bad actors to proceed under Rule 506, exposing investors to the risks that arise when bad actors are associated with an offering. While it is difficult to determine the net impact of implementing the new disqualification standards in this way, investors will benefit by having access to information about events that would be disqualifying if they had occurred after the effective date. Investors will be able to make their own determination of the relevance and risks associated with past bad acts, including recidivism risk, and can request additional information, elect not to pursue the investment opportunity or negotiate different terms based on this information.
We anticipate that the decision to require disclosure will provide a benefit to issuers and investors. We believe the disclosure requirement will serve as a useful tool to alert investors to the presence of certain participants in offerings under Rule 506 and allow them to make more informed investment decisions. Without a disclosure requirement, investors may have the mistaken impression that bad actors are no longer allowed to participate in Rule 506 offerings. As there is no prescribed format, the disclosure could be inserted in a non-prominent manner, such that an investor who reads the material in a cursory fashion could remain unaware of the participation of bad actors in the offering. Issuers could benefit from having flexibility in the manner of disclosure. In addition, because we have imposed a disclosure requirement rather than disqualification for pre-existing events, issuers will not be required to revisit past negotiated settlements or incur additional costs to request waivers for disqualification. Issuers will, however, incur costs in connection with the factual inquiry to determine whether disclosure is required and, if applicable, in preparing the mandatory disclosure for investors, which we have described in Section III above. Also, rather than provide the mandatory disclosure, we expect some issuers may decide to take steps to avoid having to make a disclosure, such as making changes to personnel or retaining different compensated solicitors, and in that respect may incur costs similar to those associated with avoiding or removing a potential disqualification.
We also recognize that issuers that disclose triggering events may have greater difficulty attracting investors to their offerings and may incur a higher cost of capital as a result. We do not have data with respect to current issuer practices involving disclosure of the participation of persons with a history of regulatory or other legal sanctions for securities law violations and, as such, we are unable to determine the extent to which the disclosure requirement will impact issuers' cost of capital. If investors are unwilling to participate in offerings involving prior bad actors, some issuers and other market participants will, as a practical matter, be excluded from the Rule 506 market and will experience some or all of the impact of disqualification.
We believe the investor protection benefits of adding Commission cease-and-desist orders to the disqualification provisions of Rule 506 justify the potential costs to issuers and other covered persons. The benefits associated with screening bad actors out of the Rule 506 market should not depend on
It is difficult to predict the extent to which adding these Commission cease-and-desist orders to the list of disqualifying events will increase the number of bad actors subject to disqualification from Rule 506 offerings. In our analysis of disqualifying events from 2007 through 2011 discussed earlier, we attempted to assess the number of individuals or entities that would be disqualified as bad actors based solely on Commission cease-and-desist orders described in subsection (v) of Rule 506(d)(1). We identified 116 cease-and-desist orders against respondents that were not otherwise subject to a disqualifying injunction, disciplinary order or felony conviction during the 2007 to 2011 period.
In addition, inclusion of Commission cease-and-desist orders as a triggering event for bad actor disqualification may change how settlement negotiations are conducted between respondents and the Commission. Even after the Commission imposes a disqualifying cease-and-desist order upon a covered person, the Commission may grant an appropriate waiver from disqualification based on settlement negotiations or other remedial measures and steps taken by the covered person to comply with the Commission cease-and-desist order. We believe that issuers and other covered persons will be able to consider the practical consequences of a future Commission cease-and-desist order and alter their conduct to avoid committing the behavior causing the violation. Alternatively, they can seek to obtain a waiver of disqualification in enforcement settlement negotiations.
We anticipate that this additional triggering event will add minimal incremental costs for issuers, given the requirement in the rule as adopted to conduct factual inquiry to determine whether the offering is subject to bad actor disqualification. To the extent that the addition of a disqualifying event broadens the type and the number of covered persons who will be disqualified from participation in Rule 506 offerings, it may have a detrimental effect on capital raising activity by delaying or deterring offerings, or causing issuers to incur higher transaction costs.
We have a limited ability to quantify the impact of including CFTC orders as a new disqualification trigger under Rule 506(d). While we have access to general information about CFTC enforcement activity,
We were able to review disclosures concerning CFTC orders on Form ADV by registered investment advisers and exempt reporting advisers with pooled investment fund clients. In on our review of 384 Forms ADV (as described in detail below), we found six investment adviser firms associated with pooled investment funds that were subject to CFTC orders that would constitute triggering events under Rule 506(d).
In the review described above in Section IV.B.3, we found that 47 of the random sample of 529 identified cases involved investment advisers (18 of these 47 were also broker-dealers). None of these 47 investment advisers was sanctioned in connection with a private offering. This, however, would represent only a lower bound for the incidence of bad actor triggering events among investment advisers, as the analysis was based on a random sample drawn from the legal proceedings that were brought before the Commission during the period 2007–2011. In addition, our analysis does not take into account bad actor triggering events other than those in subsections (ii), (iv), and (v) of Rule 506(d)(1) or offerings involving bad actors that did not give rise to enforcement activity.
We analyzed all Form ADVs filed by investment advisers for 2012 to determine the reported incidence of disqualification triggering events. We limited our review to forms filed by investment advisers that:
• Advise a private fund or have clients that are registered investment companies, business development companies or other pooled investment vehicles;
• Provided disclosure reporting pages on their current Form ADV; and
• Indicated that some of the disclosure reporting pages are for the adviser itself or its supervised persons.
Looking at the cases and the regulatory and court actions involved, we determined whether the reported sanctions would constitute triggering events under Rule 506(d). Most of the sanctions would not because the criteria for providing disclosure reporting pages for Form ADV include many events that do not constitute bad actor triggering events under new Rule 506(d). For example, we excluded cases that were initiated by a foreign court or regulator, cases that involved an affiliate firm or cases that involved an individual employee of an affiliate who is not a control person in the parent advisory firm. We also excluded cases where a sanction fell outside the relevant look-back period, such as a Commission cease-and-desist order that is more than five years old. In addition, we excluded cases in which an action did not meet the relevant substantive criteria, such as Commission cease-and-desist orders for violations other than Section 5 of the Securities Act or a scienter-based anti-fraud provision, or felonies that were unrelated to the criteria of Rule 506(d), such as traffic violations.
After these exclusions, we found that approximately 1% of reporting investment advisers associated with pooled investment funds reported bad actor triggering events in their 2012 Form ADV. The results of our analysis are presented in the table below.
Additional issuer costs arising from the addition of investment managers as covered persons will arise from conducting factual inquiries and, in some cases, restructuring governance and control arrangements, preparing disclosure or obtaining waivers from disqualification for having an investment adviser with a history of bad acting. Our analysis shows that the incidence of disqualifying events is low (less than 1%) for investment advisers. So their inclusion in the list of covered persons should not be generally burdensome for issuers. On the other hand, covering investment managers directly will obviate the need for issuers to conduct a fact-intensive inquiry to determine whether an investment manager would be regarded as a
This final regulatory flexibility analysis has been prepared in accordance with 5 U.S.C. 603. It relates to amendments to Rule 506 of Regulation D under the Securities Act that disqualify certain offerings where “felons and other `bad actors'” are participating or present from relying on Rule 506 for an exemption from registration under the Securities Act, or impose disclosure requirements in respect of such offerings.
The primary reason for the amendments is to implement the requirements of Section 926 of the Dodd-Frank Act. Section 926 requires the Commission to issue rules under which certain offerings where “felons and other `bad actors'” are participating or present will be disqualified from reliance on Rule 506 under Regulation D for an exemption from registration under the Securities Act. Under the amendments adopted today, offerings will be disqualified for triggering events that occur after the effective date of the amendments, and disclosure to investors will be required in respect of triggering events that occur before the effective date.
Our primary objective is to implement the requirements of Section 926 of the Dodd-Frank Act. In general, the rule we are adopting implements the statutory requirements. We have included a “reasonable care” exception in the final amendments, which we believe will make the rule easier for issuers to use, and should encourage continued use of Rule 506 over exempt transactions outside of Rule 506. We have also added an additional disqualifying event for certain Commission cease-and-desist orders, which we believe will make the overall regulatory scheme more consistent and will increase the investor protection benefits of the amendments. We are requiring disclosure, rather than disqualification, for triggering events occurring before effectiveness of the final amendments as a means of enhancing protection of investors participating in offerings involving bad actors, without giving rise to the fairness and other concerns associated with applying the new disqualification provisions in respect of preexisting events.
In the proposing release, we requested comment on every aspect of the initial regulatory flexibility analysis (“IRFA”), including the number of small entities that would be affected by the proposed amendments, the nature of the impact, how to quantify the number of small entities that would be affected, and how to quantify the impact of the proposed amendments. We did not receive comments specifically addressing the IRFA. One commenter suggested exempting offerings below a certain size from the new disqualification provisions based on concerns about the cost of Securities Act registration if Rule 506 were unavailable,
The amendments will affect issuers (including both operating businesses and investment funds that raise capital under Rule 506) and other covered persons, such as financial intermediaries, that are small entities. For purposes of the Regulatory Flexibility Act under our rules, an entity is a “small business” or “small organization” if it has total assets of $5 million or less as of the end of its most recent fiscal year and is engaged or proposing to engage in an offering of securities that does not exceed $5 million.
The final amendments will apply to all issuers that conduct offerings under Rule 506 and will affect small issuers (including both operating businesses and pooled investment funds that raise capital under Rule 506) relying on this exemption from Securities Act registration. All issuers that sell securities in reliance on Regulation D are required to file a Form D with the Commission reporting the transaction. For the year ended December 31, 2012, 16,067 issuers made 18,187 new Form D filings, of which 15,208 relied on the Rule 506 exemption. Based on information reported by issuers on Form D, there were 3,958 small issuers
The final amendments will impose a disclosure requirement with respect to triggering events that occurred before the effective date of the new disqualification provisions and would have triggered disqualification had they occurred after that date.
In addition, we expect that issuers will exercise reasonable care to ascertain whether a disqualification exists with respect to any covered person, and document their exercise of reasonable care. The steps required will vary with the circumstances, but we anticipate would generally include making factual inquiry of covered persons and, where the issuer has reason to question the veracity or completeness of responses to such inquiries, further steps such as reviewing information on publicly available databases. In addition, issuers will have to prepare any necessary disclosure regarding preexisting events.
The Commission believes that there are no rules that duplicate, overlap or conflict with the final amendments to Rules 145, 147, 152 and 155; Rules 501 and 506 of Regulation D; and Form D under the Securities Act and to Rule 30–1 of our Rules of Organization and Program Management.
The Regulatory Flexibility Act directs us to consider significant alternatives that would accomplish the stated objectives of our amendments, while minimizing any significant adverse impact on small entities. In connection with the final amendments, we considered the following alternatives:
• The establishment of different compliance or reporting requirements or timetables that take into account the resources available to small entities;
• The clarification, consolidation, or simplification of the rule's compliance and reporting requirements for small entities;
• The use of performance rather than design standards; and
• An exemption from coverage of the amendments, or any part thereof, for small entities.
With respect to the establishment of different compliance requirements or timetables under our final amendments for small entities, we do not think this is feasible or appropriate. The amendments are designed to exclude “felons and other `bad actors' ” from involvement in Rule 506 securities offerings, which could benefit small issuers by protecting them and their investors from bad actors and increasing investor trust in such offerings. Increased investor trust could reduce the cost of capital and create greater opportunities for small businesses to raise capital.
Likewise, with respect to potentially clarifying, consolidating, or simplifying compliance and reporting requirements, the amendments do not impose any new reporting requirements. To the extent they may be considered to create a new compliance requirement to exercise reasonable care to ascertain whether a disqualification exists with respect to any offering and to furnish a written description of preexisting triggering events, the precise steps necessary to meet that requirement will vary according to the circumstances. In general, we believe the requirement will more easily be met by small entities than by larger ones because we believe that their structures and securities offerings are generally less complex and involve fewer participants.
With respect to using performance rather than design standards, we note that the “reasonable care” exception is a performance standard.
With respect to exempting small entities from coverage of these final amendments, we believe such an approach would be impracticable and contrary to the requirements of Section 926. Regulation D was designed, in part, to provide exemptive relief for smaller issuers. Exempting small entities from bad actor provisions could result in a decrease in investor protection and trust in the private placement and small offerings markets, which would be contrary to the legislative intent of Section 926. We have endeavored to minimize the regulatory burden on all issuers, including small entities, while meeting our regulatory objectives, and have included a “reasonable care” exception and waiver authority for the Commission to give issuers and other covered persons additional flexibility with respect to the application of these amendments.
We are adopting the amendments to 17 CFR Parts 230 and 239 contained in this document under the authority set forth in Sections 4(a)(2), 19 and 28 of the Securities Act, as amended,
Administrative practice and procedure, Authority delegations (Government agencies), Organization and functions (Government agencies), Reporting and recordkeeping requirements.
Reporting and recordkeeping requirements, Securities.
For the reasons set out above, Title 17, Chapter II of the Code of Federal Regulations is hereby amended as follows:
15 U.S.C. 77
(c) With respect to the Securities Act of 1933 (15 U.S.C. 77a
15 U.S.C. 77b, 77b note, 77c, 77d, 77d note, 77f, 77g, 77h, 77j, 77r, 77s, 77z–3, 77sss, 78c, 78d, 78j, 78
Transactions for which statutory exemptions under the Act, including those contained in sections 3(a)(9), (10), (11) and 4(2), are otherwise available are not affected by Rule 145. Reference is made to Rule 153a (§ 230.153a of this chapter) describing the prospectus delivery required in a transaction of the type referred to in Rule 145. A reclassification of securities covered by Rule 145 would be exempt from registration pursuant to section 3(a)(9) or (11) of the Act if the conditions of either of these sections are satisfied.
The addition reads as follows:
(g)
The additions read as follows:
(c) [Reserved]
(d) “
(i) Has been convicted, within ten years before such sale (or five years, in the case of issuers, their predecessors and affiliated issuers), of any felony or misdemeanor:
(A) In connection with the purchase or sale of any security;
(B) Involving the making of any false filing with the Commission; or
(C) Arising out of the conduct of the business of an underwriter, broker, dealer, municipal securities dealer, investment adviser or paid solicitor of purchasers of securities;
(ii) Is subject to any order, judgment or decree of any court of competent jurisdiction, entered within five years before such sale, that, at the time of such sale, restrains or enjoins such person from engaging or continuing to engage in any conduct or practice:
(A) In connection with the purchase or sale of any security;
(B) Involving the making of any false filing with the Commission; or
(C) Arising out of the conduct of the business of an underwriter, broker, dealer, municipal securities dealer, investment adviser or paid solicitor of purchasers of securities;
(iii) Is subject to a final order of a state securities commission (or an agency or officer of a state performing like functions); a state authority that supervises or examines banks, savings associations, or credit unions; a state insurance commission (or an agency or officer of a state performing like functions); an appropriate federal banking agency; the U.S. Commodity Futures Trading Commission; or the National Credit Union Administration that:
(A) At the time of such sale, bars the person from:
(
(
(
(B) Constitutes a final order based on a violation of any law or regulation that prohibits fraudulent, manipulative, or deceptive conduct entered within ten years before such sale;
(iv) Is subject to an order of the Commission entered pursuant to section 15(b) or 15B(c) of the Securities Exchange Act of 1934 (15 U.S.C. 78
(A) Suspends or revokes such person's registration as a broker, dealer, municipal securities dealer or investment adviser;
(B) Places limitations on the activities, functions or operations of such person; or
(C) Bars such person from being associated with any entity or from participating in the offering of any penny stock;
(v) Is subject to any order of the Commission entered within five years before such sale that, at the time of such sale, orders the person to cease and desist from committing or causing a violation or future violation of:
(A) Any scienter-based anti-fraud provision of the federal securities laws, including without limitation section 17(a)(1) of the Securities Act of 1933 (15 U.S.C. 77q(a)(1)), section 10(b) of the Securities Exchange Act of 1934 (15 U.S.C. 78j(b)) and 17 CFR 240.10b–5, section 15(c)(1) of the Securities Exchange Act of 1934 (15 U.S.C. 78
(B) Section 5 of the Securities Act of 1933 (15 U.S.C. 77e).
(vi) Is suspended or expelled from membership in, or suspended or barred from association with a member of, a registered national securities exchange or a registered national or affiliated securities association for any act or omission to act constituting conduct inconsistent with just and equitable principles of trade;
(vii) Has filed (as a registrant or issuer), or was or was named as an underwriter in, any registration statement or Regulation A offering statement filed with the Commission that, within five years before such sale,
(viii) Is subject to a United States Postal Service false representation order entered within five years before such sale, or is, at the time of such sale, subject to a temporary restraining order or preliminary injunction with respect to conduct alleged by the United States Postal Service to constitute a scheme or device for obtaining money or property through the mail by means of false representations.
(2) Paragraph (d)(1) of this section shall not apply:
(i) With respect to any conviction, order, judgment, decree, suspension, expulsion or bar that occurred or was issued before September 23, 2013;
(ii) Upon a showing of good cause and without prejudice to any other action by the Commission, if the Commission determines that it is not necessary under the circumstances that an exemption be denied;
(iii) If, before the relevant sale, the court or regulatory authority that entered the relevant order, judgment or decree advises in writing (whether contained in the relevant judgment, order or decree or separately to the Commission or its staff) that disqualification under paragraph (d)(1) of this section should not arise as a consequence of such order, judgment or decree; or
(iv) If the issuer establishes that it did not know and, in the exercise of reasonable care, could not have known that a disqualification existed under paragraph (d)(1) of this section.
(3) For purposes of paragraph (d)(1) of this section, events relating to any affiliated issuer that occurred before the affiliation arose will be not considered disqualifying if the affiliated entity is not:
(i) In control of the issuer; or
(ii) Under common control with the issuer by a third party that was in control of the affiliated entity at the time of such events.
(e)
15 U.S.C. 77f, 77g, 77h, 77j, 77s, 77z–2, 77z–3, 77sss, 78c, 78
Certifying that, if the issuer is claiming a Regulation D exemption for the offering, the issuer is not disqualified from relying on Regulation D for one of the reasons stated in Rule 505(b)(2)(iii) or Rule 506(d).
The text of Form D does not, and the amendments will not, appear in the Code of Federal Regulations.
By the Commission.
Securities and Exchange Commission.
Final rules.
We are adopting amendments to Rule 506 of Regulation D and Rule 144A under the Securities Act of 1933 to implement Section 201(a) of the Jumpstart Our Business Startups Act. The amendment to Rule 506 permits an issuer to engage in general solicitation or general advertising in offering and selling securities pursuant to Rule 506, provided that all purchasers of the securities are accredited investors and the issuer takes reasonable steps to verify that such purchasers are accredited investors. The amendment to Rule 506 also includes a non-exclusive list of methods that issuers may use to satisfy the verification requirement for purchasers who are natural persons. The amendment to Rule 144A provides that securities may be offered pursuant to Rule 144A to persons other than qualified institutional buyers, provided that the securities are sold only to persons that the seller and any person acting on behalf of the seller reasonably believe are qualified institutional buyers. We are also revising Form D to require issuers to indicate whether they are relying on the provision that permits general solicitation or general advertising in a Rule 506 offering.
Also today, in a separate release, to implement Section 926 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, we are adopting amendments to Rule 506 to disqualify issuers and other market participants from relying on Rule 506 if “felons and other `bad actors' ” are participating in the Rule 506 offering. We are also today, in a separate release, publishing for comment a number of proposed amendments to Regulation D, Form D and Rule 156 under the Securities Act that are intended to enhance the Commission's ability to evaluate the development of market practices in Rule 506 offerings and address certain comments made in connection with implementing Section 201(a)(1) of the Jumpstart Our Business Startups Act.
The final rule and form amendments are effective on September 23, 2013.
Charles Kwon, Special Counsel, or Ted Yu, Senior Special Counsel, Office of Chief Counsel, Division of Corporation Finance, at (202) 551–3500, or, with respect to private funds, Holly Hunter-Ceci, Senior Counsel, Chief Counsel's Office, or Alpa Patel, Senior Counsel, Investment Adviser Regulation Office, Division of Investment Management, at (202) 551–6825 or (202) 551–6787, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549.
We are adopting amendments to Rule 144A,
On August 29, 2012, we proposed rule and form amendments
Although the Dodd-Frank Act did not change the amount of the $1 million net worth test, it did change how that amount is calculated—by excluding the value of a person's primary residence. This change took effect upon the enactment of the Dodd-Frank Act. In December 2011, we amended Rule 501 to incorporate this change into the definition of accredited investor.
The Commission originally adopted Rule 506 as a non-exclusive safe harbor under Section 4(a)(2) (formerly Section 4(2)) of the Securities Act,
Rule 144A is a non-exclusive safe harbor exemption from the registration requirements of the Securities Act for resales of certain “restricted securities”
Rule 506 offerings and Rule 144A offerings are widely used by U.S. and non-U.S. issuers to raise capital. In 2012, the estimated amount of capital (including both equity and debt) reported as being raised in Rule 506 offerings and non-asset-backed securities (“non-ABS”) Rule 144A offerings by operating companies was $173 billion and $636 billion, respectively, and by pooled investment funds, such as venture capital funds, private equity funds and hedge funds, was $725 billion and $4 billion, respectively, compared to $1.2 trillion raised in registered offerings.
The amount of capital raised through offerings under Regulation D may be larger than what is reported in Form D filings because, although the filing of a Form D is a requirement of Rule 503(a) of Regulation D [17 CFR 230.503(a)], it is not a condition to the availability of the exemptions under Regulation D. Further, once a Form D is filed, the issuer is not required to file an amendment to the filing to reflect a change that occurs after the offering terminates or a change that occurs solely with respect to certain information, such as the amount sold in the offering. For example, if the amount sold does not result in an increase in the total offering amount of more than 10% or the offering closes within a year, the filing of an amendment to the initial Form D is not required. Therefore, a Form D filed for a particular offering may not reflect the total amount of securities sold in the offering in reliance on the exemption.
To implement Section 201(a) of the JOBS Act, we proposed amending Rule 506 to add new paragraph (c), under which the prohibition against general solicitation contained in Rule 502(c) would not apply, provided that all purchasers of the securities are accredited investors and the issuer takes reasonable steps to verify that such purchasers are accredited investors. In addition, we proposed amending Form D, which is a notice required to be filed with the Commission by each issuer
The comment period for the proposed rule and form amendments closed on October 5, 2012. We received over 225 comment letters on the Proposing Release, including from professional and trade associations, investor organizations, law firms, investment companies and investment advisers, members of Congress, the Commission's Investor Advisory Committee,
We have reviewed and considered all of the comments that we received on the proposed rule and form amendments and on Section 201(a) of the JOBS Act.
We acknowledge the concerns of some commenters that the elimination of the prohibition against general solicitation for a subset of Rule 506 offerings may affect the behavior of issuers and other market participants in ways they believe could compromise investor protection.
Section 4(a)(2) of the Securities Act exempts transactions by an issuer “not involving any public offering.” An issuer relying on Section 4(a)(2) is restricted in its ability to make public communications to attract investors for its offering because public advertising is incompatible with a claim of exemption under Section 4(a)(2).
This mandate affects only Rule 506, and not Section 4(a)(2) offerings in general,
To implement the mandated rule change, we proposed new Rule 506(c), which would permit the use of general solicitation to offer and sell securities under Rule 506, provided that the following conditions are satisfied:
• All terms and conditions of Rule 501
• all purchasers of securities must be accredited investors; and
• the issuer must take reasonable steps to verify that the purchasers of the securities are accredited investors.
Commenters were sharply divided in their views on the proposed amendment to Rule 506. Commenters who supported the proposed amendment to Rule 506 stated that Rule 506(c), if adopted, would assist issuers, particularly early stage and smaller issuers, in raising capital by allowing them to solicit investments from a larger pool of investors.
Other commenters opposed the proposed amendment to Rule 506 in its entirety or in part. Many of these commenters expressed concern that the proposed amendment, if adopted, would increase the risk of fraudulent and abusive Rule 506 offerings and asserted that additional investor safeguards are necessary under Rule 506(c).
A number of commenters requested that the Commission provide transitional guidance with respect to ongoing offerings under existing Rule 506 that commenced before the effectiveness of Rule 506(c).
After considering the comments, we are adopting Rule 506(c) as proposed, with one modification. Under new Rule 506(c), issuers can offer securities through means of general solicitation, provided that they satisfy all of the conditions of the exemption.
• all terms and conditions of Rule 501 and Rules 502(a) and 502(d) must be satisfied;
• all purchasers of securities must be accredited investors;
• the issuer must take reasonable steps to verify that the purchasers of the securities are accredited investors.
Issuers will continue to have the ability under Rule 506(b) to conduct Rule 506 offerings subject to the prohibition against general solicitation. As we noted in the Proposing Release, offerings under existing Rule 506(b) represent an important source of capital for issuers of all sizes, and we believe that the continued availability of existing Rule 506(b) will be important for those issuers that either do not wish to engage in general solicitation in their Rule 506 offerings (and become subject to the requirement to take reasonable steps to verify the accredited investor status of purchasers) or wish to sell privately to non-accredited investors who meet Rule 506(b)'s sophistication requirements. Retaining the safe harbor under existing Rule 506(b) may also be beneficial to investors with whom an issuer has a pre-existing substantive relationship.
Finally, with respect to transition matters, for an ongoing offering under Rule 506 that commenced before the effective date of Rule 506(c), the issuer may choose to continue the offering after the effective date in accordance with the requirements of either Rule 506(b) or Rule 506(c). If an issuer chooses to continue the offering in accordance with the requirements of Rule 506(c), any general solicitation that occurs after the effective date will not affect the exempt status of offers and sales of securities that occurred prior to the effective date in reliance on Rule 506(b).
Section 201(a)(1) of the JOBS Act mandates that our amendment to Rule 506 require issuers using general solicitation in Rule 506 offerings “to take reasonable steps to verify that purchasers of the securities are accredited investors, using such methods as determined by the Commission.” As noted in the Proposing Release, we believe that the purpose of the verification mandate is to address concerns, and reduce the risk, that the use of general solicitation in Rule 506 offerings could result in sales of securities to investors who are not, in fact, accredited investors.
To implement the verification mandate of Section 201(a)(1), we proposed to condition the Rule 506(c) exemption on the requirement that issuers using general solicitation “take reasonable steps to verify” that the purchasers of the offered securities are accredited investors. As proposed, whether the steps taken are “reasonable” would be an objective determination by the issuer (or those acting on its behalf), in the context of the particular facts and circumstances of each purchaser and transaction. Under this principles-based approach, issuers would consider a number of factors when determining the reasonableness of the steps to verify that a purchaser is an accredited investor, such as:
• The nature of the purchaser and the type of accredited investor that the purchaser claims to be;
• the amount and type of information that the issuer has about the purchaser; and
• the nature of the offering, such as the manner in which the purchaser was solicited to participate in the offering, and the terms of the offering, such as a minimum investment amount.
In the Proposing Release, we considered providing a list of specified methods for satisfying the verification requirement, which was suggested by some commenters on Section 201(a) prior to the issuance of the Proposing Release.
We requested comment in the Proposing Release on our proposed principles-based method and its effectiveness in limiting sales of securities in Rule 506(c) offerings to only accredited investors. We also requested comment on possible alternative approaches for implementing the verification mandate of Section 201(a)(1), such as a rule that specifies mandatory methods for verifying accredited investor status or a non-exclusive list of verification methods that would function as a safe harbor for compliance with the verification requirement.
Commenters expressed a wide range of views on the proposed approach to the verification requirement in Rule 506(c). Some commenters commended the Commission for proposing a flexible, principles-based standard for verification.
Other commenters opposed the Commission's proposed approach, for various reasons. A number of these commenters opposed the proposed verification standard because, in their view, self-certification by itself should be sufficient to satisfy the verification requirement.
Commenters expressed differing views on whether the Commission should include a non-exclusive list of methods in proposed Rule 506(c) for satisfying the verification requirement. Many commenters, encompassing a wide range of perspectives (
If there were to be a non-exclusive list of verification methods, commenters expressed a range of views on what should be included in such a list, such as verification by certain third parties or through tax returns and third-party documentary proof such as Forms W–2, Forms 1099, bank statements, brokerage account statements, tax assessment valuations and appraisal reports.
In contrast, one commenter argued that the ability to satisfy a minimum investment amount would not necessarily mean a person is an accredited investor, but rather, that the investor could be “over-concentrated in the investment.”
Several commenters stated that there should be a “grandfather” provision from the verification mandate for an issuer's existing investors who purchased securities in a Rule 506(b) offering prior to the effective date of Rule 506(c),
After considering the comments and as directed by Section 201(a) of the JOBS Act, we are adopting as a condition of new Rule 506(c) the requirement that issuers take “reasonable steps to verify” that purchasers of the offered securities are accredited investors. This requirement is separate from and independent of the requirement that sales be limited to accredited investors, and must be satisfied even if all purchasers happen to be accredited investors.
Under Rule 506(c), issuers are required to take reasonable steps to verify the accredited investor status of purchasers. Consistent with the Proposing Release, whether the steps taken are “reasonable” will be an objective determination by the issuer (or those acting on its behalf), in the context of the particular facts and circumstances of each purchaser and transaction. Among the factors that issuers should consider under this facts and circumstances analysis are:
• the nature of the purchaser and the type of accredited investor that the purchaser claims to be;
• the amount and type of information that the issuer has about the purchaser; and
• the nature of the offering, such as the manner in which the purchaser was solicited to participate in the offering, and the terms of the offering, such as a minimum investment amount.
As noted in the Proposing Release, these factors are interconnected and are intended to help guide an issuer in assessing the reasonable likelihood that a purchaser is an accredited investor—which would, in turn, affect the types of steps that would be reasonable to take to verify a purchaser's accredited investor status. After consideration of the facts and circumstances of the purchaser and of the transaction, the more likely it appears that a purchaser qualifies as an accredited investor, the fewer steps the issuer would have to take to verify accredited investor status, and vice versa. For example, if the terms of the offering require a high minimum investment amount and a purchaser is able to meet those terms, then the likelihood of that purchaser satisfying the definition of accredited investor may be sufficiently high such that, absent any facts that indicate that the purchaser is not an accredited investor, it may be reasonable for the issuer to take fewer steps to verify or, in certain cases, no additional steps to verify accredited investor status other than to confirm that the purchaser's cash
Regardless of the particular steps taken, because the issuer has the burden of demonstrating that its offering is entitled to an exemption from the registration requirements of Section 5 of the Securities Act,
• a broker or dealer registered pursuant to Section 15 of the Securities Exchange Act of 1934 (the “Exchange Act”);
• an investment company registered under the Investment Company Act of 1940 (the “Investment Company Act”) or a business development company as defined in Section 2(a)(48) of that Act.
• a plan established and maintained by a state, its political subdivisions, or any agency or instrumentality of a state or its political subdivisions, for the benefit of its employees, if such plan has total assets in excess of $5 million;
• an Internal Revenue Code (“IRC”) Section 501(c)(3) organization, corporation, Massachusetts or similar business trust, or partnership, not formed for the specific purpose of acquiring the securities offered, with total assets in excess of $5 million.
• a natural person whose individual net worth, or joint net worth with that person's spouse, exceeds $1 million, excluding the value of the person's primary residence;
• a natural person who had an individual income in excess of $200,000 in each of the two most recent years, or joint income with that person's spouse in excess of $300,000 in each of those years, and has a reasonable expectation of reaching the same income level in the current year.
As Rule 501(a) sets forth different categories of accredited investors, an issuer should recognize that the steps that will be reasonable to verify whether a purchaser is an accredited investor will vary depending on the type of accredited investor that the purchaser claims to be. For example, the steps that may be reasonable to verify that an entity is an accredited investor by virtue of being a registered broker-dealer—such as by going to FINRA's BrokerCheck Web site
As we stated in the Proposing Release, the verification of natural persons as accredited investors may pose greater practical difficulties as compared to other categories of accredited investors, particularly for natural persons claiming to be accredited investors based on the net worth test. These practical difficulties likely will be exacerbated by privacy concerns about the disclosure of personal financial information. As between the net worth test and the income test for natural persons, we recognize that commenters have suggested that it might be more difficult for an issuer to obtain information about the assets and liabilities that determine a person's net worth—particularly the liabilities—than it would be to obtain information about a person's annual income,
• publicly available information in filings with a federal, state or local regulatory body—for example, without limitation:
○ the purchaser is a named executive officer of an Exchange Act registrant, and the registrant's proxy statement discloses the purchaser's compensation; or
○ the purchaser claims to be an IRC Section 501(c)(3) organization with $5 million in assets, and the organization's Form 990 series return filed with the Internal Revenue Service discloses the organization's total assets;
• third-party information that provides reasonably reliable evidence that a person falls within one of the enumerated categories in the accredited investor definition—for example, without limitation:
○ the purchaser is a natural person and provides copies of pay stubs for the two most recent years and the current year; or
○ specific information about the average compensation earned at the purchaser's workplace by persons at the level of the purchaser's seniority is publicly available; or
• verification of a person's status as an accredited investor by a third party, provided that the issuer has a
The terms of the offering will also affect whether the verification methods used by the issuer are reasonable. We continue to believe that there is merit to the view that a purchaser's ability to meet a high minimum investment amount could be a relevant factor to the issuer's evaluation of the types of steps that would be reasonable to take in order to verify that purchaser's status as an accredited investor. By way of example, the ability of a purchaser to satisfy a minimum investment amount requirement that is sufficiently high such that only accredited investors could reasonably be expected to meet it, with a direct cash investment that is not financed by the issuer or by any third party, could be taken into consideration in verifying accredited investor status.
Commenters suggested a number of alternative approaches to implementing the verification mandate. Some commenters urged us to adopt a requirement that prescribes specific methods of verification that issuers must use, either because they believed such methods are needed for issuers seeking clarity on how to comply with this condition of Rule 506(c)
We believe that the approach we are adopting appropriately addresses the concerns underlying the verification mandate by obligating issuers to take reasonable steps to verify that the purchasers are accredited investors, but not requiring them to follow uniform verification methods that may be ill-suited or unnecessary to a particular offering or purchaser in light of the facts and circumstances. We also expect that such an approach will give issuers and market participants the flexibility to adopt different approaches to verification depending on the circumstances, to adapt to changing market practices, and to implement innovative approaches to meeting the verification requirement, such as the development of reliable third-party databases of accredited investors and verification services. In addition, we anticipate that many practices currently used by issuers in connection with existing Rule 506 offerings will satisfy the verification requirement for offerings pursuant to Rule 506(c).
In addition to adopting a principles-based method of verification, we are including in Rule 506(c) four specific non-exclusive methods of verifying accredited investor status for natural persons that, if used, are deemed to satisfy the verification requirement in Rule 506(c); provided, however, that none of these methods will be deemed to satisfy the verification requirement if the issuer or its agent has knowledge that the purchaser is not an accredited investor.
First, in verifying whether a natural person is an accredited investor on the basis of income, an issuer is deemed to satisfy the verification requirement in Rule 506(c) by reviewing copies of any Internal Revenue Service (“IRS”) form that reports income, including, but not limited to, a Form W–2 (“Wage and Tax Statement”), Form 1099 (report of various types of income), Schedule K–1 of Form 1065 (“Partner's Share of Income, Deductions, Credits, etc.”), and a copy of a filed Form 1040 (“U.S. Individual Income Tax Return”),
Second, in verifying whether a natural person is an accredited investor on the basis of net worth, an issuer is deemed to satisfy the verification requirement in Rule 506(c) by reviewing one or more of the following types of documentation, dated within the prior three months,
Third, an issuer is deemed to satisfy the verification requirement in Rule 506(c) by obtaining a written confirmation from a registered broker-dealer, an SEC-registered investment adviser, a licensed attorney, or a certified public accountant that such person or entity has taken reasonable steps to verify that the purchaser is an accredited investor within the prior three months and has determined that such purchaser is an accredited investor.
Fourth, with respect to any natural person who invested in an issuer's Rule 506(b) offering as an accredited investor prior to the effective date of Rule 506(c) and remains an investor of the issuer, for any Rule 506(c) offering conducted by the same issuer, the issuer is deemed to satisfy the verification requirement in Rule 506(c) with respect to any such person by obtaining a certification by such person at the time of sale that he or she qualifies as an accredited investor.
We are including the first three methods in our non-exclusive list of methods that are deemed to satisfy the verification requirement in Rule 506(c) because we believe that there will likely be few instances in which they would not constitute reasonable steps to verify accredited investor status. With respect to the verification method for the income test, there are numerous penalties for falsely reporting information in an Internal Revenue Service form, and these forms are filed with the Internal Revenue Service for purposes independent of investing in a Rule 506(c) offering. Similarly, we believe that the various forms of documentation set forth in the verification method for the net worth test ordinarily are generated for reasons other than to invest in a Rule 506(c) offering (with the possible exception of appraisal reports) and, in combination with a consumer report and a written representation from the investor regarding his or her liabilities, constitute sufficiently reliable evidence that such person's net worth exceeds $1 million, excluding the value of the person's primary residence. With respect to the third-party verification method, we have included written confirmations from certain third parties in our non-exclusive list of verification methods because these third parties are subject to various regulatory and/or licensing requirements. Registered broker-dealers
The Commission recognizes that there may be particular considerations a certified public accountant would need to take into account to comply with applicable professional standards for attestation engagements to provide a report that constitutes a confirmation in the context of this rule.
We are including the fourth method in our non-exclusive list of methods that are deemed to satisfy the verification requirement in Rule 506(c) because we acknowledge that existing accredited investors who purchased securities in an issuer's Rule 506(b) offering prior to the effective date of Rule 506(c) would presumably participate in any subsequent offering by the same issuer conducted pursuant to Rule 506(c) based on their pre-existing relationships with the issuer. Accordingly, for these existing investors who were accredited investors in a Rule 506(b) offering prior to the effective date of Rule 506(c), a self-certification at the time of sale that he or she is an accredited investor will be deemed to satisfy the verification requirement in Rule 506(c). This provision does not extend to existing investors in an issuer who were not accredited investors in a Rule 506(b) offering that was conducted prior to the effective date of Rule 506(c).
While we have not adopted the recommendations of commenters who believe that even more prescriptive verification requirements are needed, we do recognize the general concern regarding possible misuse of the new Rule 506(c) exemption to sell securities to those who are not qualified to participate in the offering. We will closely monitor and study the development of verification practices by issuers, securities intermediaries and others by undertaking a review of whether such practices are, in fact, resulting in the exclusion of non-accredited investors from participation in these offerings, and the impact of compliance with this verification requirement on investor protection and capital formation.
In the Proposing Release, we noted that a number of commenters had raised concerns that the language of Section 201(a) of the JOBS Act could be interpreted as precluding the use of the “reasonable belief” standard in the definition of “accredited investor” in Rule 501(a) in determining whether a purchaser is an accredited investor, such that an issuer's determination as to whether a purchaser is an accredited investor is subject to an absolute, rather than a “reasonable belief,” standard.
Commenters on the Proposing Release were divided on the Commission's interpretation that the reasonable belief standard in Rule 501(a) applies to offerings under Rule 506(c). Several commenters supported this interpretation;
We are reaffirming the view that we expressed on this issue in the Proposing Release. In our view, the difference in the language between Section 201(a)(1) and Section 201(a)(2) reflects only the differing manner in which the reasonable belief standard was included in the respective rules at the time they were adopted, and does not represent a Congressional intent to eliminate the existing reasonable belief standard in Rule 501(a) or for Rule 506 offerings.
Further, as discussed in the Proposing Release, we continue to recognize that a person could provide false information or documentation to an issuer in order to purchase securities in an offering made under new Rule 506(c). Thus, even if an issuer has taken reasonable
Form D is the notice of an offering of securities conducted without registration under the Securities Act in reliance on Regulation D.
We proposed revising Form D to add a separate field or check box for issuers to indicate whether they are claiming an exemption under Rule 506(c). Item 6 of Form D currently requires the issuer to identify the claimed exemption or exemptions for the offering from among Rule 504's paragraphs and subparagraphs, Rule 505, Rule 506 and former Section 4(5), as applicable. Under the proposal, a new check box in Item 6 of Form D would require issuers to indicate specifically whether they are relying on the Rule 506(c) exemption. In addition, the current check box for “Rule 506” would be renamed “Rule 506(b),” and the current check box for “Section 4(5)” would be renamed “Section 4(a)(5)” to update the reference to former Section 4(5) of the Securities Act.
We explained in the Proposing Release that this revision would provide additional information needed to assist our efforts to analyze the use of general solicitation in Rule 506(c) offerings and the size of this offering market. The information would also help us to look into the practices that may develop to satisfy the verification requirement, which would assist us in assessing the effectiveness of various verification practices in identifying and excluding non-accredited investors from participation in Rule 506(c) offerings.
Most commenters who expressed a view on the proposed checkbox in Form D supported the addition of this checkbox for issuers to indicate whether they are relying on Rule 506(c) for their offerings.
We are adopting the revision to Form D as proposed. Issuers conducting Rule 506(c) offerings must indicate that they are relying on the Rule 506(c) exemption by marking the new check box in Item 6 of Form D. Further, as proposed, the current check box for “Rule 506” will be renamed “Rule 506(b),” and the current check box for “Section 4(5)” will be renamed “Section 4(a)(5).”
We are of the view that an issuer will not be permitted to check both boxes at the same time for the same offering. We remind issuers that once a general solicitation has been made to the purchasers in the offering,
Private funds, such as hedge funds, venture capital funds and private equity funds, typically rely on Section 4(a)(2) and Rule 506 to offer and sell their interests without registration under the Securities Act.
Section 201(a)(1) of the JOBS Act directs the Commission to eliminate the prohibition against general solicitation for a new category of Rule 506 offerings, and makes no specific reference to private funds. Section 201(b) of the JOBS Act also provides that “[o]ffers and sales exempt under [Rule 506, as revised pursuant to Section 201(a)] shall not be deemed public offerings under the Federal securities laws as a result of general advertising or general solicitation.” We historically have regarded Rule 506 transactions as non-public offerings for purposes of Sections 3(c)(1) and 3(c)(7).
A few commenters argued that Section 201(b) does not permit private funds to engage in general solicitation under proposed Rule 506(c) without losing their exclusions under the Investment Company Act.
Some commenters expressed concerns about private funds engaging in general solicitation under proposed Rule 506(c).
Some commenters who were concerned about private funds engaging in general solicitation recommended that we impose additional conditions on private funds that rely on Rule 506(c). In particular, a number of commenters believed that private funds engaging in general solicitation should be subject to some form of content and/or other restrictions, and suggested potential methods.
Finally, some commenters opposed the imposition of content and/or other restrictions for private funds.
We have carefully considered commenters' suggestions and concerns. We are mindful of certain commenters' concerns that private funds engaging in general solicitation may raise certain investor protection issues. We also understand that other commenters believe that additional measures regarding private fund advertising are not necessary because the antifraud provisions of the federal securities laws continue to apply. We will monitor and study the development of private fund advertising and undertake a review to determine whether any further action is necessary.
We remind investment advisers to private funds that they are subject to Rule 206(4)–8 under the Advisers Act.
As was stated by the Commission when it adopted Rule 206–4(8), “[t]he rule clarifies that an adviser's duty to refrain from fraudulent conduct under the federal securities laws extends to the relationship with ultimate investors and that the Commission may bring enforcement actions under the Advisers Act against investment advisers who defraud investors or prospective investors in those pooled investment vehicles.”
We believe that investment advisers that have implemented appropriate policies and procedures regarding, among other things, the nature and content of private fund sales literature, including general solicitation materials, are less likely to use materials that materially mislead investors or otherwise violate the federal securities laws. Accordingly, we believe that investment advisers to private funds should carefully review any such policies and procedures that have been implemented to determine whether they are reasonably designed to prevent the use of fraudulent or materially misleading private fund advertising and make appropriate amendments to those policies and procedures, particularly if the private funds intend to engage in general solicitation activity.
We proposed a number of technical and conforming amendments to Rules 502 and 506 of Regulation D. Under the proposal, we would amend various provisions in Rule 502(b) to clarify that the references to sales to non-accredited investors under Rule 506, and the corresponding informational requirements, would be applicable to offerings under Rule 506(b) and not to offerings under Rule 506(c). We proposed to amend Rule 502(c) to clarify that Rule 502(c)'s prohibition against general solicitation would not apply to offerings under Rule 506(c). In addition, as Section 201(c) of the JOBS Act renumbered Section 4 of the Securities Act, we proposed to amend Regulation D and Rule 144A to update the references to Section 4. Finally, the proposal would update references to Section 2 of the Securities Act in these rules as some of the references have not been updated to reflect the current numbering scheme in Section 2. We received no comments regarding these technical and conforming amendments and are adopting these rule amendments as proposed.
Section 201(a)(2) of the JOBS Act directs the Commission to revise Rule 144A(d)(1) under the Securities Act to provide that securities sold pursuant to Rule 144A may be offered to persons other than QIBs, including by means of general solicitation, provided that securities are sold only to persons that the seller and any person acting on behalf of the seller reasonably believe is a QIB. To implement the mandated rule change, we proposed amending Rule 144A(d)(1) to eliminate the references to “offer” and “offeree.” All of the commenters that expressed a view on the proposed amendment to Rule 144A(d)(1) stated that they supported the Commission's proposal.
As a result of the Section 201(a)(2) mandate and the resulting Rule 144A revisions, we are also making technical and conforming revisions to the exceptions in Regulation M relating to transactions in Rule 144A securities, specifically Regulation M Rules 101(b)(10), 102(b)(7) and 104(j)(2). When adopted in 1996, the exceptions delineated in Rules 101(b)(10)(i), 102(b)(7)(i) and 104(j)(2)(i) were generally intended to permit transactions in securities eligible for resale under Rule 144A during a distribution of securities, provided that offers and sales of such securities were made solely to QIBs or persons reasonably believed to be QIBs in certain transactions exempt from registration.
As explained above, Section 201(a)(2) of the JOBS Act directs the Commission to revise Rule 144A to permit offers of securities to persons other than QIBs. As noted above, Rule 144A is being amended to eliminate references to “offer” and “offeree,” so that the amended rule will require only that securities be sold to a QIB or to a purchaser that the seller and any person acting on behalf of the seller reasonably believes is a QIB.
In order to conform the language in Regulation M to Rule 144A, as amended, we are conforming the Regulation M exceptions by similarly eliminating the references to “offered” and “offerees.” We believe that these conforming modifications do not result in any substantive change to the Regulation M exceptions and are consistent with the purpose of the exceptions.
As a transition matter, for an ongoing Rule 144A offering that commenced before the effective date of the amendment to Rule 144A(d)(1), offering participants will be entitled to conduct the portion of the offering following the effective date of the amendment to Rule 144A(d)(1) using general solicitation, without affecting the availability of Rule 144A for the portion of the offering that occurred prior to the effective date of the amended rule.
In the Proposing Release, we noted that the mandate in Section 201(a) that the Commission amend Rule 506 and Rule 144A to permit the use of general solicitation in transactions under those rules has raised questions from some commenters
We expressed our view on this issue in the Proposing Release, which we are reaffirming in this release.
The amendment to Form D contains a “collection of information” requirement within the meaning of the Paperwork Reduction Act of 1995 (“PRA”).
We adopted Regulation D and Form D as part of the establishment of a series
As discussed above, we proposed to amend Form D to add a check box to indicate an offering relying on the Rule 506(c) exemption. In the Proposing Release, we requested comment on our PRA burden hour and cost estimates and the analysis used to derive such estimates. One commenter responded to our request for comment on the PRA analysis and stated that it believed that the cost estimates in the PRA and economic analysis are too low.
Consistent with the PRA analysis in the Proposing Release, we believe that the addition of a check box on Form D to indicate that an issuer is relying on the Rule 506(c) exemption for its offering will have a negligible effect on the paperwork burden of the form. Form D already contains a check box for each basis of exemption claimed under Regulation D; this change simply conforms the form to the new rule amendment. Accordingly, we estimate that under the amendment to Form D, the burden for responding to the collection of information in Form D will be substantially the same as before the amendment to Form D. We believe, however, that the amendment to Rule 506 could increase the number of Form D filings that are made with the Commission because we expect issuers may conduct more Rule 506 offerings.
The table below shows the current total annual compliance burden, in hours and in costs, of the collection of information pursuant to Form D. For purposes of the PRA, we estimate that, over a three-year period, the average burden estimate will be four hours per Form D filing. Our burden estimate represents the average burden for all issuers. This burden is reflected as a one hour burden of preparation on the issuer and a cost of $1,200 per filing. In deriving these estimates, we assume that 25% of the burden of preparation is carried by the issuer internally and that 75% of the burden of preparation is carried by outside professionals retained by the issuer at an average cost of $400 per hour. The portion of the burden carried by outside professionals is reflected as a cost, while the portion of the burden carried by the issuer internally is reflected in hours.
According
We anticipate that new paragraph (c) of Rule 506 could result in an even greater annual increase in the number of Form D filings than the 10% annual increase estimated above. As a reference point for the potential increase, we use the impact of another past rule change on the market for Regulation D offerings. In 1997, the Commission amended Rule 144(d) under the Securities Act
For purposes of the PRA and based on our analysis above, we estimate that the amendment to Rule 506 will result in a 20% increase in Form D filings relying on the Rule 506 exemption, or approximately 3,637 filings.
Based on this increase, we estimate that the annual compliance burden of the collection of information requirements for the first year in which issuers will make Form D filings after the adoption of Rule 506(c) will be an aggregate of 21,824 hours of issuer personnel time and $26,188,800 for the services of outside professionals per year.
We are adopting amendments to
We are mindful of the costs imposed by and the benefits obtained from our rules. The discussion below addresses the economic effects of the amendments to Rule 506, Rule 144A and Form D, including the likely benefits and costs of the amendments as well as the effect of the amendments on efficiency, competition and capital formation.
The baseline analysis that follows is in large part based on information collected from Form D filings submitted by issuers relying on Regulation D to raise capital. As we describe in more detail below, we believe that we do not have a complete view of the Rule 506 market, particularly with respect to the amount of capital raised. Currently, issuers are required to file a Form D within 15 days of the first sale of securities, and are required to report additional sales through amended filings only under certain conditions. In addition, issuers may not report all required information, either due to error or because they do not wish to make the information public. Commenters have suggested and we also have evidence that some issuers do not file a Form D for their offerings in compliance with Rule 503.
Exempt offerings play a significant role in capital formation in the United States. Offerings conducted in reliance on Rule 506 account for 99% of the capital reported as being raised under Regulation D from 2009 to 2012, and represent approximately 94% of the number of Regulation D offerings.
In 2011, the estimated amount of capital (including both equity and debt) reported as being raised in Rule 506 offerings was $849 billion compared to $985 billion raised in registered offerings.
At present, issuers are required to file a Form D not later than 15 days after the first sale of securities in a Regulation D offering and an amendment to the Form D only under certain circumstances. Since issuers are not required to submit a Form D filing when an offering is completed, and submit amendments only under certain circumstances, we have no definitive information on the final amounts raised. Figure 2, below, illustrates that at the time of the Form D filing, only 39% of offerings by non-pooled investment fund issuers were completed relative to the total amount sought. Separately, 70% of pooled investment funds state their total offering amount to be “Indefinite” in their Form D filings. As a result, the Form D filings of these pooled investment funds likely do not accurately reflect the total amount of securities offered or sold.
The amendments to Rule 506 we are adopting today will affect a number of different market participants. Issuers of securities in Rule 506 offerings include both reporting and non-reporting operating companies and pooled investment funds. Investment advisers organize and sponsor pooled investment funds that conduct Rule 506 offerings. Intermediaries that facilitate Rule 506 offerings include registered broker-dealers, finders and placement agents. Investors in Rule 506 offerings include accredited investors (both natural persons and legal entities) and non-accredited investors who meet certain “sophistication” requirements. Each of these market participants is discussed in further detail below.
Based on the information submitted in 112,467 new and amended Form D filings between 2009 and 2012, there were 67,706 new Regulation D offerings by 49,740 unique issuers during this four-year period.
Some information about issuer size is available from Item 5 in Form D, which requires issuers in Regulation D offerings to report their size in terms of revenue ranges or, in the case of certain pooled investment funds, net asset value ranges. All issuers can currently choose not to disclose this size information, however, and a significant majority of issuers that are not pooled investment funds declined to disclose their revenue ranges in the Forms D that they filed between 2009 and 2012. For those that did, most reported a revenue range of less than $1 million (Figure 3).
During this period, pooled investment funds conducted approximately 24% of the total number of Regulation D offerings and raised approximately 81% of the total amount of capital raised in Regulation D offerings.
Between 2009 and 2012, approximately 66% of Regulation D offerings were of equity securities, and almost two-thirds of these were by issuers other than pooled investment funds.
Unlike in Regulation D offerings, issuers conducting Rule 144A offerings are not required to disclose information about their offerings to the Commission, which limits our ability to measure the size of the Rule 144A market. Based on transaction information collected by third-party data providers,
We have relatively little information on the types and number of investors in Rule 506 offerings. Form D currently requires issuers in Rule 506 offerings to provide information about the total number of investors who have already invested in the offering and the number of persons who do not qualify as accredited investors.
Information collected from Form D filings indicates that most Rule 506 offerings do not involve broad investor participation. More than two-thirds of these offerings have ten or fewer investors, while less than 5% of these offerings have more than 30 investors. Although Rule 506 currently allows for the participation of non-accredited investors who meet certain sophistication requirements, such non-accredited investors reportedly purchased securities in only 11% of the Rule 506 offerings conducted between 2009 and 2012.
As stated above, between 2009 and 2012, the size of the median Regulation D offering, based on the information in Form D filings, was approximately $1.5 million. The presence of so many relatively small offerings suggests that a sizable number of current investors in Rule 506 offerings are natural persons or legal entities in which all equity owners are natural persons. This is because smaller offerings may not provide sufficient scale for institutional investors to earn a sizable return. Institutional investors typically have a larger investible capital base and more formal screening procedures compared to investors who are natural persons, and the associated costs of identifying potential investments and monitoring their investment portfolio lead them to make larger investments than natural persons.
While we do not know what percentage of investors in Rule 506 offerings are natural persons, the vast majority of Regulation D offerings are conducted without the use of an intermediary,
Our analysis, however, leads us to believe that only a small percentage of these households are likely to participate in securities offerings, especially exempt offerings. First, as mentioned above, data from Form D filings in 2012 suggests that fewer than 234,000 investors (of which an unknown subset are natural persons) participated in Regulation D offerings, which is small compared to the 8.7 million households that qualify as accredited investors. Second, evidence suggests that only a small fraction of the total accredited investor population has significant levels of direct stockholdings. Based on an analysis of retail stock holding data for 33 million brokerage accounts in 2010, only 3.7 million accounts had at least $100,000 of direct investments in equity securities issued by public companies listed on domestic national securities exchanges, while only 664,000 accounts had at least $500,000 of direct investments in such equity securities (Figure 7).
Investors in Rule 144A offerings are QIBs, which comprise a broad range of U.S. entities, including mutual funds, pension funds, banks, savings and loan associations, investment companies, insurance companies and entities whose equity owners are all QIBs.
As of December 2012, there were 10,870 Commission-registered investment advisers that filed Form ADV with the Commission, representing approximately $50 trillion total assets under management.
Approximately one-fourth of registered investment advisers (2,842) currently advise (or advised) private funds that filed Form D between 2002 and 2012, while another 1,250 registered investment advisers currently advise (or advised) private funds that did not file Form D during the same period. The registered investment advisers advising private funds that submitted Form D filings during this period had average assets under management of $8.7 billion, while the ones advising private funds that did not submit Form D filings had average assets under management of $8.6 billion. Registered investment advisers that did not advise private funds (6,623) are considerably smaller, with average assets under management of $2.1 billion.
As of December 2012, there were 4,450 broker-dealers registered with the Commission who file on Form X–17A–5, with average total assets of approximately $1.1 billion per broker-dealer. The aggregate total assets of these registered broker-dealers are approximately $4.9 trillion. Of these registered broker-dealers, 410 are dually registered as investment advisers. The dually registered broker-dealers are larger (average total assets of $6.4 billion) than those that are not dually registered. Among the dually registered broker-dealers, we identified 24 that currently have or have had private funds that submitted Form D filings between 2002 and 2012.
The extent of the economic impact of the amendments to Rule 506 will depend on the current practices of issuers and market participants in Rule 506 offerings. As issuers in the Regulation D market are not required to disclose in Form D how they formed a reasonable belief that the purchasers in their Rule 506 offerings are accredited investors or sophisticated investors and are not currently required to take reasonable steps to verify the accredited investor status of these purchasers, the Commission does not have any data on current verification practices used in such offerings, if any. Commenters, however, provided examples of current practices of how issuers collect information from a potential purchaser to form a reasonable belief that he or she is an accredited investor. One commenter suggested that a large number of issuers rely on lists of accredited investors created and maintained by a reliable third party, such as registered broker-dealers,
Congress has mandated that we eliminate the prohibition against general solicitation for a subset of Rule 506 offerings.
The elimination of the prohibition against general solicitation for a subset of Rule 506 offerings will enable issuers to solicit potential investors directly, through both physical (such as mailings, newspaper advertisements and billboards) and electronic (such as the Internet, social media, email and television) means. As a result, we anticipate that issuers will be able to reach a much greater number of potential investors than is currently the case, thereby increasing their access to sources of capital. We note that many commenters, including those representing small businesses, biotechnology companies and angel investors, stated that the elimination of the prohibition against general solicitation will facilitate capital formation by allowing businesses, particularly early-stage companies, to solicit investments from a larger pool of investors.
We believe that it is reasonable to conclude that allowing issuers to have wider access to accredited investors by eliminating the prohibition against general solicitation for a category of Rule 506 offerings will significantly improve their access to capital and potentially enhance capital formation and lower the issuance cost. Although the lack of available data on the economic impact of eliminating the prohibition against general solicitation in Rule 506 offerings precludes us from quantifying the magnitude of this effect, the Commission has some evidence of the effect of the availability of general solicitation on issuers' ability to raise capital based on information about the number of Rule 504 offerings from 1992 to 2001, which covers the period during which the prohibition against general solicitation was lifted for Rule 504,
The development of the venture capital (VC) industry in the United States may also be a relevant example to illustrate the potential for enhanced capital formation that may result from allowing issuers to have access to a wider range of investors. Under the Employment Retirement Income Security Act of 1974, pension fund managers are subject to a “prudent man” standard of care in making investments.
We also anticipate that allowing issuers to solicit potential investors directly will lower the direct costs of Rule 506 offerings. Although none of the commenters provided data on direct cost savings, and although Form D filings do not present a complete view of the market, we do have estimates of the direct offering costs paid by issuers that use an intermediary to locate investors in Rule 506 offerings. An analysis of all Form D filings submitted between 2009 to 2012 shows that approximately 11% of all new Regulation D offerings reported sales commissions of greater than zero because the issuers used intermediaries.
Even for issuers that do not currently use an intermediary, allowing issuers to generally solicit would likely lower the search costs associated with finding accredited investors who would be interested in a particular offering, thus enhancing economic efficiency.
The elimination of the prohibition against general solicitation would also reduce the uncertainty for issuers as to whether a Rule 506 offering can be completed in certain situations, and would eliminate the costs of complying with the prohibition.
The elimination of the prohibition against general solicitation in Rule 506(c) offerings will likely increase the amount and types of information about issuers and offerings that are communicated to investors, which could also lead to more efficient pricing for the offered securities. In addition, accredited investors who previously have found it difficult to find investment opportunities in Rule 506 offerings may be able to find and potentially invest in a larger and more diverse pool of potential investment opportunities, which would result in a more efficient allocation of investments by accredited investors.
With respect to private funds in particular, in the Proposing Release, we noted that eliminating the prohibition against general solicitation would allow accredited investors to gather information about private funds at relatively lower costs and to allocate their capital more efficiently.
Some commenters noted that greater transparency about private funds' activities would benefit investors in these funds, and communications about these activities would be subject to the antifraud provisions of the federal securities laws and FINRA regulations on the preparation of marketing materials.
While the lack of data does not allow us to quantify the costs and benefits of eliminating the prohibition against general solicitation under Rule 506(c) for private funds, we believe that the potential for an increase in fraudulent or deceptive issuer behavior due to the elimination of the prohibition may be limited to some extent by the competitive nature of the private funds industry as well as by the fact that there are often repeat interactions between private funds and their investors.
Eliminating the prohibition against general solicitation could result in heightened fraudulent activity in Rule 506(c) offerings because it will be easier for promoters of fraudulent schemes to reach potential investors through general solicitation. An increase in fraud would not only harm those investors who are defrauded, it would undermine investor participation in Rule 506(c) offerings and could negatively affect capital-raising by legitimate issuers—for example, by reducing investor participation in Rule 506(c) offerings—thereby inhibiting capital formation and reducing efficiency. One commenter was concerned that investors may confuse private funds with registered investment companies.
Several commenters echoed concerns regarding the potential of fraud related to private funds in the Rule 506(c) market.
A number of commenters
By 1998, we concluded that securities issued in these Rule 504 offerings facilitated a number of fraudulent secondary transactions in the over-the-counter markets, and that these securities were issued by “microcap” companies, characterized by thin capitalization, low share prices and little or no analyst coverage.
In contrast, issuers using Rule 506(c) can sell only to accredited investors, and the securities issued in these offerings are deemed to be “restricted securities” for purposes of resale under Rule 144. As a result, schemes involving price manipulation to defraud unknowing investors in the immediate resale of securities purchased directly from issuers (colloquially referred to as “pump and dump” schemes)
The risks to investors of fraudulent offerings conducted under Rule 506(c) may be mitigated to some extent by the requirement that issuers sell only to accredited investors (and take reasonable steps to verify such status), who, by virtue of meeting the requirements of the definition, may be better able to assess their ability to take financial risks and bear the risk of loss than investors who are not accredited investors. Issuers will still be subject to the antifraud provisions under the federal securities laws, and the public nature of these solicitations may also facilitate detection of fraudulent activity in that the fraudulent nature of some offerings may be inferred from particular statements contained in solicitation materials, for example, representations of guaranteed high rates of return.
Several commenters asserted that satisfying the definition of accredited investor does not equate to financial sophistication and that it is questionable whether accredited investors will be better able to identify the financial risks
Although Rule 506(c) will directly affect the private offering market, it could also have an indirect effect on other markets. The lower search costs associated with finding Rule 506(c) offerings may cause some investors that currently invest in public equity and debt markets or other non-registered offering markets to reallocate capital to offerings made under Rule 506(c). If a significant number of investors make a greater proportion of their investments in Rule 506(c) offerings, such investor behavior may reduce the supply of capital and prices in the public equity and debt markets and in other non-registered offering markets. For example, issuers currently using the exemptions in Regulation A under the Securities Act
We believe that retaining existing Rule 506(b) will have benefits for both issuers and investors. It will allow issuers that do not wish to generally solicit in their private offerings to avoid the added expense of complying with the rules applicable to Rule 506(c) offerings. It will also allow issuers to continue selling privately to up to 35 non-accredited investors who meet existing Rule 506's sophistication requirements. The continued availability of Rule 506(b) may also be beneficial to investors with whom the issuer has a pre-existing substantive relationship and who do not wish to bear additional verification costs that may be associated with participation in Rule 506(c) offerings. All but one commenter supported the Commission's decision to retain Rule 506(b).
As there is no information available to us on the costs currently incurred by issuers to form a reasonable belief that a purchaser in a Rule 506 offering is an accredited investor, we are unable to quantify the estimated costs and benefits of the verification requirement in Rule 506(c). Comments from the public on this issue also did not provide any estimates.
The requirement in Rule 506(c) for issuers to take reasonable steps to verify that purchasers are accredited investors will likely make it more difficult for issuers to sell securities to non-accredited investors. This, in turn, may reduce the likelihood that fraudulent offerings would be completed because those who are eligible to purchase are more likely to be able to protect their interests than investors who are not accredited investors. Issuers would also benefit from measures that improve the integrity and reputation of the Rule 506(c) market because the measures would facilitate investor participation, which could result in issuers having greater access to capital.
The verification requirement in Rule 506(c) would impose costs as well. Because the requirement is to take “reasonable” steps to verify, and not every conceivable step to verify, it is possible that some investors in Rule 506(c) will not be accredited investors, even if the issuer takes reasonable steps to verify their status as accredited investors. If so, then these investors will participate in offerings for which they are not qualified and that may not be appropriate for them, thereby resulting in a potentially inefficient allocation of capital for these investors. These investors could also face an additional cost in the form of heightened risk of significant losses on their investments, which they may not be able to manage or diversify in a way that accredited investors could.
In addition, some potential investors likely would have to provide more information to issuers than they currently provide, while issuers may have to apply a stricter and more costly process to determine accredited investor status than what they currently use. While commenters provided us with examples of the methods currently used by issuers in the Rule 506 market to collect information about purchasers, they did not provide any data on the costs of these methods. While it is reasonable to expect that the costs associated with the verification requirement could be offset somewhat by its benefits, it is also reasonable to expect that some accredited investors who would participate in existing Rule 506(b) offerings would decline to participate in Rule 506(c) offerings in light of the verification requirement.
To the extent that issuers require investors to provide personally identifiable information (
Our decision not to specify the verification methods that an issuer must use in taking reasonable steps to verify accredited investor status would provide issuers with the flexibility to use methods that are appropriate in light of the facts and circumstances of each offering and each purchaser. Such flexibility could mitigate the cost to issuers of complying with Rule 506(c) because it would allow them to select the most cost-effective verification method for each offering. We anticipate, however, that issuers or their verification service providers will document the particular verification methods used in the event of any question being raised about the availability of the exemption. Although we do not specify the nature or extent of any such documentation, we acknowledge that it will create some cost.
On the other hand, the greater flexibility of the principles-based “reasonableness” verification method could result in less rigorous verification, thus allowing some unscrupulous issuers to more easily sell securities to purchasers who are not accredited investors and perpetrate fraudulent schemes, or it could create or promote legal uncertainty about the availability of Rule 506(c), which may cause some issuers to interpret “reasonable steps to verify” in a manner that is more burdensome than if specific verification methods were prescribed, thus incurring higher cost. We believe that the non-exclusive list of specific methods of verification we are including in Rule 506(c), as adopted, should help to mitigate the impact of these costs.
Some commenters suggested that using a flexible verification standard is optimal for issuers because it closely resembles current market practices which they believe have worked well in this market.
Our decision to provide a non-exclusive list of specified methods that issuers can use to verify a purchaser's accredited investor status will provide legal certainty in those circumstances in which there is a question as to whether or not the steps taken are reasonable in light of the facts and circumstances. Using a specified method would reduce issuers' verification costs to the extent that they would otherwise incur costs to analyze whether or not the steps they had taken or proposed to take satisfied the reasonableness standard in Rule 506(c). It could also reduce investors' costs, since the methods for verifying income and net worth rely mostly on documents prepared by third parties at no cost to the investors. On the other hand, some investors may be reluctant to provide the personal financial information required by the income and net worth methods; and with respect to the third-party method, it may be relatively costly to pay for the verification services of a lawyer or accountant as they may be concerned about professional liability. The grandfather method—which permits self-certification by existing investors who purchased securities as accredited investors in an issuer's Rule 506(b) offering before the effective date of Rule 506(c)—could result in investors that do not meet the definition of “accredited investor” participating in Rule 506(c) offerings because issuers conducting Rule 506(b) offerings are not required to take reasonable steps to verify the accredited investor status of their purchasers.
In addition, our non-exclusive list of specified verification methods could be mistakenly viewed by market participants as the required verification methods, in which compliance with at least one of the enumerated methods could be viewed, in the practical application of the verification requirement, as necessary in all circumstances to demonstrate that the verification requirement has been satisfied, thereby eliminating the flexibility that Rule 506(c) is intended to provide.
We expect the potential benefits of the amendments to Rule 144A to be lower (
We expect that there would be fewer potential occurrences of general solicitation-induced fraud in Rule 144A offerings, as compared to Rule 506(c) transactions, because Rule 144A offerings involve an intermediary that, as the initial purchaser of the securities, typically performs a due diligence investigation and assists the issuer in preparing the offering materials, thereby adding a layer of protection against fraud. Also, Rule 144A investors are generally large institutions, which are thought to be better able to identify fraudulent activities than smaller institutions and retail investors in general.
We also anticipate that eliminating the prohibition against general solicitation would significantly affect private trading systems by permitting information vendors to provide more information about Rule 144A securities. Indeed, because offers will be able to be made to the public, the information on private trading systems for Rule 144A
We are amending Form D to add a new check box in Item 6 of Form D that will require an issuer to indicate whether it is relying on Rule 506(c) in conducting its offering. With this information, the Commission will be able to more effectively analyze the use of Rule 506(c). The marginal cost to issuers of providing this information is likely to be low because Form D already requires issuers to identify the exemption on which they are relying. Commenters generally supported the proposal to have a new check box in Item 6 of Form D as a way to identify Rule 506(c) offerings.
Much of what we know about the size and characteristics of the private offering market comes from Form D filings. The information collected to date and described in this release illustrates and underscores the importance of the private offering market to the U.S. economy. The continued collection of this information following the elimination of the prohibition against general solicitation in Rule 506(c) and Rule 144A offerings will be an important tool in assessing the ongoing economic impact of the new rule amendments.
This Final Regulatory Flexibility Analysis (“FRFA”) has been prepared in accordance with Section 603 of the Regulatory Flexibility Act.
The primary reason for, and objective of, the amendments to Rule 502 and Rule 506 is to implement the statutory requirements of Section 201(a)(1) of the JOBS Act, which directs the Commission to revise Rule 506 to provide that the prohibition against general solicitation in Rule 502(c) shall not apply to offers and sales of securities made pursuant to Rule 506, provided that all purchasers of the securities are accredited investors. Consistent with the language in Section 201(a), the amendment to Rule 506 requires issuers to take reasonable steps to verify that purchasers in any Rule 506 offering using general solicitation are accredited investors. The primary reason for, and objective of, the amendment to Form D is to assist our efforts to analyze the use of general solicitation in Rule 506(c) offerings and the size of this offering market.
The primary reason for, and objective of, the final amendment to Rule 144A is to implement the statutory requirements of Section 201(a)(2) of the JOBS Act, which directs the Commission to revise Rule 144A(d)(1) to provide that securities sold pursuant to Rule 144A may be offered to persons other than QIBs, including by means of general solicitation, provided that securities are sold only to persons that the seller and any person acting on behalf of the seller reasonably believe are QIBs.
In the Proposing Release, we requested comment on any aspect of the IRFA, including the number of small entities that would be subject to the proposed rule and form amendments and the nature of the effects of the proposed amendments on small entities. We received one comment addressing the IRFA.
For purposes of the Regulatory Flexibility Act, under our rules, an issuer, other than an investment company, is a “small business” or “small organization” if it has total assets of $5 million or less as of the end of its most recent fiscal year and is engaged or proposing to engage in an offering of securities which does not exceed $5 million.
Rule 506(c) will affect small issuers (including both operating businesses and investment funds that raise capital under Rule 506) relying on this exemption from Securities Act registration. All issuers that sell securities in reliance on Regulation D are required to file a Form D with the Commission reporting the transaction. For the year ended December 31, 2012, 16,067 issuers made 18,187 new Form D filings, of which 15,208 issuers relied on the Rule 506 exemption. Based on the information reported by issuers on Form D, there were 3,958 small issuers
The final amendment to Rule 144A will affect small entities that engage in
The final amendment to Rule 506 will impose certain reporting and compliance requirements on issuers that engage in general solicitation in Rule 506 offerings. As discussed above, issuers taking advantage of Rule 506(c) to engage in general solicitation in Rule 506 offerings will be required to take reasonable steps to verify that the purchasers of the securities are accredited investors. The steps required will vary with the circumstances, but we anticipate that some potential investors may have to provide more information to issuers than they currently provide, while issuers may have to apply a stricter and more costly process to verify accredited investor status than what they currently use. We expect that the costs of compliance will vary depending on the size and nature of the offering, the nature and extent of the verification methods used, and the number and nature of purchasers in the offering. Rule 506(c) does not impose any recordkeeping requirements; however, we anticipate that issuers or their verification service providers will document the steps taken to verify that purchasers are accredited investors in Rule 506 offerings involving general solicitation because the issuer has the burden of demonstrating that its offering is entitled to an exemption from the registration requirements of Section 5 of the Securities Act. To promote legal certainty, we are including in Rule 506(c) a non-exclusive list of verification methods that in and of themselves will be deemed to satisfy the verification requirement.
The final amendment to Form D will also impose an information requirement with respect to Rule 506 offerings that use general solicitation. Each issuer submitting a Form D for a Rule 506 offering will be required to check a box on the form to indicate whether the issuer is relying on the Rule 506(c) exemption. We do not believe that this revision to Form D will increase in any material way the time or information required to complete the Form D that must be filed with the Commission in connection with a Rule 506 offering.
The final amendment to Rule 144A contains no reporting, recordkeeping or compliance requirements for issuers that engage in Rule 144A offerings.
The Commission believes that there are no rules that duplicate, overlap or conflict with the final amendments to Rule 144A, Form D, and Rules 500, 501, 502 and 506 of Regulation D.
The Regulatory Flexibility Act directs us to consider significant alternatives that would accomplish the stated objectives of our amendments, while minimizing any significant adverse impact on small entities. In regard to the final amendment to Rule 144A and the final amendment to Rule 506 to remove the prohibition against general solicitation in Rule 506 offerings where all purchasers are accredited investors and issuers have taken reasonable steps to verify purchasers' accredited investor status, there are no significant alternatives to these amendments that would accomplish the stated objectives of Section 201(a) of the JOBS Act. Eliminating the prohibition against general solicitation for a subset of Rule 506 offerings is intended to assist small entities—and other entities—seeking to raise capital. Small entities are not required to use Rule 506(c) to raise capital and would do so presumably only if it would be useful to them.
In connection with the final amendment to Form D and the final amendment to Rule 506 that requires issuers to take reasonable steps to verify that purchasers of securities are accredited investors, the Commission considered the following alternatives: (1) Establishing different compliance or reporting standards that take into account the resources available to small entities; (2) clarifying, consolidating or simplifying compliance requirements under the rule; (3) using design rather than performance standards; and (4) exempting small entities from coverage of all or part of the amendment to Rule 506.
With respect to using design rather than performance standards, we note that the “reasonable steps to verify” requirement in Rule 506(c) is a performance standard. We believe that the flexibility of a performance standard accommodates different types of offerings and purchasers without imposing overly burdensome methods that may be ill-suited or unnecessary to a particular offering or purchaser, given the facts and circumstances. The Commission is not adopting different compliance or reporting requirements or timetables for small entities under Rule 506(c). The particular steps necessary to meet the requirement to take reasonable steps to verify that purchasers are accredited investors will vary according to the circumstances. Different compliance requirements for small entities may create the risk that the requirements may be too prescriptive or, alternatively, insufficient to verify a purchaser's accredited investor status. Special requirements for small entities may also lead to investor confusion or reduced investor participation in Rule 506 offerings if they create the impression that small entities have a different standard of verification than other issuers of securities. As the verification requirement is intended to protect investors by limiting participation in unregistered offerings to those who are most able to bear the risk, we are of the view that a flexible standard applicable to all issuers better accomplishes the goal of investor protection that this requirement is intended to serve. At the same time, the non-exclusive list of verification methods that we are including in the final rule will provide additional legal certainty to all issuers, including small entities. The Commission is not adopting a different reporting requirement for small entities because the additional information that will be required in Form D is minimal and should not be unduly burdensome or costly for small entities.
We similarly believe that it does not appear consistent with the objective of the final amendments or the considerations described above regarding investor confusion and investor participation to further clarify, consolidate or simplify the amendments for small entities. With respect to
The final amendments contained in this release are being adopted under the authority set forth in Sections 4(a)(1), 4(a)(2), 7, 17(a), 19 and 28 of the Securities Act, as amended, Sections 2, 3, 9(a), 10, 11A(c), 12, 13, 14, 15(c), 15(g), 17(a), 23(a) and 30 of the Exchange Act, as amended, Sections 23, 30 and 38 of the Investment Company Act, as amended, and Section 201(a) of the JOBS Act.
Reporting and recordkeeping requirements, Securities.
For the reasons set out above, the Commission is amending Title 17, chapter II of the Code of Federal Regulations, as follows:
15 U.S.C. 77b, 77b note, 77c, 77d, 77d note, 77f, 77g, 77h, 77j, 77r, 77s, 77z-3, 77sss, 78c, 78d, 78j, 78
(c)
(2)
(ii)
(A) In regard to whether the purchaser is an accredited investor on the basis of income, reviewing any Internal Revenue Service form that reports the purchaser's income for the two most recent years (including, but not limited to, Form W–2, Form 1099, Schedule K–1 to Form 1065, and Form 1040) and obtaining a written representation from the purchaser that he or she has a reasonable expectation of reaching the income level necessary to qualify as an accredited investor during the current year;
(B) In regard to whether the purchaser is an accredited investor on the basis of net worth, reviewing one or more of the following types of documentation dated within the prior three months and obtaining a written representation from the purchaser that all liabilities necessary to make a determination of net worth have been disclosed:
(
(
(C) Obtaining a written confirmation from one of the following persons or entities that such person or entity has taken reasonable steps to verify that the purchaser is an accredited investor within the prior three months and has determined that such purchaser is an accredited investor:
(
(
(
(
(D) In regard to any person who purchased securities in an issuer's Rule 506(b) offering as an accredited investor prior to September 23, 2013 and continues to hold such securities, for the same issuer's Rule 506(c) offering, obtaining a certification by such person at the time of sale that he or she qualifies as an accredited investor.
1. The issuer is not required to use any of these methods in verifying the accredited investor status of natural persons who are purchasers. These methods are examples of the types of non-exclusive and non-mandatory methods that satisfy the verification requirement in § 230.506(c)(2)(ii).
2. In the case of a person who qualifies as an accredited investor based on joint income with that person's spouse, the issuer would be deemed to satisfy the verification requirement in § 230.506(c)(2)(ii)(A) by reviewing copies of Internal Revenue Service forms that report income for the two most recent years in regard to, and obtaining written representations from, both the person and the spouse.
3. In the case of a person who qualifies as an accredited investor based on joint net worth with that person's spouse, the issuer would be deemed to satisfy the verification requirement in § 230.506(c)(2)(ii)(B) by reviewing such documentation in regard to, and obtaining written representations from, both the person and the spouse.
15 U.S.C. 77f, 77g, 77h, 77j, 77s, 77z–2, 77z–3, 77sss, 78c, 78
(
15 U.S.C. 77g, 77q(a), 77s(a), 78b, 78c, 78g(c)(2), 78i(a), 78j, 78k–1(c), 78
By the Commission.
Securities and Exchange Commission.
Proposed rules.
The Securities and Exchange Commission, which today in separate releases amended Rule 506 of Regulation D, Form D and Rule 144A under the Securities Act of 1933 to implement Section 201(a) of the Jumpstart Our Business Startups Act and Section 926 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, is publishing for comment a number of proposed amendments to Regulation D, Form D and Rule 156 under the Securities Act. These proposed amendments are intended to enhance the Commission's ability to evaluate the development of market practices in Rule 506 offerings and to address concerns that may arise in connection with permitting issuers to engage in general solicitation and general advertising under new paragraph (c) of Rule 506. Specifically, the proposed amendments to Regulation D would require the filing of a Form D in Rule 506(c) offerings before the issuer engages in general solicitation; require the filing of a closing amendment to Form D after the termination of any Rule 506 offering; require written general solicitation materials used in Rule 506(c) offerings to include certain legends and other disclosures; require the submission, on a temporary basis, of written general solicitation materials used in Rule 506(c) offerings to the Commission; and disqualify an issuer from relying on Rule 506 for one year for future offerings if the issuer, or any predecessor or affiliate of the issuer, did not comply, within the last five years, with Form D filing requirements in a Rule 506 offering. The proposed amendments to Form D would require an issuer to include additional information about offerings conducted in reliance on Regulation D. Finally, the proposed amendments to Rule 156 would extend the antifraud guidance contained in the rule to the sales literature of private funds.
Comments should be received on or before September 23, 2013.
Comments may be submitted by any of the following methods:
Charles Kwon, Special Counsel or Ted Yu, Senior Special Counsel, Office of Chief Counsel, or Karen C. Wiedemann, Attorney Fellow, Office of Small Business Policy, Division of Corporation Finance, at (202) 551–3500; or, with respect to private funds, Melissa Gainor or Alpa Patel, Senior Counsels, Investment Adviser Regulation Office, Division of Investment Management, at (202) 551–6787, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549.
We are proposing amendments to Rule 156,
We are adopting today, in separate releases, amendments to Rule 506 of Regulation D
We anticipate that new Rule 506(c) will have a significant impact on Rule 506 offerings and on current capital-raising practices. Among other things, we anticipate that issuers using Rule 506(c) will be able to reach a greater number of potential investors than is currently the case in Rule 506 offerings, thereby increasing their access to sources of capital.
Many comments submitted on the Rule 506(c) Proposing Release, including the comments submitted by the Investor Advisory Committee, urged the Commission to propose or adopt other amendments to Regulation D or to Form D
On October 12, 2012, the Investor Advisory Committee unanimously approved and submitted recommendations to the Commission titled,
Although the Dodd-Frank Act did not change the amount of the $1 million net worth test, it did change how that amount is to be calculated—by excluding the value of a person's primary residence. This change took effect upon the enactment of the Dodd-Frank Act, and in December 2011, we amended Rule 501 to incorporate this change into the definition of accredited investor.
In light of these comments and the magnitude of the change that the elimination of the prohibition against general solicitation represents to the Rule 506 market, we are proposing today a number of amendments in conjunction with the adoption of new Rule 506(c). These amendments are intended to enhance the Commission's understanding of the Rule 506 market by improving compliance with Form D filing requirements, expanding the information requirements of Form D, primarily with respect to Rule 506 offerings, and requiring the submission, on a temporary basis, of written general solicitation materials used in Rule 506(c) offerings to the Commission. We believe that the elimination of the prohibition against general solicitation for Rule 506(c) offerings will have a significant impact on the Rule 506 market, including the types of issuers that raise capital using Rule 506, the investors who are solicited and ultimately purchase securities in the offerings, the intermediaries that participate in this market, the practices employed by issuers and intermediaries and the amount of capital that will be raised. To review and analyze these changes more effectively, and to facilitate the assessment of the effects of such changes on investor protection and capital formation, the Commission staff will need better tools to evaluate this changing market than are currently provided by the existing filing and information requirements of Form D. Further, we believe that the proposed changes to the filing and information requirements of Form D could assist the enforcement efforts of both federal and state regulators, which rely on Form D as an important source of information about the private offering market.
Specifically, with respect to Form D and to Regulation D as it relates to Form D, we are proposing to:
• Amend Rule 503 of Regulation D to require: (1) The filing of a Form D no later than 15 calendar days in advance of the first use of general solicitation in a Rule 506(c) offering; and (2) the filing of a closing Form D amendment within 30 calendar days after the termination of a Rule 506 offering;
• amend Form D to require additional information primarily in regard to offerings conducted in reliance on Rule 506; and
• amend Rule 507 of Regulation D to disqualify an issuer from relying on Rule 506 for one year for future offerings if the issuer, or any predecessor or affiliate
In addition, in light of the ability of issuers to publicly advertise Rule 506(c) offerings, we are concerned that prospective investors may not be sufficiently informed as to whether they are qualified to participate in these offerings, the type of offerings being conducted and certain potential risks associated with such offerings. To address these concerns, we are proposing new Rule 509 of Regulation D, which would require issuers to include prescribed legends in any written communication that constitutes a general solicitation in any offering conducted in reliance on Rule 506(c) (“written general solicitation materials”). Private funds would also be required to include a legend disclosing that the securities being offered are not subject to the protections of the Investment Company Act of 1940 (“Investment Company Act”) and additional disclosures in written general solicitation materials that include performance data so that potential investors are aware that there are limitations on the usefulness of such data and provide context to understand the data presented.
We are also proposing to amend Rule 156 under the Securities Act,
As the Commission will need to be aware of developments in the Rule 506 market after the effectiveness of Rule 506(c), we are proposing Rule 510T to require issuers, on a temporary basis, to submit any written general solicitation materials used in their Rule 506(c) offerings to the Commission no later than the date of the first use of these materials. Such materials would be required to be submitted through an intake page on the Commission's Web site. We are not proposing, at this time, that these materials would be available to the public; therefore, issuers would not file their written general solicitation materials through the Commission's EDGAR system. We are proposing to disqualify an issuer from relying on Rule 506 for future offerings if such issuer, or any predecessor or affiliate of the issuer, has been subject to any order, judgment or court decree enjoining such person for failure to comply with proposed Rule 510T.
We also appreciate the need to undertake a broader effort to review and analyze the market impact and developing market practices resulting from permitting general solicitation in connection with offerings relying on new Rule 506(c). Accordingly, we will evaluate the use of Rule 506(c) by issuers and market participants, and, in particular, the steps they take to verify that the purchasers of the offered securities are accredited investors. We have directed the Commission staff to execute a comprehensive work plan upon the effectiveness of Rule 506(c) to review and analyze the use of Rule 506(c) (the “Rule 506(c) Work Plan”), which will involve a coordinated effort of staff from the Division of Corporation Finance, the Division of Economic and Risk Analysis (“DERA”), the Division of Investment Management, the Division of Trading and Markets, the Office of Compliance Inspections and Examinations (“OCIE”) and the Division of Enforcement. The Commission staff will, among other things:
• Evaluate the range of purchaser verification practices used by issuers and other participants in these offerings, including whether these verification practices are excluding or identifying non-accredited investors;
• evaluate whether the absence of the prohibition against general solicitation has been accompanied by an increase in sales to non-accredited investors;
• assess whether the availability of Rule 506(c) has facilitated new capital formation or has shifted capital formation from registered offerings and unregistered non-Rule 506(c) offerings to Rule 506(c) offerings;
• examine the information submitted or available to the Commission on Rule 506(c) offerings, including the information in Form D filings and the form and content of written general solicitation materials submitted to the Commission;
• monitor the market for Rule 506(c) offerings for increased incidence of fraud and develop risk characteristics regarding the types of issuers and market participants that conduct or participate in Rule 506(c) offerings and the types of investors targeted in these offerings to assist with this effort;
• incorporate an evaluation of the practices in Rule 506(c) offerings in the staff's examinations of registered broker-dealers and registered investment advisers;
• coordinate with state securities regulators on sharing information about Rule 506(c) offerings.
Implementation of the Rule 506(c) Work Plan will assist the Commission in evaluating the development of market practices in Rule 506(c) offerings. The amendments we propose today would, if adopted, support the Rule 506(c) Work Plan by enhancing the timeliness, quality and completeness of information on the issuers, investors and financial intermediaries that participate in the Rule 506 market and by requiring the submission of written general solicitation materials to the Commission. The proposed amendments would also assist the Commission's efforts to protect investors and to evaluate the development of market practices in Rule 506(c) offerings and would support future Commission consideration of any additional changes related to Rule 506(c), consistent with the Commission's mission of protecting investors, maintaining fair, orderly, and efficient markets, and facilitating capital formation.
In addition, many commenters stated, and we agree, that the definition of accredited investor as it relates to natural persons should be reviewed and, if necessary or appropriate, amended. The Commission staff has begun a review of the definition of accredited investor as it relates to natural persons, including the need for any changes to this definition following the effectiveness of Rule 506(c). We further discuss the definition of accredited investor, and request comment on the definition, in Section V of this release.
Form D is the notice of an offering of securities conducted without registration under the Securities Act in reliance on Rule 504, 505 or 506 of Regulation D.
At the time the Commission adopted Regulation D and Form D in 1982, the Form D filing requirements in Rule 503 were intended to serve an important data collection function, including, among other things, for the Commission's rulemaking efforts.
An important purpose of the notice * * * is to collect empirical data which will provide a basis for further action by the Commission either in terms of amending existing rules and regulations or proposing new ones. * * * Further, the proposed Form will allow the Commission to elicit information necessary in assessing the effectiveness of Regulation D as a capital raising device for small businesses.
We understand that some issuers are not making a Form D filing for Rule 506 offerings because the filing of Form D is not a condition of Rule 506. In addition, we are limited in our ability to gather information about Rule 506 offerings at the commencement of these offerings because Form D currently is not required to be filed until 15 calendar days after the first sale of securities in the offerings; and the absence of a closing filing requirement means that the Commission does not have a complete picture of Rule 506 offerings, such as the total amount of capital actually raised in these offerings. Other than the newly adopted requirement for issuers to indicate in Form D whether they are relying on Rule 506(c), Form D does not require information specific to Rule 506(c) offerings, such as information about the issuer's plans to engage in general solicitation, any practices used to satisfy the verification requirement in Rule 506(c) and the types of investors participating in Rule 506(c) offerings.
Accordingly, we are proposing a number of amendments to Regulation D and Form D. These amendments would require the advance filing of Form D for Rule 506(c) offerings, require the filing of an amendment to Form D after termination of a Rule 506 offering, expand the information requirements in Form D for offerings conducted under Rule 506 and disqualify issuers from using Rule 506 for future offerings until one year has elapsed after the required Form D filings are made if they, or their predecessors or affiliates, failed to comply, within the past five years, with the Form D filing requirements for a Rule 506 offering.
We are proposing to amend Rule 503 to require issuers that intend to engage in general solicitation for a Rule 506(c) offering to file an initial Form D in advance of conducting any general solicitation activities. Currently, Rule 503 requires an issuer to file a Form D not later than 15 calendar days after the first sale of securities in a Regulation D offering. Under the proposed amendment, if an issuer has not otherwise filed a Form D for a Rule
• Item 1. Basic identifying information on the issuer;
• Item 2. Information on the issuer's principal place of business and contact information;
• Item 3. Information on related persons;
• Item 4. Information on the issuer's industry group;
• Item 6. Identification of the exemption or exemptions being claimed for the offering;
• Item 7. Indication of whether the filing is a new filing or an amendment;
• Item 9. Information on the type(s) of security to be offered;
• Item 10. Indication of whether the offering is related to a business combination;
• Item 12. Information on persons receiving sales compensation;
• Item 16. Information on the use of proceeds from the offering.
After the filing of an Advance Form D, the issuer would be required to file an amendment providing the remaining information required by Form D within 15 calendar days after the date of first sale of securities in the offering, as is currently required by Rule 503.
A number of commenters on the Rule 506(c) Proposing Release, including numerous state securities regulators and several investor organizations, suggested that the Commission require Form D to be filed in advance of any general solicitation in Rule 506(c) offerings.
The Investor Advisory Committee recommended that the Commission require issuers to file either a new “Form GS” or a revised version of Form D as a precondition for relying on Rule 506(c).
On the other hand, one commenter stated that the current 15-calendar day time frame to file a Form D following a sale provides a reasonable period for an issuer to prepare and submit the form while providing appropriate notice to regulators of a new Regulation D offering.
We appreciate these recommendations and recognize the concerns as well. We believe that requiring issuers to file an Advance Form D would assist the Commission's efforts to evaluate the use of Rule 506(c). Although the Commission does not anticipate that its staff will review each Advance Form D filing as it is being made, the Advance Form D would be useful to the Commission and the Commission staff, as it would enhance the information available to the Commission to analyze offerings initiated under Rule 506(c), including issuers that initiated Rule 506(c) offerings but were unsuccessful in selling any securities through these offerings or chose alternative forms of raising capital. Currently, Form D is required to be filed only after the first sale of securities, which means that issuers that offered securities, but did not complete a sale, are not required to file a Form D, thereby limiting the Commission's ability to determine which issuers are facing challenges raising capital under Rule 506(c) and whether further steps by the Commission are needed to facilitate issuers' ability to raise capital under Rule 506(c). We also understand that the Advance Form D would be useful to state securities regulators and to investors in gathering timely information about Rule 506(c) offerings and the use of Rule 506(c).
We appreciate the sensitivity that some issuers may have regarding the disclosure of detailed information about a contemplated offering before the issuer has made a final decision to raise capital in a Rule 506(c) offering or before the first sale of securities has occurred. For this reason, we propose that the Advance Form D for Rule 506(c) offerings require only the information set forth above, with a requirement to file an amendment to the Form D that includes the remainder of the information required by Form D (including information regarding the terms of the offering that may not have been known at the time of the filing of the Advance Form D and therefore omitted from the Advance Form D, such as those called for by Item 9 and Item 12 of Form D) following the completion of a sale of securities in a Rule 506(c) offering on the timetable currently required under Rule 503. An issuer that wishes to provide all of the information required by Form D in the Advance Form D may do so, obviating the need to file an additional amendment unless otherwise required under Rule 503. An issuer could also file an Advance Form D without contemplating a specific offering, in order to have the flexibility to conduct an offering using general solicitation. We believe that this approach would allow the Commission to gather the information that it needs through Advance Form D filings
1. We are proposing that issuers file an Advance Form D no later than 15 calendar days before the commencement of general solicitation in a Rule 506(c) offering. Is such an advance filing useful and appropriate for an effective analysis of the Rule 506(c) market? Should the 15-calendar day period be increased or decreased? Why or why not? Should the filing deadline be tied to the commencement of general solicitation or the commencement of the offering, whether or not general solicitation is used?
2. What should the consequences be for failing to timely file an Advance Form D for a Rule 506(c) offering? Should the filing of the Advance Form D be a condition to Rule 506(c) so that failure to file results in the immediate loss of Rule 506(c) as an exemption from Securities Act registration for the offering at issue?
3. We are proposing to require the filing of an Advance Form D no later than 15 calendar days before the first use of general solicitation in a Rule 506(c) offering. We recognize, however, the possibility that a communication could be inadvertently disseminated beyond the intended audience without the issuer's knowledge or authorization. What should be the consequences for the issuer under such circumstances? Should there be a different filing deadline for the Advance Form D when there is an inadvertent general solicitation? For example, under Rule 100(a)(2) of Regulation FD,
4. Should issuers be permitted to file an Advance Form D even if no specific offering is contemplated? Why or why not? How would this impact the usefulness of the Advance Form D data? We have identified certain information that we believe should be included in the Advance Form D. Is the information proposed for the Advance Form D the appropriate information to be provided at that point of the offering? Is there other information that issuers should provide in the Advance Form D? Would it be more difficult for issuers to provide certain information in an Advance Form D? If so, which information?
5. We are proposing that an issuer have the option of either filing an Advance Form D for Rule 506(c) offerings to provide certain information required by Form D, with the complete Form D information provided in a subsequent amendment to Form D filed no later than 15 calendar days after the first sale of securities, or providing all of the required Form D information in the Advance Form D, if known at that point in the offering. Should issuers be provided this option? Or should issuers be limited to providing certain specified information in the Advance Form D and required to file a subsequent amendment, after the first sale of securities, to provide the remainder of the information required by Form D? Would allowing issuers to have the option of providing all of the information required by Form D no later than 15 calendar days before they commence general solicitation (as compared to the current requirement of no later than 15 calendar days after the first sale of securities) affect the quality or usefulness of the Form D information for purposes of the Commission's efforts to analyze the Rule 506 market? For example, what is the likelihood that issuers will be in a position to provide all of the information required by Form D no later than 15 calendar days before the commencement of general solicitation?
6. What would be the benefits of requiring the Advance Form D for Rule 506(c) offerings? What would be the costs to issuers, market participants and other parties? Would the requirement to file an Advance Form D deter issuers from conducting Rule 506(c) offerings? Would the requirement to file an Advance Form D have differing or unique effects on certain types of issuers, such as Exchange Act reporting companies, non-reporting companies, foreign companies or private funds?
7. Would potential investors or other market participants review Advance Form D filings on a real-time basis? If so, how would they use the information in the filings? How would state securities regulators use the Advance Form D filings?
8. Are there situations in which an Advance Form D filing should not be required? If so, what are these situations?
9. Should an Advance Form D filing be required before or at the commencement of all offerings under Rule 506, or all offerings under Regulation D? If not, why?
10. Are any other rule amendments necessary if the Commission were to require the advance filing of Form D for Rule 506(c) offerings, as proposed?
We are also proposing to amend Rule 503 to require the filing of a final amendment to Form D within 30 calendar days after the termination of any offering conducted in reliance on Rule 506. Regulation D does not currently contain a requirement to file a final amendment to Form D. When Regulation D was originally adopted, issuers were required to amend the Form D filing every six months during the course of an ongoing offering and were required to make a final Form D filing within 30 days of the final sale of securities in the offering.
A number of commenters on the Rule 506(c) Proposing Release suggested that the Commission reinstate a closing Form D filing requirement to enhance the flow of information to the Commission, other regulators and investors, and to improve the ability of the Commission and others to track the use of Rule 506.
In order to gather more complete information about the size and characteristics of the Rule 506 offering market, we believe that it would be appropriate to propose requiring the filing of a closing amendment for offerings conducted in reliance on Rule 506. The proposed requirement would be in addition to the existing provisions of Rule 503 that require the filing of an amendment to Form D to correct a material mistake of fact or error in a previously filed Form D, to reflect a change in information provided in a
As noted above, the Commission today has a greater ability to analyze the Regulation D offering market due to electronically-filed Forms D. In recent years, the Regulation D market has also grown considerably in size and significance.
We propose to require the filing of a closing amendment to Form D for offerings under both Rule 506(b) and Rule 506(c). This is, in part, to enable more complete analysis and comparison of the use of long-standing Rule 506(b) and new Rule 506(c). In addition, because the overwhelming majority of Regulation D offerings are conducted in reliance on Rule 506, and these offerings account for substantially all of the capital reported as being raised under Regulation D, this approach should provide the Commission with substantially complete information about the Regulation D market without imposing additional compliance burdens on smaller offerings conducted in reliance on Rule 504 or Rule 505.
A closing Form D amendment, in conjunction with changes to Form D to require additional information on Rule 506 offerings, as discussed below, would provide the Commission with more complete information about Rule 506 offerings. For example, under current rules, information about the amount of capital raised in a Regulation D offering is limited to the “total amount sold” as of the date of the last Form D filing. Any amounts sold between the date of the last Form D filing and the date the offering is terminated are not currently required to be reported on Form D. As a result, the actual amount of capital raised at the time the offering is terminated cannot be conclusively determined.
Under our proposal, the closing amendment would be due no later than 30 calendar days after termination of the offering;
11. Should we require a closing Form D amendment for Rule 506 offerings, as proposed? Why or why not? Should the closing amendment requirement apply to all Regulation D offerings, as was the case when Regulation D was originally adopted? Alternatively, should the closing amendment requirement apply only to offerings under new Rule 506(c)? Are there situations where a closing amendment to Form D should not be required? If so, what are these situations? For example, should no closing amendment be required if no sales of securities have been made?
12. As proposed, a closing Form D amendment would be required to be filed not later than 30 calendar days after the termination of a Rule 506 offering. Should we use a different time frame for the filing of the closing Form D amendment? If so, why and how long?
13. We have not proposed that the filing of a closing amendment be a condition of Rule 506. If the closing amendment were a condition of Rule 506 and an issuer failed to make the required filing, the issuer would lose the exemption for the entire offering at issue, including sales that were made while the issuer was in compliance with Rule 503. Should the filing of a closing Form D amendment be a condition to Rule 506(b) or Rule 506(c)?
14. As proposed, the closing amendment must be filed within 30 calendar days after the issuer terminates the offering. Should we provide a more detailed explanation of what constitutes the termination of an offering?
15. What would be the costs to issuers of filing a closing Form D amendment? Would a requirement to file a closing Form D amendment deter issuers from conducting Rule 506 offerings? Are there any costs or benefits that we have not discussed? If so, please specify.
16. What are the alternatives to requiring a closing amendment to Form D? For example, rather than requiring a closing amendment to Form D for all Rule 506 offerings, should the Commission only require an amendment when an issuer sells an amount of securities in excess of a certain percentage (for example, 10%) above the amount reported as sold in the last Form D or Form D amendment previously filed for the offering?
17. Rule 503(a)(3)(ii) currently requires issuers to file an amendment to a previously filed Form D to reflect changes in the information provided, subject to certain enumerated exceptions. Should the proposed closing amendment to Form D serve as a substitute for this type of Form D amendment? If the proposed closing amendment requirement is adopted, should Rule 503(a)(3)(ii) be eliminated or simplified, so that only certain changes (
18. Alternatively, in light of the proposal to impose disqualification from reliance on Rule 506 for failures to comply with Rule 503, as discussed in Section II.E below, should the Commission further amend Rule 503(a)(3)(ii), or provide additional guidance, in regard to the circumstances in which an amendment to Form D is or is not required? For example, should the Commission amend Rule 503 to set forth additional situations in which an amendment to Form D would not be required to reflect a change in the information provided in a previously filed Form D? Conversely, should the Commission amend Rule 503 to require the filing of an amendment to Form D to reflect a change in information where such amendment is not currently required under Rule 503?
19. As discussed in Section II.D below, we are proposing amendments to Form D to require additional information, primarily with respect to Rule 506 offerings. After an issuer files
20. Should issuers conducting ongoing offerings pursuant to Rule 506(c) be required to amend their Form D filings more frequently than on an annual basis to provide, to the extent that such information has not already been provided in a previous Form D filing, updated information regarding the dollar amount of any securities sold during such period pursuant to such offering, and any other securities of the same class (or any securities convertible into or exercisable or exchangeable for securities of the same class) sold during such period pursuant to an exemption from the registration requirements of the Securities Act? If yes, how frequently? For example, on a semi-annual basis or a quarterly basis?
21. Rule 503 requires an amendment to a previously filed Form D to correct a material mistake of fact or error “as soon as practicable after discovery of the mistake or error” and an amendment to a Form D to reflect a change in the information previously provided, except in certain situations, “as soon as practicable after the change.” Would such non-specific filing deadlines make it difficult for market participants to determine whether an issuer is disqualified from reliance on Rule 506 for failure to comply with Form D filing obligations, including the determination of when a cure period expires? Should the Commission consider amending Rule 503 to set forth more specific time frames for filing these amendments to Form D?
22. Should the Commission amend Rule 503 so that an annual amendment for an ongoing offering is required to be filed on a specified date, such as the one-year anniversary of the initial filing of a Form D or Advance Form D?
23. Should the Commission provide additional guidance on what constitutes a “material mistake of fact or error” that would necessitate the filing of a Form D amendment?
24. Rule 503(a)(4) currently requires an issuer that files an amendment to a previously filed Form D to provide current information in response to all requirements of the form regardless of why the amendment is filed. Should the Commission amend this requirement in Rule 503? If so, how? What are the costs and benefits associated with this requirement?
25. Should the presentation of information in a closing Form D amendment be different than in an initial Form D filing or in other Form D amendments? If so, how?
26. If an issuer filed an Advance Form D but subsequently terminated the offering without selling any securities, what information should the issuer be required to provide regarding the offering in its closing amendment?
27. Are any other rule amendments necessary if the Commission were to require the filing of a closing amendment, as proposed? If so, please specify.
We are proposing revisions to Form D to add information requirements primarily for Rule 506 offerings, which would enable the Commission to gather additional information on the use of Rule 506 and thereby assist the Commission in evaluating the impact of Rule 506(c) on the existing Rule 506 market.
A number of commenters on the Rule 506(c) Proposing Release recommended that the Commission further expand the information requirements of Form D in regard to offerings under Rule 506(c).
In contrast, one commenter urged the Commission not to require additional disclosures in Form D on the issuer's proposed business and use of proceeds. This commenter asserted that Form D currently requires appropriate information on the identity of the issuer and a factual description of the offerings.
We believe that amending Form D to require additional information on Rule 506 offerings would enable the Commission to better analyze the impact on the existing Rule 506 market of eliminating the prohibition against general solicitation in Rule 506(c) offerings. This information would enhance the ability of the Commission to evaluate the use of Rule 506(c) by requiring information in Form D on the types of investors that participate in Rule 506(c) offerings, the issuer's plans to engage in general solicitation and methods used to satisfy the verification requirement in Rule 506(c). This information may also be useful to investors seeking to learn more about an offering being conducted pursuant to Rule 506(c) or about the types of issuers conducting these offerings. Finally, this information may be useful in facilitating enforcement efforts should any fraud or other securities law violations occur in these offerings. As discussed below, we propose to revise existing Item 2, Item 3, Item 4, Item 5, Item 7, Item 9, Item 14 and Item 16 of Form D and to add new Items 17 through 22 to Form D.
Item 2, which requires the issuer to provide principal place of business and telephone contact information, would be amended to require the identification of the issuer's publicly accessible (Internet) Web site address, if any. We are proposing this change because issuers are increasingly using their public Web sites as vehicles for the dissemination of information to investors, while many investors are turning to company Web sites as sources of information to aid in their investment decisions.
Item 3, which requires information about “related persons” (executive officers, directors, and persons performing similar functions for the issuer, as well as persons who have functioned as a promoter of the issuer within the prior five years), would be amended to require, when the issuer is conducting a Rule 506(c) offering, the name and address of any person who directly or indirectly controls the issuer in addition to the information currently required for “related persons.” We believe that more comprehensive information about persons who exercise control over the issuer would be helpful in obtaining a more complete picture of the issuers and other market participants that are involved in Rule 506(c) offerings.
In 2008, we deleted the requirement in Item 3 to identify as “related persons” owners of 10% or more of a class of the issuer's equity securities. In proposing this change to Item 3, we stated, among other things, that “we believe we can collect sufficient information to satisfy the regulatory objectives of Form D by requiring only the identification of executive officers, directors, and promoters.”
Item 4, which requires the issuer to identify its industry group from a specified list, would be amended to require the issuer to fill in a “clarification” field if the issuer checks the “Other” box. Though Item 4 currently includes a number of different industry group classifications, we believe that requiring the issuer to further describe its industry group when it is not included in the pre-established list will enhance our understanding of the types of issuers that are seeking to rely on Regulation D, while imposing a minimal burden on the issuer. This information will assist us in having more complete information regarding the range of industries of the companies using Rule 506. Without this additional requirement, conclusions drawn regarding industry trends would exclude all those issuers who checked “Other.” This proposed amendment would apply to offerings under Rules 504, Rule 505, Rule 506 and Section 4(a)(5).
Item 5, which requires information on issuer size, would be amended to replace the “Decline to Disclose” option with a “Not Available to Public” option. We are proposing this change because we believe that an operating company that includes information about its revenues, or a hedge fund or other investment fund that includes information about its net asset value, in general solicitation materials for a Rule 506(c) offering, or that otherwise makes such information publicly available, should be required to provide revenue range or net asset value range information, as applicable, in Form D. If, however, the issuer does not include this information in general solicitation materials for a Rule 506(c) offering, does not otherwise make the information publicly available and otherwise uses reasonable efforts to maintain the confidentiality of such information, we believe that the issuer should have the option of not providing such information by choosing a “Not Available to Public” checkbox. This proposed amendment would also apply to Rule 504 and Rule 505 offerings, as well as offerings under Section 4(a)(5). Requiring issuers to include this information, to the extent they otherwise publicly disclose it, would be useful to the Commission's staff in evaluating the type or size of issuers using these exemptions.
Item 7, which requires the issuer to state whether a Form D is an initial filing or an amendment to a previously filed Form D, would be amended to add separate fields or check boxes for issuers
Item 9, which requires information on the types of securities offered, would be amended to require information, to the extent applicable, on the trading symbol and a generally available security identifier (“security identifier”) for the offered securities.
Item 14, which elicits information on whether securities have been or may be sold to non-accredited investors and the number of investors who have already invested in the offering, would be amended to add a table requiring, with respect to Rule 506 offerings, information on the number of accredited investors and non-accredited investors that have purchased in the offering, whether they are natural persons or legal entities and the amount raised from each category of investors. We believe that this additional information would be useful in determining, among other things, the composition of investors who invest in Rule 506 offerings, the respective amounts they have invested, and the types of offerings and issuers in which each category of investors invests.
Item 16, which requires information on the amount of the gross proceeds of the offering that the issuer used or proposes to use for payments to related persons, would be amended to require information on the percentage of the offering proceeds from a Rule 506 offering that was or will be used: (1) To repurchase or retire the issuer's existing securities; (2) to pay offering expenses; (3) to acquire assets, otherwise than in the ordinary course of business; (4) to finance acquisitions of other businesses; (5) for working capital; and (6) to discharge indebtedness. This additional information requirement would apply only to Rule 506 offerings by issuers that are not pooled investment funds. This information would enable the Commission and investors to better understand why issuers are seeking to raise capital using Rule 506.
The proposed new items of Form D—Items 17 through 22—would require issuers to provide the following additional information with respect to offerings conducted pursuant to Rule 506:
• The number and types of accredited investors that purchased securities in the offering (
• if a class of the issuer's securities is traded on a national securities exchange, ATS or any other organized trading venue, and/or is registered under the Exchange Act, the name of the exchange, ATS or trading venue and/or the Exchange Act file number and whether the securities being offered under Rule 506 are of the same class or are convertible into or exercisable or exchangeable for such class;
• if the issuer used a registered broker-dealer in connection with the offering, whether any general solicitation materials were filed with FINRA;
• in the case of a pooled investment fund advised by investment advisers registered with, or reporting as exempt reporting advisers
• for Rule 506(c) offerings, the types of general solicitation used or to be used (
• for Rule 506(c) offerings, the methods used or to be used to verify accredited investor status (
Although the proposed revisions to Form D primarily require additional information with respect to Rule 506
28. Should we require issuers to provide additional information in Form D filings as we have proposed? Should this additional information be required only for Rule 506(c) offerings? If so, why and what should that information be? For example, should the Commission require issuers to provide information in Form D about counsel representing the issuer (if any) or the issuer's accountants or auditors (if any), as some have suggested? If the additional information were required only for Rule 506(c) offerings, what impact would this requirement have on the use of Rule 506(c) as compared to the use of Rule 506(b)? Are there particular items of information that do not provide sufficiently useful information or would be especially burdensome for issuers to provide? Should some of the additional information that we propose to require in Form D not be required for offerings under Rule 506(b)? If so, which requirements and why? Would the additional information that we propose to request in Form D provide useful information to state securities regulators in responding to inquiries from constituents about offerings conducted under Rule 506 and in enforcement efforts?
29. What are the costs or burdens on issuers in providing the additional information in Form D, as proposed? Are there ways to reduce any costs or burdens on issuers? Would the requirement to provide this additional information result in issuers choosing not to rely on Rule 506 to raise capital?
30. Should some of the additional information that we propose to require in Form D be required only in the closing amendment to Form D?
31. Should the Commission define what it means for an issuer to make information publicly available for purposes of Item 5, or to take reasonable efforts to maintain such information as confidential? For instance, would confidential information about an issuer that is publicly disseminated by a third party in violation of a duty to keep such information confidential be deemed to be publicly available?
32. Should the Commission amend Item 5 to require an issuer that conducts a Rule 506(c) offering to provide information on its revenue range or aggregate net asset value range, as applicable, regardless of whether the issuer has otherwise made this information publicly available (for example, by including this information in general solicitation materials)?
33. Should the Commission amend Form D to include a check box for issuers to indicate whether they are filing an Advance Form D or a closing amendment to Form D, as proposed? Should there be other changes to Form D to indicate that an issuer is filing an Advance Form D or a closing amendment?
34. Should the Commission amend Form D to provide a checkbox to indicate that the issuer is required to provide disclosure of prior “bad actor” events under Rule 506(b)(2)(iii)?
35. Should pooled investment funds be required to provide additional or different information in connection with Rule 506(c) offerings? Should the Commission require a pooled investment fund to disclose its investment adviser's CRD
36. Should the Commission require issuers to provide more or less specific information in Form D about the methods of general solicitation used in Rule 506(c) offerings? Do certain methods of general solicitation raise particular concerns from an investor protection standpoint? For example, are some methods of general solicitation more likely to result in an increased risk of fraud or manipulation or more likely to reach non-accredited investors? Should we require additional information in Form D with respect to these methods of general solicitation? If so, what information should we require issuers to provide regarding these solicitation methods?
37. Should the Commission require issuers to provide more or less specific information on Form D about the methods used to verify accredited investor status? If so, what information should the Commission require issuers to provide regarding verification practices? For example, should we require issuers to identify any registered broker-dealers, registered investment advisers, attorneys, certified public accountants or other third parties that assisted the issuer with the verification process?
We are proposing an amendment to Rule 507 of Regulation D that is intended to improve Form D filing compliance in connection with Rule 506 offerings. Rule 507 currently only disqualifies an issuer from using Regulation D if the issuer, or a predecessor or affiliate, has been enjoined by a court for violating the filing requirements in Rule 503. We propose to amend Rule 507 so that, in addition to the existing disqualification from Rules 504, 505 and 506 of Regulation D that arises from a court injunction, an issuer would be disqualified automatically from using Rule 506 in any new offering for one year if the issuer, or any predecessor or affiliate of the issuer, did not comply, within the past five years, with Form D filing requirements in a Rule 506 offering; provided that such one-year period would commence following the filing of all required Form D filings or, if the offering has been terminated, following the filing of a closing amendment.
When Regulation D was originally adopted in 1982, compliance with Form D filing obligations was a condition of Rules 504, 505 and 506. In 1989, the Commission amended Regulation D to eliminate the filing of Form D as a condition to those rules.
A number of commenters on the Rule 506(c) Proposing Release, including the Investor Advisory Committee, urged us to require the filing of Form D as a condition to Rule 506(c), so that the failure to file a Form D would result in the loss of the exemption for the offering.
Other commenters argued against conditioning Rule 506(c) on the filing of a Form D.
We believe it is appropriate to strengthen the incentives for issuers to comply with Rule 503, which would make it more likely that the Commission will obtain Form D data that provides a more complete perspective on Rule 506(c) offerings and the Rule 506 marketplace as a whole, thereby facilitating efforts by both the Commission and state securities regulators to analyze developments in that marketplace. Further, we believe that an effective incentive for issuers to comply with the Form D filing requirement is one that results in meaningful consequences for failing to file the form, without requiring action on the part of the Commission or the courts. We are nonetheless mindful that the incentive should be commensurate to the obligation so that the failure to comply does not give rise to disproportionate consequences.
Although we considered requiring compliance with Rule 503 as a condition of Rule 506, or at least Rule 506(c), we have determined not to propose making Form D filing a condition of Rule 506. We are reluctant to impose a sanction on an issuer as severe as the loss of a Securities Act exemption, which would give purchasers rescission rights and result in loss of “blue sky” pre-emption,
Instead of making the Form D filing a condition to Rule 506, we propose to amend Rule 507 by adding new paragraph (b), under which issuers would be disqualified from using Rule 506 for future offerings if they, or their predecessors or affiliates, had failed to comply within the past five years with the Form D filing requirements of Rule 503 in connection with an offering under Rule 506.
The proposed disqualification would not affect offerings of an issuer or an affiliate that are ongoing at the time of the filing non-compliance, including the offering for which the issuer failed to make a required filing, and these offerings could continue to rely on Rule
Under the proposal, disqualification would arise only with respect to non-compliance with Rule 503 that occurred after the effectiveness of new Rule 507(b). We considered whether to apply the disqualification for failure to comply with the filing requirement before the effective date of the rule. We are not proposing such a requirement. We are proposing to include a five-year look-back period, so that non-compliance that occurred more than five years before the commencement of a Rule 506 offering would not trigger disqualification, even if the required Form D filings had not been made. We believe that this limitation would avoid potential burdens on market participants that might otherwise be created, such as the possibility of indefinite disqualification in situations where it is not possible for the required Form D filings for a previous offering to be made, without undermining the incentive for issuers in Rule 506 offerings to comply with their Form D filing obligations. A look-back period would also reduce the cost of confirming whether an issuer is disqualified from reliance on Rule 506, and could reduce the number of delinquent filings required to be made before the one-year disqualification period starts to run. The look-back period would not extend past the effective date of the rule, so issuers seeking to conduct a Rule 506 offering would assess compliance with Rule 503 by looking back only to the effective date of the disqualification rule.
Disqualification would arise based on non-compliance with Rule 503 by the issuer and its predecessors and affiliates, as provided in current Rule 507. We believe that proposed Rule 507(b) should be structured in this manner so that an issuer cannot avoid disqualification by simply conducting future offerings through a successor or other affiliated entity. We are soliciting comment on whether this approach is appropriate for all issuers.
Because this approach creates potentially significant consequences for an issuer's future capital-raising activities based on its failure to file or amend the form for a current or prior offering, we anticipate that proposed Rule 507(b), if adopted, could significantly reduce non-compliance with Form D filing requirements for Rule 506 offerings. We further believe that disqualification from using Rule 506 for a one-year period after all required Form D filings have been made is a sufficient period of time to incentivize compliance with Rule 503 while at the same time not serving as a disproportionate penalty for the failure to file or amend Form D.
When we amended Regulation D to remove Rule 503 compliance as a condition to Rules 504, 505 and 506, we noted that the Form D filing condition was subject to frequent criticism.
The proposed amendment also includes mitigating provisions that were not applicable when compliance with Rule 503 was a condition to Regulation D. As discussed below, under the proposal, there would be a cure period for late filings, as well as recourse to the waiver provision of Rule 507, under which disqualification may be waived by the Commission for good cause shown. We believe that these provisions should help address concerns regarding the disproportionality and consequences of inadvertent failures to file or amend Form D.
A number of commenters expressed concern about the possibility that an issuer could be unfairly penalized for inadvertent technical errors relating to its Form D filing and recommended that the Commission provide an opportunity for the issuer to correct such errors.
The proposed cure period would be available only for an issuer's first failure to file timely a Form D or Form D amendment in connection with a particular offering. We believe that permitting issuers to repeatedly rely on the 30-day cure period for Form D filings for the same offering would undermine incentives to comply with the filing deadlines specified in Rule 503.
Under current rules, the Commission has delegated authority to the Director of the Division of Corporation Finance to grant disqualification waivers under Rule 507.
38. Is disqualifying issuers and their affiliates and successors from reliance on Rule 506 for future offerings an appropriate sanction to incentivize compliance with Form D filing requirements? Why or why not? How would these amendments affect the Rule 506 market?
39. Proposed Rule 507(b) would not impose any consequences with respect to the offering for which an issuer failed to file or amend a Form D as required, or for other offerings that were ongoing at the time of the failure to file. Would disqualification from reliance on Rule 506 for future offerings be a sufficient incentive for issuers to comply with Form D filing requirements? Why or why not? Should an issuer engaged in an ongoing offering be permitted to continue relying on Rule 506 if it or an affiliate failed to comply with the filing requirements of Rule 503?
40. Should the result be the same for failure to comply with all parts of Rule 503? For example, should the result be the same when the issuer does not file an amendment to a Form D as it would when the issuer does not make an Advance Form D filing or an initial Form D filing? Should there be a distinction between annual amendments to Form D and amendments required to correct a material mistake of fact or error or to reflect a change in information?
41. As proposed, outside of the cure period, disqualification under Rule 507(b) would not be lifted until one year after all required Form D filings are made or, in the case of offerings that had been terminated, a closing amendment is made. Is this an appropriate requirement? If not, what are the alternatives?
42. What would be an appropriate disqualification period as an alternative to the proposal, such that issuers would be sufficiently incentivized to comply with Form D filing obligations without unduly burdening capital formation under Regulation D? Is the proposed one-year disqualification period appropriate, or should the disqualification period be shorter or longer? Why?
43. Under the proposal, disqualification would not be triggered by any failure to comply with Rule 503 that occurred more than five years before the offering. Is it appropriate to include a look-back period in this way? Why or why not? If so, is the five-year period proposed appropriate, or should it be shorter or longer? If so, why?
44. The look-back period would not extend to the period prior to the effective date of proposed Rule 507(b). Is it appropriate not to consider these filings before the effective date of the rule? Why or why not?
45. Are there particular situations where disqualification under Rule 507(b) should not be triggered for failure to file a required Form D or Form D amendment?
46. As proposed, issuers would be disqualified from using Rule 506 based on noncompliance with Rule 503 within the past five years in connection with a Rule 506 offering by their predecessors and affiliates. Is it appropriate to disqualify issuers for non-compliance by their predecessors and affiliates? If not, would it be too easy to avoid disqualification by using an affiliate or successor entity to conduct a Rule 506 offering? How should the Commission address this concern?
47. Would portfolio companies that are affiliates of a private fund be unduly affected by any disqualification triggered by noncompliance of the private fund, its predecessors and its affiliates with Rule 503? If so, should the Commission treat portfolio companies of private funds differently for disqualification purposes? If yes, how?
48. Is it appropriate to prohibit a private fund or its successors or affiliates from engaging in a subsequent offering under Rule 506 if the private fund failed to comply with Rule 503? For instance, if a private fund issuer fails to file its Form D or the appropriate amendments in accordance with the filing requirements of Rule 503, is it a disproportionate response to prohibit any private funds affiliated with the private fund from relying on Rule 506? Should proposed Rule 507(b) contain an express provision that excludes affiliated private funds from such consequences?
49. Is it appropriate to include a cure period for noncompliance with Rule 503? Would the benefits of including a cure period justify the potential detriments, such as undercutting issuers' incentive to comply with the existing Rule 503 filing deadlines? If a cure period is included, should it apply to all required Form D filings, or only some? For example, should there be a cure period for the closing amendment only? Or for amendments, but not the initial filing? Should the Advance Form D have a cure period? Instead of providing a cure period, should we move back the deadlines for Form D filings? Are there other alternatives to a cure period or further provisions that the Commission should consider?
50. The cure period is not available if the issuer has previously failed to comply with a Form D filing deadline in connection with the same offering. Is this condition appropriate? Why or why not? Should the cure period be available if the issuer has failed to timely file a Form D or Form D amendment more than once in connection with the same offering? If so, how many times in a single offering or otherwise how frequently should an issuer be able to invoke the cure period? Should the cure period become available again after a certain amount of time, such as five years, has elapsed since the issuer previously failed to comply with a Form D filing deadline?
51. Should a cure period be available for repeated or intentional failures to comply with Rule 503? If yes, should there be a look-back period for determining whether failures to comply with Rule 503 are repeated?
52. If a cure period is included, is the 30-day period we propose appropriate? Should the cure period be shorter or longer? Should it be the same for all types of filings, or should the Commission vary the cure period for different filings? For example, should there be a shorter or longer cure period provided for the Advance Form D filing, the closing amendment or other amendments, compared to other Form D filings?
53. As an alternative or in addition to a cure period, should we amend Rule 507 so that disqualification can be triggered by a Commission cease-and-desist order as well as court injunction? Should we add a provision similar to existing Rule 508,
54. Should we amend Rule 507 to disqualify an issuer from relying on Rule 506 for future offerings if such issuer, or any predecessor or affiliate of the issuer, has been subject to a Commission order requiring such person to cease-and-desist from committing or causing any violation or future violation of proposed Rule 509 or proposed Rule 510T, both of which are discussed below?
55. Should the Commission amend Form D to provide a checkbox to indicate that the issuer is relying on the proposed cure period?
56. Is it appropriate to amend Rule 507's existing waiver provision so it applies to proposed Rule 507(b)? Should we provide guidance regarding factors that the Commission may take into account when considering whether to grant a waiver?
57. Are there other methods for improving compliance with Rule 503 that the Commission should consider? For example, should there be other consequences for non-compliance with Form D filing requirements? Would the combination of proposed Rule 507(b) and increased enforcement of existing Rule 503, which could result in monetary penalties or imposition of disqualification under existing Rule 507, provide a sufficient incentive to comply with these requirements?
58. As an alternative to proposed Rule 507(b), should the availability of Rule 506 be conditioned on compliance with Rule 503, as was the case when Regulation D was originally adopted? If so, should compliance with Rule 503 be a condition to both Rule 506(b) and Rule 506(c), as well as to Rules 504 and 505? Alternatively, should compliance with Rule 503 be a condition to reliance on new Rule 506(c) only? Should the availability of Rule 506 be conditioned on compliance with all of the filing requirements of Rule 503 or should it be conditioned on compliance with only some of the filing requirements of Rule 503 (and if so which filing requirements)? If compliance with Rule 503 is a condition to Rule 506, should there be a mechanism for issuers to request a waiver from Form D filing requirements? If so, how should that mechanism work? Are any other rule amendments necessary if the Commission were to require compliance with Form D filing requirements as a condition to reliance on Rule 506? If so, what amendments?
We are proposing new requirements and amendments to address investor protection concerns arising from the ability of issuers, including private funds, to generally solicit for their Rule 506(c) offerings. First, we propose to add new Rule 509 to require all issuers to include: (i) Legends in any written general solicitation materials used in a Rule 506(c) offering; and (ii) additional disclosures for private funds if such materials include performance data. Second, we propose amendments to Rule 156 under the Securities Act that would extend the guidance contained in the rule to the sales literature of private funds. Each of these proposals is discussed in greater detail below. Finally, we request comment on manner and content restrictions for general solicitation materials of private funds, a subject on which we received a number of comments and suggestions.
In light of issuers' ability to generally solicit their Rule 506(c) offerings, we are proposing requirements for issuers to better inform potential investors as to whether they are qualified to participate in these offerings, the type of offerings being conducted and certain potential risks associated with such offerings. A number of commenters on the Rule 506(c) Proposing Release recommended that the Commission adopt content restrictions or other requirements with respect to general solicitation materials used by issuers, such as private funds, in Rule 506(c) offerings.
While we believe that further consideration following experience with offerings under new Rule 506(c) is needed with respect to potential content restrictions for issuers' general solicitation materials, we are proposing new Rule 509, which would require all issuers to include the following prominent legends in all written general solicitation materials:
• The securities may be sold only to accredited investors, which for natural persons, are investors who meet certain minimum annual income or net worth thresholds;
• The securities are being offered in reliance on an exemption from the registration requirements of the Securities Act and are not required to comply with specific disclosure requirements that apply to registration under the Securities Act;
• The Commission has not passed upon the merits of or given its approval to the securities, the terms of the offering, or the accuracy or completeness of any offering materials;
• The securities are subject to legal restrictions on transfer and resale and investors should not assume they will be able to resell their securities; and
• Investing in securities involves risk, and investors should be able to bear the loss of their investment.
We believe that such legends would better inform potential investors as to whether they are qualified to participate in Rule 506(c) offerings and certain potential risks that may be associated with such offerings. Written general solicitation materials may combine two or more of these required statements in a single sentence, provided that each of the required disclosures is clear and easy to understand. Similarly, written general solicitation materials may use any wording that clearly communicates the information required to be disclosed. Compliance with the proposed legend requirements, however, does not relieve an issuer from the requirement to take reasonable steps to verify that purchasers in a Rule 506(c) offering are accredited investors.
We also recognize the specific concerns that commenters have expressed regarding private funds' ability to advertise to the general public, especially in light of the fact that private funds raise a significant amount of capital in Rule 506 offerings.
In response to these concerns, we are proposing that an additional legend and disclosures be required for private fund written general solicitation materials. First, we propose that private funds include a legend on any written general solicitation materials that the securities offered are not subject to the protections of the Investment Company Act.
Second, we propose that Rule 509 require private funds to include certain disclosures in any written general solicitation materials that include performance data. These disclosures are similar to certain disclosures required by Rule 482 under the Securities Act for advertisements and other sales materials of registered investment companies.
We are requesting comment on the extent to which “liquidity funds,” which are private funds that seek to maintain a stable net asset value (or minimize fluctuations in their net asset values) and thus can resemble money market funds, should be required to include similar disclosure statements in written general solicitation materials.
• Performance data represents past performance;
• past performance does not guarantee future results;
• current performance may be lower or higher than the performance data presented;
• the private fund is not required by law to follow any standard methodology
• the performance of the fund may not be directly comparable to the performance of other private or registered funds.
We believe that many investors, both sophisticated and unsophisticated, consider performance to be a significant factor when selecting investments, including when selecting private funds.
Further, we are proposing to require that if a private fund's written general solicitation materials include performance data, then such data must be as of the most recent practicable date considering the type of private fund and the media through which the data will be conveyed, and the private fund would be required to disclose the period for which performance is presented.
We are also proposing to require private funds that include performance data that does not reflect the deduction of fees and expenses in their written general solicitation materials to disclose that fees and expenses have not been deducted and that if such fees and expenses had been deducted, performance may be lower than presented. We believe it is important for investors to be informed about whether performance information presented reflects the deduction of fees and expenses.
As proposed, the requirement to include these legends and other disclosures, as applicable, would not be a condition of the Rule 506(c) exemption. Therefore, the failure to include legends or other disclosures in any written general solicitation materials as required by Rule 509 would not render Rule 506(c) unavailable for the offering. We recognize the potentially disproportionate consequences that would result if an inadvertent error in, or omission of, the legends or disclosures results in a violation of Section 5 of the Securities Act, as well as state securities laws and the uncertainty that issuers would have regarding the availability of Rule 506(c) for their offerings.
Instead, we are proposing to amend existing Rule 507(a) so that Rule 506 would be unavailable for an issuer if such issuer, or any of its predecessors or affiliates, has been subject to any order, judgment or court decree enjoining such person for failure to comply with Rule 509. We believe that the possibility of disqualification from reliance on Rule 506 would provide issuers with sufficient incentive to comply with the requirements of Rule 509, without penalizing them unduly for an inadvertent error in, or the omission of, a legend or other required disclosure in written general solicitation materials.
We recognize the Commission's experience with Rule 507 as it relates to compliance with the Form D filing requirements of Rule 503 and our belief today that the incentives for compliance with these requirements must be strengthened.
We also are requesting comment on whether content restrictions should apply to private fund general solicitation materials, but we are not proposing to prohibit private funds from including performance information in general solicitation materials at this time. The presentation of performance information, like other information used in general solicitation and other
59. Should we require all issuers to include the proposed legends in written general solicitation materials? Why or why not? Are accredited investors already aware of the information included in the proposed legends? Would the proposed legends be effective in reducing the incidence of non-accredited investors participating in Rule 506(c) offerings?
60. Is it appropriate for the Commission to provide for disqualification from reliance on Rule 506 for non-compliance with Rule 509? How would this affect the Rule 506(c) market? Should the Commission amend Rule 507 to also include Commission cease-and-desist and administrative proceedings? Would another mechanism provide a better incentive for issuers to include legends and other disclosures in written general solicitation materials that relied on a simpler enforcement mechanism but did not impose an immediate disqualification?
61. Should the Commission condition Rule 506(c) on compliance with the proposed requirements of Rule 509? What effect would such a condition have on the Rule 506 market? If compliance with Rule 509 were a condition of Rule 506(c), should the Commission provide for a cure mechanism for inadvertent errors in, or the omission of, legends or other required disclosure in the written general solicitation materials?
62. Do the proposed legends and required disclosures appropriately inform potential investors as to whether they are qualified to participate in Rule 506(c) offerings, the type of offerings being conducted and the potential risks that may be associated with such offerings? If not, how could they be revised to do so? Should additional legends or disclosures be required and, if so, what should these additional legends or disclosures be?
63. Should we have specific requirements for the legends and disclosures, such as for type size, type style, location and proximity? If so, what should they be? Alternatively, should we require the legends and disclosures to be presented in any manner reasonably calculated to draw investor attention to them?
64. Should we define the types of communications that constitute written general solicitation materials for purposes of the proposed requirements of Rule 509? If so, how should we define written general solicitation materials? For example, should we refer to the definition of “written communications” in Rule 405 under the Securities Act?
65. Should comparable disclosure be required to be provided in oral communications used in a Rule 506(c) offering that constitute general solicitations? Why or why not? Should the legends and required disclosures be required to be included in all offering materials or just the materials used in connection with general solicitation activities? How would issuers provide such disclosure?
66. Are there alternative methods for encouraging important explanatory information regarding performance to be given sufficient prominence in written general solicitation materials? Would mandated legends be helpful in mitigating concerns regarding fraudulent statements in written general solicitation materials?
67. The proposed amendments do not specify the precise wording of any required legends. Is that appropriate? Or should we require specific wording? If so, what would that be?
68. Should we specifically require disclosure of the date as of which any performance data included in the written general solicitation materials was calculated? Should we require all such performance data to be current as
69. If all purchasers in an offering receive a private placement memorandum that includes all of the required legends, is it necessary that other materials also include these legends?
70. To what extent do issuers, including private funds, currently use legends similar to those proposed in this release (for example, in the private placement memoranda given to the potential investors)? To what extent do they use other legends? Does this differ depending on the type of document used? For example, do private placement memoranda contain more extensive legends than other marketing materials?
71. As proposed, private funds would be required to include a telephone number or a Web site where an investor may obtain current performance data. Is this requirement appropriate? Should private funds be required to provide performance information on a Web site? Should private funds be allowed to restrict access to such Web site through the use of passwords or other measures?
72. Do the proposed disclosures relating to performance data appropriately inform investors that there are limitations on the usefulness of past performance data and the difficulty of comparing the performance of one private fund to other funds, particularly in light of the fact that private funds are not required by law to calculate or present performance pursuant to a standard methodology? If so, how? If not, why not?
73. If the amendments to Rule 482 proposed in the money market fund reform proposals are adopted,
74. Rule 506(c) may cause certain types of issuers that have historically registered offerings under the Securities Act to instead conduct offerings under Rule 506(c). These issuers also may use performance data in written general solicitation materials. For example, non-traded REITs, which have historically included prior performance data in Securities Act registration statements and sales literature, may instead conduct Rule 506(c) offerings and provide similar data in written general solicitation materials. Should we adopt legends or other disclosure requirements that are tailored to additional types of issuers, such as non-traded REITs? If so, which types of issuers should be required to include legends or other required disclosure in their written general solicitation materials? What information should be required?
75. What are the costs or burdens on issuers in providing the legends and other required disclosures, as proposed? Are there ways to reduce any costs or burdens on issuers?
76. Should we adopt additional or different legends or disclosure requirements for written general solicitation materials used by private funds in Rule 506(c) offerings when performance data is included?
We are also proposing to amend Rule 156 under the Securities Act to apply the guidance contained in the rule to the sales literature of private funds.
Rule 156 provides guidance on the types of information in investment company sales literature that could be misleading for purposes of the federal securities laws, including Section 17(a) of the Securities Act
If the Commission were to adopt those amendments, we anticipate that such amendments would also apply to private fund sales literature because we believe the descriptions of what statements could be misleading (for example, a statement emphasizing a single factor as the basis for determining that an investment is appropriate) would apply equally to statements made in the sales literature of private funds.
The Commission adopted Rule 156 as an interpretive rule to provide guidance in certain areas which, based on the Commission's regulatory experience with investment company sales literature, had proven to be particularly susceptible to misleading statements.
While the adoption of Rule 506(c) is the impetus for proposing amendments to Rule 156 to extend its guidance to private funds, the proposed amendments would apply to all private funds, including private funds engaged in general solicitation activity under Rule 506(c). This reflects our view that statements or representations have the potential to mislead investors regardless of the type of offering, investors' level of sophistication or whether such materials are used in a general solicitation.
Rule 156 does not prohibit or permit any particular representations or presentations. The circumstances in which statements or representations in investment company sales materials may be viewed as misleading appear to be similar to the circumstances in which statements or representations in private fund sales materials may be viewed as misleading. Based on enforcement and regulatory experience regarding private funds, we believe that the areas identified in Rule 156 as being vulnerable to misleading statements in investment company sales literature are similarly vulnerable with respect to private fund sales literature. For example, the Commission has brought enforcement actions against private fund advisers and others for material misrepresentations to investors and prospective investors regarding past or future investment performance and characteristics or attributes of the private fund. Such actions have included instances in which defendants were charged with misrepresenting a private fund's prior investment performance,
As the Commission previously described in connection with amendments to Rule 156, we have been particularly concerned that representations regarding past performance or future investment performance could be misleading given that many investors consider performance to be one of the most significant factors when selecting or evaluating mutual funds.
77. Are there certain types of private funds that will find it difficult to apply the guidance in Rule 156 to their sales literature? If so, which types of private funds and why? Are there changes to the guidance in Rule 156 that would be appropriate to consider in connection with the extension of the guidance to private funds?
78. Are there additional amendments to Rule 156 that would help to clarify the obligations of private funds under the antifraud provisions?
79. If the amendments to Rule 156 proposed in the target date fund rulemaking are adopted,
80. Would antifraud guidance be useful regarding issues that may arise with respect to sales literature disseminated by other types of issuers in connection with offerings pursuant to Rule 506(c), such as non-traded REITs? Would similar guidance be appropriate for other types of issuers, such as statements that sales material should present a balanced discussion of risk and reward, and be consistent with representations in offering documents? What are the expected costs and benefits with respect to any such guidance?
As noted above, some commenters have expressed particular concern that eliminating the prohibition against general solicitation may create more opportunities for private funds to distribute misleading and fraudulent information.
With respect to performance calculations for private funds, we note that the methodologies can vary for a number of reasons, such as the type of the fund, assumptions underlying the calculations and investor preferences. Given that legitimate reasons may result in different approaches to calculating performance for private funds, we have determined not to propose standardized calculation methodologies for performance of private funds without further study.
We believe that the antifraud provisions of the federal securities laws, and the requirement that purchasers of a private fund offered under Rule 506(c) be accredited investors, provide a level of investor protection and thus we are not proposing to prohibit or restrict the use of performance data at this time. We are soliciting specific comment on this issue as well as on whether other manner and content restrictions related to the removal of the prohibition against general solicitation are necessary or appropriate for Rule 506(c) offerings by private funds or other issuers. As stated previously, we have directed the Commission staff to review and analyze developments in the new Rule 506(c) market, including the form and content of written general solicitation materials submitted to the Commission.
81. Commenters have expressed concern about private funds including performance information in general solicitations materials. Should the Commission apply any content restrictions to performance advertising by private funds? Why or why not? Should the Commission apply content standards to specific types of performance advertising (
82. How do the different types of private funds (
83. Should the use of performance claims by a private fund as part of a general solicitation be conditioned on a requirement that the private fund be subject to an audit by an independent public accountant? Would such a requirement provide some level of protection that the performance claims were at least based on valuations of assets audited by an independent third party? To what extent do private funds typically have such an audit?
84. Is there a concern that, without content restrictions, materials used as part of general solicitations may vary depending upon who is selling the product (
85. Is investor confusion (or confusion by the general public) a concern with respect to a private fund's general solicitation materials? If so, what is the
86. Should the Commission draw a distinction between general solicitation activity engaged in by a private fund relying on Section 3(c)(1) of the Investment Company Act compared to a fund relying on Section 3(c)(7) of the Investment Company Act?
We are proposing new Rule 510T of Regulation D to require that an issuer conducting an offering in reliance on Rule 506(c) submit to the Commission any written general solicitation materials prepared by or on behalf of the issuer and used in connection with the Rule 506(c) offering. Under the proposed rule, the written general solicitation materials must be submitted no later than the date of first use of such materials in the offering. We are proposing the rule as a temporary rule that would expire two years after its effective date.
In connection with the Rule 506(c) Proposing Release, a number of commenters recommended that the Commission require materials used in general solicitations under Rule 506(c) to be filed with, or furnished to, either the Commission or FINRA. Some commenters recommended that we require the submission of all proposed general solicitation materials as an exhibit to Form D.
The Commission will need to understand developments in the Rule 506 market after the effectiveness of Rule 506(c). One of these developments would be the market practices through which issuers would solicit potential purchasers of securities offered in reliance on Rule 506(c). We believe that it is important that the Commission have the ability to assess these market practices. Proposed Rule 510T would facilitate this assessment by requiring issuers to submit any written general solicitation materials used in their Rule 506(c) offerings no later than the date of the first use of these materials. Such materials would be required to be submitted through an intake page on the Commission's Web site. To allow the Commission to assess market developments prior to the adoption of proposed Rule 510T, the Commission will establish and make available for use the intake page upon the effectiveness of Rule 506(c). Doing so will allow issuers, investors and other market participants to submit voluntarily any written general solicitation materials used in Rule 506(c) offerings. The submitted materials would be considered by the Commission staff as part of the Rule 506(c) Work Plan.
We are not proposing, at this time, that issuers file their written general solicitation materials through the Commission's EDGAR system. Written general solicitation materials submitted to the Commission pursuant to proposed Rule 510T would not be treated as being “filed” or “furnished” for purposes of the Securities Act or Exchange Act, including the liability provisions of those Acts. As the written general solicitation materials would be submitted to the Commission for the purpose of furthering the Commission's understanding of the market practices in the Rule 506 market, we are not proposing to make the written general solicitation materials publicly available on the Commission's Web site.
Compliance with proposed Rule 510T would not be a condition of Rule 506(c). As with the proposed Rule 509 requirement that issuers include legends and other disclosures in written general solicitation materials, we believe that conditioning the availability of Rule 506(c) on such compliance could lead to disproportionate consequences in the event of non-compliance. Instead, we are proposing to amend existing Rule 507(a) so that Rule 506 would be unavailable for an issuer if such issuer, or any of its predecessors or affiliates, has been subject to any order, judgment or court decree enjoining such person for failure to comply with Rule 510T. As with proposed Rule 509, we believe that the possibility of disqualification from reliance on Rule 506 would provide issuers with sufficient incentive to comply with the requirement of Rule 510T, without penalizing them unfairly for an inadvertent error or failure to submit written general solicitation materials. We also believe that Rule 507(a), with its provision that disqualification would occur only if a court issues an injunction, may be better suited for addressing the varied facts and circumstances that may cause an issuer not to submit written general solicitation materials and for determining whether disqualification for this failure is appropriate.
As noted above, we are proposing Rule 510T as a temporary rule that will expire two years after the effective date of proposed Rule 510T. We believe that a two-year period would provide sufficient time for the Commission and the Commission staff to assess many of the market practices used to solicit potential purchasers of securities offered through Rule 506(c) offerings
87. Should we require the submission of written general solicitation materials used in Rule 506(c) offerings, as proposed? Should oral communications that constitute general solicitation be required to be submitted in some form? If so, how should a requirement to submit general solicitation materials be applied to telephone solicitations, solicitations through broadcast media or oral communications?
88. What are the appropriate ramifications for an issuer that fails to submit written general solicitation materials? Should failure to submit general solicitation materials disqualify an issuer from using Rule 506 for future offerings without court action? Should a cure period be provided? Should submission of written general solicitation materials be a condition to the Rule 506(c) exemption?
89. What are the benefits and costs of requiring the submission of written general solicitation materials in Rule 506(c) offerings? If the staff were able to conduct only limited review of a small portion of the materials submitted, how does that impact an assessment of costs and benefits?
90. Should the submitted written general solicitation materials be made publicly available on the Commission's Web site? Would the availability of such materials on the Commission's Web site give undue credibility to the materials and create the impression that submitted materials have been reviewed and/or approved by the Commission?
91. Should written general solicitation materials be required to be submitted as an exhibit to Form D? Why or why not? Could submission of these materials publicly, through EDGAR or another means, have the effect of encouraging broadened investor interest in these offerings, beyond what the offerors would achieve by engaging in their own general solicitation efforts? Would this be in the interests of investors?
92. Should the written general solicitation materials be submitted at a time other than the date of first use of such materials? For example, currently, free writing prospectuses in the form of media publications or broadcasts that include information about the issuer, its securities, or the offering provided, authorized, or approved by or on behalf of the issuer or an offering participant and that are published or disseminated by unaffiliated media must be filed within four business days after the issuer or offering participant becomes aware of its publication or first broadcast. Should a similar deadline be considered for the submission of written general solicitation materials that are in the form of media publications or broadcasts and that include information provided or authorized by the issuer or an offering participant?
93. Should a requirement to submit written general solicitation materials be applied to all Rule 506(c) offerings, or should certain issuers or certain Rule 506(c) offerings be excluded or exempted from such a requirement? If yes, what issuers or offerings should be excluded or exempted? Should smaller issuers or smaller offerings be excluded or exempted?
94. As proposed, only the issuer relying on Rule 506(c) would have an obligation under Rule 510T to submit written general solicitation materials to the Commission, even if the materials were prepared and disseminated by an offering participant on behalf of the issuer. Should this requirement extend to the submission of all written general solicitation materials used by other offering participants in the same offering? Would this requirement further the Commission's assessment of the market practices used by issuers in Rule 506(c) offerings?
95. How would a requirement that written general solicitation materials be submitted to the Commission affect the amount or quality of information in such materials? How would it affect the use of Rule 506(c)?
96. Should the proposed requirement for issuers to submit written general solicitation materials be in the form of a temporary rule? Should this requirement be made a permanent one? If it is in the form of a temporary rule, is the proposed two-year period sufficient for purpose of understanding the market practices used by issuers to solicit potential purchasers in Rule 506(c) offerings?
Many commenters stated, and we agree, that the definition of accredited investor as it relates to natural persons should be reviewed and, if necessary or appropriate, amended. Several commenters recommended that the accredited investor definition be revised to include a financial knowledge or investment experience component
All of the commenters that recommended that the Commission amend the definition of accredited investor focused on the definition as it relates to natural persons.
At the outset, we note that amending the definition of “accredited investor” raises a number of issues separate from the implementation of Section 201(a). The accredited investor definition is subject to a number of independent regulatory requirements that mandate review and consideration of the definition. For example, Section 415 of the Dodd-Frank Act mandates the completion of a study by the Government Accountability Office (“GAO”) regarding the appropriate criteria for determining the financial thresholds or other criteria for qualifying as an accredited investor not later than three years after the date of enactment of the Dodd-Frank Act, which would be July 20, 2013. Under Section 413(b) of the Dodd-Frank Act, the Commission is required to undertake a review of the accredited investor definition as it relates to natural persons in its entirety four years after the enactment of the Dodd-Frank Act, and once every four years thereafter. Also, Section 413(a) of the Dodd-Frank Act stipulates that the net worth standard shall be $1 million, excluding the value of a person's primary residence, until July 2014.
Because any change we would propose to the definition of accredited investor would benefit from our consideration of these mandated reviews as well as from the ability to consider modifications to the net worth standard, we are not proposing any amendments to the accredited investor definition at this time. Nonetheless, in light of the considerations that commenters raised, the Commission staff has begun a review of the definition of accredited investor as it relates to natural persons, including the need for any changes to this definition following the effectiveness of Rule 506(c). This review, which we anticipate will be completed in a timely manner, will encompass, among other things, both the question of whether net worth and annual income should be
97. Are the net worth test and the income test currently provided in Rule 501(a)(5) and Rule 501(a)(6), respectively, the appropriate tests for determining whether a natural person is an accredited investor? Do such tests indicate whether an investor has such knowledge and experience in financial and business matters that he or she is capable of evaluating the merits and risks of a prospective investment? If not, what other criteria should be considered as an appropriate test for investment sophistication?
98. Are the current financial thresholds in the net worth test and the income test still the appropriate thresholds for determining whether a natural person is an accredited investor? Should any revised thresholds be indexed for inflation?
99. Currently, the financial thresholds in the income test and net worth test are based on fixed dollar amounts (such as having an individual income in excess of $200,000 for a natural person to qualify as an accredited investor). Should the net worth test and the income test be changed to use thresholds that are not tied to fixed dollar amounts (for example, thresholds based on a certain formula or percentage)?
We are also soliciting comment on the following additional matters:
100. Should it be a condition of Rule 506(c) that, prior to any sale of a security in reliance on the Rule, the purchaser shall have received an offering document containing specified information? If so, should such information requirements be the same as, or more or less inclusive than, the information requirements set forth in Rule 502(b) of Regulation D (which apply only when an issuer sells securities under Rule 505 or Rule 506 to a purchaser that is not an accredited investor)?
101. Should an issuer subject to the reporting requirements of Sections 13 or 15(d) of the Exchange Act be permitted to use Rule 506(c) if it is not current in its reporting obligations?
We request and encourage any interested person to submit comments regarding the proposed rule and form amendments, specific issues discussed in this release, and other matters that may have an effect on the proposed rules. We request comment from the point of view of issuers, investors and other market participants. With regard to any comments, we note that such comments are of particular assistance to us if accompanied by supporting data and analysis of the issues addressed in those comments. Commenters are urged to be as specific as possible.
The proposed rule and form amendments contain “collection of information” requirements within the meaning of the Paperwork Reduction Act of 1995 (“PRA”).
• “Form D” (OMB Control No. 3235–0076);
• “Rule 506(c) General Solicitation Materials” (a proposed new collection of information).
We adopted Regulation D and Form D as part of the establishment of a series of exemptions for offerings and sales of securities under the Securities Act. Form D contains collection of information requirements, requiring an issuer to file a notice of sale of securities pursuant to Regulation D or Section 4(a)(5) of the Securities Act. The Form D is required to include basic information about the issuer, certain related persons and the offering. This information is needed for implementing the exemptions and evaluating their use. The information collection requirements related to the filing of Form D with the Commission are mandatory to the extent that an issuer elects to make an offering of securities in reliance on the relevant exemption. Responses are not confidential. The hours and costs associated with preparing and filing forms and retaining records constitute reporting and cost burdens imposed by the collection of information requirements.
We are proposing to require the advance filing of Form D for Rule 506(c) offerings and to require the filing of a closing amendment to Form D after the termination of all Rule 506 offerings. In addition, we are proposing to amend Item 2 of Form D to require the identification of the issuer's publicly accessible (Internet) Web site address, if any; Item 3 of Form D to require, in Rule 506(c) offerings, the name and address of controlling persons, in addition to the information currently required for “related persons;” Item 4 of Form D to require the issuer to briefly describe its industry group if the issuer checks the “Other” box; Item 5 of Form D to replace the “Decline to Disclose” option with a “Not Available to Public” option; Item 7 of Form D to add separate fields or check boxes for issuers to indicate whether they are filing a Form D in advance of a Rule 506(c) offering or a closing Form D amendment for a Rule 506 offering; Item 9 of Form D to require information on the ticker symbol and security identifier for the offered securities, if any; Item 14 of Form D to add a table requiring information, in regard to Rule 506 offerings, on the number of accredited investors and non-accredited investors, whether they are natural persons or entities, and the amount raised from each category of investor; and Item 16 of Form D to require information, if the issuer is not a pooled investment fund, on the percentage of the offering proceeds from a Rule 506 offering that was or will be used (1) to repurchase or retire the issuer's existing securities; (2) to pay offering expenses; (3) to acquire assets, otherwise than in the ordinary course of business; (4) to finance acquisitions of other businesses; (5) for working capital; and (6) to discharge indebtedness.
We are also proposing to add new items to Form D, which would require
We anticipate that if the proposed amendments to require the advance filing of Form D for Rule 506(c) offerings, the filing of a closing amendment to Form D after the termination of Rule 506 offerings, and additional information in Form D are adopted, the burden for responding to the collection of information in Form D would increase for most issuers. For purposes of the PRA, we estimate that the annual compliance burden of the collection of information requirements for issuers making Form D filings after these proposed amendments would be an aggregate 32,736 hours of issuer personnel time and $39,283,200 for the services of outside professionals per year. Our methodologies for deriving the above estimates are discussed below.
The table below shows the current total annual compliance burden, in hours and in costs, of the collection of information pursuant to Form D in connection with the rule and form amendments to implement Section 201(a) of the JOBS Act we are adopting today. For purposes of the PRA, prepared in connection with the amendments to Form D adopted today, we estimate that, over a three-year period, the average burden estimate will be four hours per Form D filing. Our burden estimate represents the average burden for all issuers. This burden is reflected as a one hour burden of preparation on the company and a cost of $1,200 per filing. In deriving these estimates, we assume that 25% of the burden of preparation is carried by the issuer internally and that 75% of the burden of preparation is carried by outside professionals retained by the issuer at an average cost of $400 per hour. The portion of the burden carried by outside professionals is reflected as a cost, while the portion of the burden carried by the issuer internally is reflected in hours.
We believe
The table below illustrates the total annual compliance burden of the collection of information in hours and in cost under the proposed amendments to Regulation D and Form D. The burden estimates were calculated by multiplying the estimated number of responses by the estimated average amount of time it would take an issuer to prepare and review a Form D filing consistent with the assumptions above. We continue to estimate that 25 percent of the burden of preparation is carried by the company internally and that 75 percent of the burden of preparation is carried by outside professionals retained by the issuer at an average cost of $400 per hour. The portion of the burden carried by outside professionals is reflected as a cost, while the portion of the burden carried by the issuer internally is reflected in hours.
We are proposing new Rule 510T of Regulation D to require that an issuer conducting an offering in reliance on Rule 506(c) submit to the Commission any written general solicitation materials prepared by or on behalf of the issuer and used in connection with the Rule 506(c) offering. Under the proposed rule, the written general solicitation materials must be submitted to the Commission through an intake page on the Commission's Web site no later than the date of first use of such materials in the offering. Written general solicitation materials submitted to the Commission in this manner would not be publicly available on the Commission's Web site. We are proposing Rule 510T as a temporary rule that will expire two years after the effective date of proposed Rule 510T. In addition, we are proposing a number of legends and other disclosures that would need to be included in written general solicitation materials used in Rule 506(c) offerings. All such materials would need to disclose that only accredited investors can purchase in the Rule 506(c) offering. All such materials used by private funds would need to disclose that the securities offered are not subject to the protections of the Investment Company Act. And finally, any private fund that includes performance data in its written general solicitation materials would need to disclose certain information about the performance data. We propose to prescribe the basic elements of the disclosures but not the exact wording. We do not believe that any of the disclosures would be burdensome to prepare.
For purposes of the PRA, we estimate that the annual compliance burden of this collection of information requirement for issuers conducting Rule 506(c) offerings would be an aggregate 7,274 hours of issuer personnel time. We estimate that compliance with the proposed requirements related to written general solicitation materials would result in an estimated burden of two hours per offering under Rule 506(c). This estimated two hour burden includes the time it would take to prepare any applicable disclosures for the written general solicitation materials and to submit such materials through the Commission's Web site. Our burden estimate represents the average burden for all issuers per Rule 506(c) offering. In deriving this estimate, we assume that 100% of the burden of preparation will be carried by the issuer internally, which is reflected as an hourly burden.
Although it is not possible to predict the number of future offerings made in reliance on Rule 506(c) with any degree of accuracy, particularly because Rule 506(c) is not yet effective, for purposes of this analysis we estimate that there would be 3,637 Rule 506(c) offerings per year.
According to DERA, for the year ended December 31, 2012, there were 18,187 new Form D filings. A 20% increase in this number would result in a total of 21,824 new Regulation D offerings. Assuming the entire 20% increase is comprised of Rule 506(c) offerings, this would result in an estimated 3,637 Rule 506(c) offerings per year after adoption of the rule.
We request comment in order to: (i) Evaluate whether the proposed collections of information are necessary for the proper performance of the functions of the Commission, including whether the information will have practical utility; (ii) evaluate the accuracy of our estimate of the burden of the proposed collections of information; (iii) determine whether there are ways to enhance the quality, utility and clarity of the information to be collected; and (iv) evaluate whether there are ways to minimize the burden of the collections of information on those who respond, including through the use of automated collection techniques or other forms of information technology.
Persons submitting comments on the collection of information requirements should direct the comments to the Office of Management and Budget, Attention: Desk Officer for the Securities and Exchange Commission, Office of Information and Regulatory Affairs, Washington, DC 20503, and send a copy to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090, with reference to File No. S7–06–13. Requests for materials submitted to OMB by the Commission with regard to these collections of information should be in writing, refer to File No. S7–06–13, and be submitted to the Securities and Exchange Commission, Office of Investor Education and Advocacy, 100 F Street NE., Washington, DC 20549. OMB is required to make a decision concerning the collections of information between 30 and 60 days after publication of this release. Consequently, a comment to OMB is best assured of having its full effect if OMB receives it within 30 days of publication.
As directed by Section 201(a)(1) of the JOBS Act, the Commission has amended Rule 506 of Regulation D to permit general solicitation for offers and sales of securities made pursuant to Rule 506, provided that all purchasers of the securities are accredited investors and the issuer takes reasonable steps to verify their accredited investor status. This rule amendment has raised a number of concerns with respect to the Commission's ability to evaluate and assess the changing nature of the Rule 506 market and investor awareness of the risks associated with offerings under Rule 506(c). We are proposing amendments to Regulation D, Form D and Rule 156 of the Securities Act to address these concerns.
The proposed amendments to Form D and Regulation D as it relates to Form D would:
• Require the advance filing of Form D in Rule 506(c) offerings;
• require the filing of a closing amendment to Form D after the termination of a Rule 506 offering;
• require issuers to provide additional information in Form D primarily in regard to Rule 506 offerings; and
• disqualify an issuer from relying on Rule 506 for future offerings until one year after the required Form D filings are made if the issuer, or any predecessor or affiliate of the issuer, did not comply, within the last five years, with Form D filing requirements in a Rule 506 offering.
We are also proposing a new rule in Regulation D and an amendment to Rule 156 designed to address investor protection concerns arising from the ability of issuers to engage in general solicitation in their Rule 506(c) offerings. The new rule and the amendment to Rule 156 would:
• Require written general solicitation materials used in these offerings to include certain legends and other disclosures; and
• extend the interpretive guidance contained within Rule 156 to the sales literature of private funds.
We are proposing a new rule in Regulation D to require issuers, on a temporary basis, to submit any written general solicitation materials used in their Rule 506(c) offerings to the Commission. Such materials would be required to be submitted through an intake page on the Commission's Web site no later than the date of the first use of the materials in a Rule 506(c) offering. If adopted, this new rule would expire two years after the effective date of the rule.
We are mindful of the costs imposed by and the benefits obtained from our rules. The discussion below addresses the potential economic effects of these proposed amendments, including the likely benefits and costs of the amendments and their potential impact on efficiency, competition and capital formation.
As we highlight in our baseline analysis below, we note that a large percentage of current Rule 506 offerings are conducted by small issuers, which is consistent with the original Commission initiative in the early 1980s to facilitate capital formation by small issuers.
As previously noted, we substantially revised Form D in 2008 to mandate its filing in electronic form.
With the adoption of Rule 506(c), issuers are expected to have access to a greater number of capital sources because they will be able to generally solicit investors through a variety of means, thereby lowering search costs. While participating investors must be accredited investors, and Rule 506(c) requires issuers to take reasonable steps to verify that such persons are accredited investors, it is possible that some verification methods could lead to participation by non-accredited investors. Non-accredited investors who are not detected by reasonable verification methods could then participate in Rule 506(c) offerings for which they may not be well suited. There is also an increased likelihood of non-accredited investor participation in Rule 506(c) offerings if verification methods are deficient. Both of these likelihoods increase with issuers' ability to generally solicit their offers to an audience of potential investors through broader communication and advertising channels.
The proposed enhancements to the Form D filing requirements are prompted, in part, by the additional investor protection concerns associated with the ability to generally solicit private offerings. The proposed additional information and filing requirements should also enable the Commission to better evaluate the effectiveness of general solicitation in raising capital for small businesses.
All of these proposed rules could also impose certain costs on issuers, including filing burdens, reduced flexibility in offering methods and disclosure of potentially sensitive information. We discuss these potential costs in relation to the anticipated benefits in the sections below.
To assess the economic impact of the proposed rules, we are using as our baseline the regulation of private offerings as it exists today, including the adoption of Rule 506(c), which removes the prohibition on general solicitation for offerings under Rule 506. We also include in our baseline the provisions enacted with the adoption of the bad actor rule, which disqualifies issuers and other market participants from relying on Rule 506 if “felons and other `bad actors'” are participating in the offering. Because these provisions are being adopted today, the information provided below regarding the current state of the private offering market in the United States does not include data related to the use of general solicitation in Rule 506(c) offerings or the disqualification of bad actors, because no such data exist. Hence, some of our analysis of the potential impact of the proposed rules considers the anticipated
The baseline analysis that follows is in large part based on information collected from Form D filings submitted by issuers relying on Regulation D to raise capital, which is based on issuer reporting practices and requirements that could change because of the proposed amendments. As we describe in more detail below, we believe that we do not have a complete view of the Rule 506 market, particularly with respect to the amount of capital raised. Currently, issuers are required to file an initial Form D within 15 days of the first sale of securities, and are required to report additional sales through amended filings only under certain conditions. In addition, issuers do not report all required information, either due to error or because they do not wish to make the information public. Commenters have suggested and we also have evidence that some issuers are not filing a Form D for their offerings in compliance with Rule 503.
Some of the proposed rules, such as an Advance Form D filing for Rule 506(c) offerings, a closing Form D amendment for Rule 506 offerings, and expanded information requirements in Form D primarily in regard to Rule 506 offerings, seek to address these reporting limitations and are intended to result in more complete information on the Rule 506 market.
Exempt offerings play a significant role in capital formation in the United States. Offerings conducted in reliance on Rule 506 account for 99% of the capital reported as being raised under Regulation D from 2009 to 2012, and represent approximately 94% of the number of Regulation D offerings.
In 2011, the estimated amount of capital (including both equity and debt) reported as being raised in Rule 506 offerings was $849 billion compared to $985 billion raised in registered offerings.
At present, issuers
The amendments to Rule 506 we are adopting today in a separate release will affect a number of different market participants. Issuers of securities in Rule 506 offerings include both reporting and non-reporting operating companies and pooled investment funds. Investment advisers organize and sponsor pooled investment funds that conduct Rule 506 offerings. Intermediaries that facilitate Rule 506 offerings include registered broker-dealers, finders and placement agents. Investors in Rule 506 offerings include accredited investors (both natural persons and legal entities) and non-accredited investors who meet certain “sophistication” requirements. Affected market participants might also include investors that are not eligible to participate in Rule 506(c) offerings, but do because of poor investor verification standards or fraudulent activities. Each of these market participants is discussed in further detail below.
Based on the information submitted in 112,467 new and amended Form D filings between 2009 and 2012, there were 67,706 new Regulation D offerings by 49,740 unique issuers during this four-year period.
Some information about issuer size is available from Item 5 in Form D, which requires issuers in Regulation D offerings to report their size in terms of revenue ranges or, in the case of pooled investment funds, net asset value ranges. All issuers can currently choose not to disclose this size information, however, and a significant majority of issuers that are not pooled investment funds declined to disclose their revenue ranges in the Forms D that they filed between 2009 and 2012. For those that did, most reported a revenue range of less than $1 million (Figure 3).
During this period, pooled investment funds conducted approximately 24% of the total number of Regulation D offerings and raised approximately 81% of the total amount of capital raised in Regulation D offerings.
Between 2009 and 2012, approximately 66% of Regulation D offerings were of equity securities, and almost two-thirds of these were by issuers other than pooled investment funds.
We have relatively little information on the types and number of investors in Rule 506 offerings. Form D currently requires issuers in Rule 506 offerings to provide information about the total number of investors who have already invested in the offering and the number of persons who do not qualify as accredited investors.
Information collected from Form D filings indicates that most Rule 506 offerings do not involve broad investor participation. More than two-thirds of these offerings have ten or fewer investors, while less than 5% of these offerings have more than 30 investors. Although Rule 506 currently allows for the participation of non-accredited investors who meet certain sophistication requirements, such non-accredited investors purchased securities in only 11% of the Rule 506 offerings conducted between 2009 and 2012.
As stated above, between 2009 and 2012, the size of the median Regulation D offering, based on the information in Form D filings, was approximately $1.5 million. The presence of so many relatively small offerings suggests that a sizable number of current investors in Rule 506 offerings are natural persons or legal entities in which all equity owners are natural persons. This is because smaller offerings may not provide sufficient scale for institutional investors to earn a sizable return. Institutional investors typically have a larger investible capital base and more formal screening procedures compared to investors who are natural persons, and the associated costs of identifying potential investments and monitoring their investment portfolio lead them to make larger investments than natural persons.
While we do not know what percentage of investors in Rule 506 offerings are natural persons, the vast majority of Regulation D offerings are conducted without the use of an intermediary,
Our analysis, however, leads us to believe that only a small percentage of these households are likely to participate in securities offerings, especially exempt offerings. First, as mentioned above, data from Form D filings in 2012 suggests that fewer than 234,000 investors (of which an unknown subset are natural persons) participated in Regulation D offerings, which is small compared to the 8.7 million households that qualify as accredited investors. Second, evidence suggests that only a small fraction of the total accredited investor population has significant levels of direct stockholdings. Based on an analysis of retail stock holding data for 33 million brokerage accounts in 2010, only 3.7 million accounts had at least $100,000 of direct investments in equity securities issued by public companies listed on domestic national securities exchanges, while only 664,000 accounts had at least $500,000 of direct investments in such equity securities (Figure 7).
As of December 2012, there were 10,870 Commission-registered investment advisers that filed Form ADV with the Commission, representing approximately $50 trillion total assets under management.
Approximately one-fourth of registered investment advisers (2,842) currently advise (or advised) private funds that filed Form D between 2002 and 2012, while another 1,250 registered investment advisers currently advise (or advised) private funds that did not file Form D during the same period. The registered investment advisers advising private funds that submitted Form D filings during this period had average assets under management of $8.7 billion, while the ones advising private funds that did not submit Form D filings had average assets under management of $8.6 billion. Registered investment advisers that did not advise private funds (6,623) are considerably smaller, with average assets under management of $2.1 billion.
As of December 2012, there were 4,450 broker-dealers registered with the Commission who file on Form X–17A–5, with average total assets of approximately $1.1 billion per broker-dealer. The aggregate total assets of these registered broker-dealers are approximately $4.9 trillion. Of these registered broker-dealers, 410 are dually registered as investment advisers. The dually registered broker-dealers are larger (average total assets of $6.4 billion) than those that are not dually registered. Among the dually registered broker-dealers, we identified 24 that currently have or have had private funds that submitted Form D filings between 2002 and 2012.
As discussed above, commenters expressed concern that the use of general solicitation in Rule 506(c) offerings could lead to greater incidence of fraud in this market as those seeking to conduct fraudulent offerings would be able to directly solicit unsophisticated investors. Our principal source of data about the Rule 506 market is Form D filings and the incidence of fraud detected by us and other regulators. Because data on the incidence of fraud in private securities offerings is extremely limited, we are unable to estimate the extent of fraud in the existing market for privately offered securities or the degree, if any, to which such fraud may increase upon the adoption of Rule 506(c).
Some commenters suggested that we look to our experience with offerings conducted pursuant to Rule 504, as amended in 1992, as a means of evaluating the potential for fraud in the Rule 506(c) market. We do not believe that our experience with the 1992 amendments to Rule 504 is particularly instructive with respect to the potential incidence of fraud resulting from our implementation of Section 201(a) of the JOBS Act.
By 1998, we concluded that securities issued in these Rule 504 offerings facilitated a number of fraudulent secondary transactions in the over-the-counter markets, and that these securities were issued by “microcap” companies, characterized by thin capitalization, low share prices and little or no analyst coverage.
Moreover, we stated that, while “we believe that the scope of abuse is small in relation to the actual
In contrast, issuers using Rule 506(c) can sell only to accredited investors, and the securities issued in these offerings are deemed to be “restricted securities” for purposes of resale under Rule 144. As a result, schemes involving price manipulation to defraud unknowing investors in the immediate resale of securities purchased directly from issuers (colloquially referred to as “pump and dump” schemes) are not the types of fraud we believe are likely to occur in Rule 506(c) offerings, given the holding period requirement in Rule 144(d) and other structural impediments, such as restricted transfer legends on stock certificates.
Several commenters echoed concerns regarding the potential of fraud related to private funds in the Rule 506(c) market.
For comparison purposes, a recent study using enforcement actions brought by the Commission and private securities class action lawsuits to measure the incidence of fraud in the registered offering market found that approximately 3% of registered initial public offerings during the period from 1995 to 2007 were associated with allegations of fraud.
While we cannot estimate the extent of fraud in the market for privately offered securities, we do know, based upon our own experience enforcing the federal securities laws and the enforcement efforts of criminal authorities and state securities regulators, that fraud exists in this market. One of the primary objectives of the amendments to Regulation D and Form D being proposed today is to increase the information available to the Commission about the Rule 506 market so that we can better assess, and, if necessary, take steps to respond to, fraudulent practices in the market for privately offered securities.
The potential economic impact of the proposed amendments will depend on the current practices of issuers and market participants in Rule 506 offerings—specifically, on the extent to which issuers currently file Form D and their incentives for doing so in the future. The analysis below provides an assessment of current compliance rates with respect to Form D filing requirements.
Issuers that use an exemption under Regulation D to raise capital are required to file a Form D not later than 15 days after the first sale of securities in the offering; however, the filing of Form D is not a condition to the use of Regulation D. Commenters have indicated that a number of issuers in Regulation D offerings do not file the form, even though the filing of Form D is a requirement of Regulation D. Assessing the prevalence of current non-compliance is difficult because a Form D filing is often the only public record of a Regulation D offering. We can provide an estimate of filing compliance for issuers under Rule 506 that use a registered broker-dealer in these offerings and for private funds that are managed by a Commission-registered investment adviser.
We matched these FINRA filings to the Form D and Form D amendment filings received on EDGAR. The matching was done in multiple steps. First, we matched using the issuer CIK number and the Form D filing number
Prior to the effectiveness of Rule 506(c), general solicitation has not been permitted for private offerings under Rule 506. Although advertising by issuers is prohibited, issuers may provide some material or information to intermediaries and interested investors regarding themselves and their offering. Because this information is not filed with the Commission, we do not know if legends and relevant disclosures are included in any such material.
We are proposing amendments to Form D and Regulation D as they relate to Form D in order to enhance our understanding of the Rule 506 market, particularly the impact of the adoption of Rule 506(c). These proposed amendments would:
• Require the filing of Form D 15 calendar days in advance of the first use of general solicitation in a Rule 506(c) offering;
• require the filing of a closing amendment to Form D within 30 calendar days after the termination of a Rule 506 offering;
• require issuers to provide additional information in Form D primarily with respect to Rule 506 offerings; and
• disqualify an issuer from relying on Rule 506 for future offerings until one year after the required Form D filings are made if the issuer, or any predecessor or affiliate of the issuer, did not comply, within the last five years, with Form D filing requirements in a Rule 506 offering.
We are proposing to amend Rule 503 of Regulation D to require issuers that intend to engage in general solicitation for Rule 506(c) offerings to file an initial Form D with certain information 15 calendar days in advance of any general solicitation for the offering. We believe that requiring issuers to file an Advance Form D would assist the Commission's efforts to evaluate the use of Rule 506(c). The Advance Form D would be useful to the Commission and the Commission staff, as it would enhance the
On the other hand, to the extent that an Advance Form D filing signals planned capital-raising activity and related details to potential competitors, some issuers may be reluctant to use Rule 506(c) when they might otherwise. The proposed Advance Form D filing requirement could thus deter some issuers from using Rule 506(c) as they would be forced to indicate their capital raising plans to a limited extent prior to commencing their general solicitation activities. In addition, the proposed Advance Form D filing requirement could impose market timing costs to the extent that an issuer would like to move quickly but has not yet filed an Advance Form D. We have proposed an advance filing deadline that we think appropriately balances the benefits of advance notice with these market timing costs. Nevertheless, many issuers may choose to file an Advance Form D just in case they decide to conduct a Rule 506(c) offering. As a result, many Advance Form D filings may not reflect the true intent of issuers to conduct these offerings. If there are large numbers of issuers that frequently engage in this practice, there could be a sizable number of premature, and possibly even meaningless, notices of Rule 506(c) offerings; however, requiring specific information about the anticipated offering could decrease the likelihood that issuers file an Advance Form D when they do not intend to conduct an offering in the near term.
To complete an Advance Form D would cause issuers to incur costs; however, because the information in Advance Form D mirrors the information required to be filed within 15 days of the first sale of securities, the additional expense to collect the information for the Advance Form D would be offset by the lack of any need to do so for the subsequent filings.
We are also proposing to amend Rule 503 to require the filing of a final amendment to Form D within 30 calendar days after the termination of a Rule 506 offering. Requiring a closing filing through a Form D amendment upon the termination of a Rule 506 offering, in combination with the changes to Form D to require additional information on Rule 506 offerings, would provide more complete information of the total amounts of capital raised in these offerings by the types of investor and the methods used to verify accredited investor status in Rule 506(c) offerings.
At present, issuers are required to file a Form D within 15 days of the first sale of securities in a Regulation D offering and amendments to the Form D under certain circumstances. As a result, if the total offering amount remains the same or is increased by less than 10%, any capital raised or any change in the composition of subscribing investors, subsequent to the last filing for the offering, is not required to be reported in a Form D. For example, in 2010, issuers sought to raise $1.2 trillion in reported Regulation D offerings, but only $905 billion was reported as sold at the time of the initial Form D filing.
Without a closing Form D amendment requirement, it may be difficult to clearly ascertain, for example, all of the methods of general solicitation that issuers used in Rule 506(c) offerings or the types of investors solicited in these offerings, particularly if any changes in solicitation methods or targeted investors after the initial Form D filing are not otherwise required to be reported. In such case, any analysis of the information in Form D filings would be based on incomplete data, which may limit the intended benefits of collecting the Form D information. Updated and more conclusive data on Rule 506 offerings from closing Form D amendments would provide the Commission with a more complete account of the flow of capital in the Rule 506 market, how the flow relates to offering characteristics and the potential associated risks and would assist the Commission in evaluating whether further regulatory action is necessary.
Requiring a closing Form D amendment for Rule 506 offerings would likely come at a nominal cost to issuers in terms of filing another notice, particularly because the filing would be substantially similar to the initial Form D filing or prior Form D amendments for the offering.
The information about Regulation D offerings collected to date and described in this release illustrates and underscores the importance of the non-registered offering market to the U.S. economy. Form D is the primary source of information for the Commission to assess the Regulation D market. Much of what we know about the size and characteristics of the private offering market comes from Form D filings. The continued collection of this information following the elimination of the prohibition against general solicitation in Rule 506(c) offerings will be an important tool for determining the ongoing impact of Rule 506(c).
A number of the proposed amendments to Form D would require additional information specific to Rule 506(c) offerings, which would enable the Commission to develop a greater understanding of the new Rule 506(c) market, particularly with respect to those matters where limited to no information would otherwise be available. Other proposed revisions to Form D would require additional information in regard to both Rule 506(b) offerings and Rule 506(c) offerings, which would permit a more complete analysis and comparison of the use of current Rule 506(b) and new Rule 506(c).
On the other hand, the proposed amendments to Form D may result in higher compliance costs for issuers conducting offerings in reliance on Rule 506(b) and new Rule 506(c). Issuers relying on Rule 506(b) would have to provide more information than is currently the case in regard to Form D, which would be coupled with the risk of disqualification from using Rule 506 in future offerings, under proposed Rule 507(b), if they or their affiliates or predecessors fail to comply with the additional Form D filing requirements. Nevertheless, we believe that the additional burden to provide the additional required information to be minimal. The proposed amendments would also require, depending on the circumstances, additional information under Items 5 and 9 of Form D with respect to offerings under Rule 504, Rule 505 or Section 4(a)(5), which, as discussed below, we do not believe would result in materially higher compliance costs for issuers conducting these offerings.
Issuers may view the increased reporting requirements as a greater regulatory burden and a loss of commercial privacy,
A discussion of a number of the proposed amendments to Form D is set forth below.
The proposed amendment to Item 14 (Investors) of Form D would require information, with respect to Rule 506 offerings, on the number of investors under the following categories: natural persons who are accredited investors, legal entities that are accredited investors, and if applicable, non-accredited natural persons and non-accredited legal entities. The additional required information would include the amount raised from each of the four categories of investors. At present, Form D requires information on the total amount of capital expected to be raised and the number of accredited and non-accredited investors that have purchased securities in a particular offering. We do not have information on the number of investors who are natural persons or legal entities, or the amounts raised from each of these investor categories. The proposed amendment would thus require more detailed information on the composition of investors in the Rule 506 market than is currently available. Because all purchasers in Rule 506(c) offerings must be accredited investors, and offerings under Rule 506(b) can have no more than 35 non-accredited investors who meet certain sophistication requirements, disaggregated data regarding the number of each type of investor and the amount invested by accredited and non-accredited investors would provide a more complete view of their participation in the Rule 506 market.
Understanding the composition of investors in Rule 506 offerings as between natural persons and legal entities would also be important for risk assessment purposes. Institutional investors usually have a greater amount of resources at their disposal and therefore are more likely to have better information and greater sophistication when considering the potential risks and benefits of a particular investment, as compared to natural persons.
Issuers relying on Rule 506(c) will be collecting such information as part of their verification of accredited investor status for Rule 506(c) offerings. We do not expect the requirement that issuers report this information on Form D to impose significant additional costs.
The proposed amendment to Item 5 (Issuer Size) of Form D would replace the “Decline to Disclose” option with “Not Available to Public” option. This change to Form D would assist the Commission in obtaining a greater amount of information on the size of issuers that conduct Rule 506 offerings. This proposed amendment would also apply to offerings under Rule 504, Rule 505 and Section 4(a)(5). At present, a majority of Form D filings do not provide information on the size of the issuer's revenue (if the issuer is an operating company) or net asset value (if the issuer is a hedge fund or other investment fund). It is likely that some issuers keep this information private for competitive purposes and therefore do not make this information widely available. For those issuers that already make this information publicly available, or that do not currently make a reasonable effort to keep such information confidential, reporting their size range in a Form D filing would not impose a material cost. Having this information would provide a more complete picture of the Rule 506 market and allow the Commission to more accurately assess the impact of allowing general solicitation on capital formation across issuer sizes. This information would be particularly useful in better understanding the effects of general solicitation on capital formation by small businesses, a set of issuers that otherwise face significantly greater challenges than larger issuers in finding investors.
Industry information is an important issuer characteristic that helps in assessing the effectiveness of private markets in promoting capital formation across industry groups. An analysis of Form D filings over the period 2009–2012 indicates that the “Other” category was checked in over 15% of offerings.
The proposed amendment to Item 3 (Related Persons) to include controlling persons when the issuer seeks to use general solicitation in a Rule 506(c) offering will expand the set of persons covered under the existing list of related persons that includes promoters, directors and executive officers. Thus, a beneficial owner who has a significant equity stake in an issuer but may not be a managing executive would now need to be identified. This information may be helpful to the Commission in developing a more comprehensive understanding of the issuers and other market participants that are involved in Rule 506(c) offerings.
Including information regarding control persons would enable investors to better identify persons who may be in positions to influence the Rule 506(c) offering. The identity information could also be useful if questions arise about the offering. Issuers would incur additional reporting costs when there are control persons that are not also related persons. In many instances this information is readily available and easy to collect, particularly to the extent that issuers identify controlling shareholders under the bad actor provisions we are adopting today. Issuers could, however, find this amendment burdensome as they may want to keep information on controlling persons private.
There could be instances where some shareholders who own a significant stake in the issuers' equity but are passive owners are incorrectly identified as control persons in a publicly filed form. Because this information would be required only for Rule 506(c) offerings, issuers would not face these privacy concerns if they do not rely on Rule 506(c) for their offering.
Proposed Item 18 would require issuers to identify if any of its securities are traded on a national securities exchange, ATS or any other organized trading venue. If the issuer answers in the affirmative, it is required to identify the names of such trading venues where its securities are being traded and the SEC file number for such class of securities. The issuer, under proposed Item 18, would also need to identify if the securities to be sold in the offering are of the same class as the class of securities listed or quoted on the trading venue. Further, the proposed amendment to Item 9 (Types of Securities Offered) of Form D would require information on the trading symbol and security identifier, such as a CUSIP number
These proposed amendments would apply to offerings under Rule 506 as well as to offerings under Rule 504, Rule 505 and Section 4(a)(5). In many cases, the class of an issuer's security offered through a Rule 506 offering may not be eligible for trading on a national securities exchange, ATS or any other organized trading venue, and may not have an assigned security identifier.
For classes of securities where this information is available, regulators could link the offered securities to financial information about the issuer and the class of security—such as accounting data and security-price data—that is not available on Form D but is available through common third-party data aggregation platforms and through the associated trading venues. The inclusion of a security identifier in Form D would be relevant information for a number of private offerings. For example, analysis of Form D filings shows that approximately 10% of Exchange Act reporting companies conducted Regulation D offerings during the period between 2009 to 2011.
The inclusion of this information could be useful to the Commission in evaluating developments in the Rule 506 market in several ways. First, with respect to a security identifier, linking Rule 506 offerings and financial information about the issuer from other financial data providers would allow for a more effective evaluation of one part of the Rule 506 market. In particular, the availability of a security identifier would enable us to automatically match and process financial and other information about the issuer in a manner that would be significantly less burdensome than if we had to rely solely on a firm name and other identifying information. Security identifiers also could facilitate tracking multiple issuances by the same issuer, which might not otherwise be clear if a security identifier exists but is not made available. In addition, identifying the trading venue for an offered security could help us assess whether particular trading venues—or the lack of trading venue—is associated with higher prevalence of fraud and other illegal activities.
Identifying whether the securities being offered in reliance on Rule 506 are of the same class of securities, or are convertible into, or exercisable, or exchangeable for such class of securities will provide additional informational linkages between publicly available data and private offerings. The marginal cost to issuers of providing this information is likely to be low because this information should be readily available to the issuers of the offered securities.
The proposed amendment to Item 16 (Use of Proceeds) of Form D would require issuers that are not pooled investment funds to report information on the portion of proceeds (if any) from Rule 506 offerings that will be used to repurchase or retire the issuer's existing securities. This information would allow the Commission to distinguish between offerings that raise capital to allow insiders and/or incumbent shareholders a partial or full exit and offerings that use the proceeds for investments or capital expenditures. This information could help us better distinguish the impact of the ability to use general solicitation in Rule 506(c) offerings on capital formation versus investment exit strategies, particularly for small businesses. It may also help inform investors and the market generally about the issuer's incentives or related risks. For example, proceeds used towards redemption of securities could indicate that existing shareholders are lowering their investment exposure in the issuer.
The proposed amendment also requires issuers, other than pooled investment funds, that are relying on Rule 506 to provide more information on the use of offering proceeds. Issuers will be required to indicate what part of the proceeds is being used to pay for offering expenses, asset acquisition, working capital, business acquisition or repayment of existing debts. For non-fund issuers, this information would help us evaluate whether and how Rule 506 enhances capital formation that would be used for new investments, consistent with the intent of the JOBS Act, as compared to refinancing and capital restructuring. However, the
The proposed amendment to Item 2 (Principal Place of Business and Contact Information) would require all Regulation D issuers to provide their publicly accessible business Web site, if they have one. Web sites for operating businesses have become ubiquitous and are part of their contact information, and in some instances, businesses could be operating only via the Internet and may not have a physical location. When available, this information would be a useful component of issuer identification and would not be burdensome to provide.
The proposed amendments to Form D would include adding a requirement for issuers to provide information on the types of general solicitation used in Rule 506(c) offerings. The options would include oral communications, written communications, such as mass mailings and emails, Web sites or television and the web link to the advertising if the advertising is presented on a Web site. Having this information would help the Commission perform reviews of the Rule 506 market to better understand how the different methods of solicitation correspond to issuer behavior, including potentially fraudulent activity, identified through the Commission's Rule 506 review program.
The proposed amendments to Form D would include adding requirements for issuers to provide information about how the investors in the offerings qualified as accredited investors, such as a natural person on the basis of income or net worth, as well as information on the types of methods used for verifying the accredited investor status of purchasers. This information would help us assess the nature of the verification methods used and how issuers are complying with the requirement to take reasonable steps to verify the accredited investor status of purchasers in Rule 506(c) offerings. The Commission may be able to use this information to analyze whether there are correlations between certain verification methods and the incidence of fraud in the private offering market. Similarly, information about verification practices learned through the Commission's Rule 506 review program could be applied to subsequent Commission reviews of any practices, or combinations of practices and other offering characteristics, associated with the increased likelihood of fraudulent activity.
The proposed amendment to Rule 507 would disqualify an issuer from using Rule 506 for future offerings if the issuer, or its predecessors or affiliates, had conducted an offering under Rule 506 in which, within the last five years, it or they did not comply with the Form D filing requirements of Rule 503 in Rule 506 offerings. Disqualification would extend for a period of one year after the filing of all required Forms D and Form D amendments have been made. This provision should increase the incentive for issuers to submit timely filings of Form D.
As described above, we could not locate Form D filings for approximately 10% of Regulation D offerings where broker-dealers or registered investment advisers were involved.
Greater compliance with Form D filing requirements would provide a more complete picture of the Regulation D market. It would enhance the Commission's ability to assess the effectiveness and efficiency of the private offering market and the impact of the elimination of the prohibition against general solicitation. As the Commission obtains more comprehensive data on Regulation D offerings, it would be able to better evaluate activity in Rule 506(b) and Rule 506(c) markets and undertake regulatory action in a more informed manner. In particular, to the extent that certain issuer and offering characteristics collected through Form D are associated with illegal market practices, regulators would be in a better position to focus monitoring efforts on offerings that present heightened investor protection concerns.
A better-informed view of capital-raising in the Rule 506 market could help the Commission engage in targeted regulatory responses to the potential for fraudulent activity in the Rule 506 market. To the extent that these regulatory responses decrease fraudulent activity, they could promote investor protection and investor interests potentially leading to higher participation by eligible investors, especially natural persons who are accredited investors, and to greater capital-raising opportunities.
While the proposed disqualification provision is designed to encourage a higher rate of compliance with the Form D filing requirements, it would make failure to file costly to Rule 506 issuers if they or their successors and affiliates cannot rely on Rule 506 in a timely manner for future offerings and they would otherwise do so. The loss of access to Rule 506 offerings could impair their competitiveness if they are unable to secure alternative sources of capital at the same cost.
For those issuers that submit their Form D filings in a timely manner, the potential for disqualification under proposed Rule 507 would pose little additional risk, such as from an accidental failure to file a Form D or the late filing of a Form D that was not identified and corrected during the cure period. Those issuers that, in the past, have chosen not to file a Form D or filed it late may have a stronger incentive to file (
We are not proposing to disqualify an issuer from reliance on Rule 506 in its
The inclusion of a cure period and providing the disqualification to be lifted for one-year after the required Form D filings have been made or by virtue of a waiver by the Commission, would help moderate issuers' costs of non-compliance in Form D filings. At the same time, making issuers that repeatedly fail to file Form D ineligible for a cure period will provide a strong incentive for timely compliance with the filing requirements. This would increase the cost associated with non-compliance, although issuers that have been disqualified from future use of Rule 506 would retain the option of applying for a waiver. We believe that disqualifying an issuer from relying on Rule 506 for one year may be a sufficient incentive for achieving higher filing compliance, and is not so severe that it would deter issuers from using Rule 506 for their capital-raising activity.
We are proposing a new rule under Regulation D and an amendment to a Securities Act rule in connection with an issuer's ability to engage in general solicitation in Rule 506(c) offerings.
We are proposing new Rule 509 of Regulation D to require issuers to include legends in all written general solicitation materials used in a Rule 506(c) offering and to require private funds to include an additional legend and other disclosures where the written general solicitation materials include performance data. Specifically, issuers would be required to include:
• Eligibility legends that advise investors that securities offered under Rule 506(c) may be purchased only by accredited investors.
• Risk legends that advise investors of the following: the securities are being offered in reliance on an exemption from the registration requirements of the Securities Act and are not required to comply with specific disclosure requirements under the Securities Act; the Commission has not passed upon the merits of or given its approval to the securities, the terms of the offering, or the accuracy or completeness of any offering materials; the securities are subject to legal restrictions on transfer and resale and investors should not assume they will be able to resell their securities; and investing in securities involves risk and purchasers should be able to bear the loss of the entire investment. Private funds would be required to include a legend informing investors that the funds are not subject to the protections of the Investment Company Act.
• Performance disclosures in the case of private funds informing investors that the performance data represents past performance, that past performance is not indicative of future results, that the current performance may be lower or higher than the performance presented, that performance data is not calculated on a standardized basis as is required for registered funds, and that the performance of the private fund may not be directly comparable to the performance of other funds. Private funds also would be required to include only performance data as of the most recent practicable date and to include a telephone number or Web site where an investor may obtain current performance data. Private funds also would be required to disclose the period for which performance is presented and if performance data does not reflect the deduction of fees and expenses, private funds would be required to disclose that fees and expenses have not been deducted and that if such fees and expenses had been deducted, performance may be lower than presented.
The inclusion of mandated legends would better inform potential investors as to whether they are qualified to purchase in Rule 506(c) offerings. Including risk and performance legends could make investors more aware of the potential risks associated with such offerings and, with respect to offerings by private funds, could help investors avoid confusing private funds with registered funds, which have a different risk and regulatory profile. Performance disclosures for private funds would also assist potential investors in assessing performance claims that may be included in the general solicitation materials. These legends would alert potential investors to certain investment risks.
Even though only accredited investors are allowed to purchase in Rule 506(c) offerings, advertising and other activities by issuers and intermediaries could induce non-accredited investors to believe that they are eligible to participate in these investment opportunities. Legends notifying them that only accredited investors are eligible to invest in these offerings could help alert non-accredited investors as to their ineligibility to participate.
We anticipate that the cost of including such legends in sales materials would be minimal for issuers. In some instances, the legends may be of limited benefit to investors because legends do not address whether the offering is fraudulent. It is possible that some unsuspecting accredited investors might erroneously believe that the inclusion of legends validates all of the information and risks regarding the offering. Further, it is possible that because these legends may contain standardized language, investors might discount the relevance of these legends.
Requiring additional disclosures for private funds, similar to those required by Rule 482 under the Securities Act for registered investment companies, would increase the likelihood that the performance data that is reported in the written general solicitation material is timely and would provide additional information and context about the performance presented. Because there are no standardized performance reporting requirements for private funds, such disclosure would address some concerns about investors being misled or confused in interpreting the performance information and may decrease the likelihood of misleading or exaggerated performance information being presented in private fund written general solicitation materials. While flexibility in reporting performance data may be appropriate for private funds that have a varied scope of investment strategies, performance calculation methodologies that are non-standardized or complicated limit how much investors can appropriately glean from the data advertised in the written material. The purpose for requiring these additional disclosures is to provide context so investors can better understand fund performance information.
The proposed requirement for private funds to include a telephone number or Web site where an investor may obtain current performance data could impose costs, including the cost of establishing a telephone line or establishing a Web site for this information. We have
Rule 156 under the Securities Act is an interpretive rule that provides guidance on the types of information in investment company sales literature that could be misleading for purposes of the federal securities laws, including Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b–5 thereunder. We are proposing amendments to Rule 156 to apply the guidance contained in the rule to sales literature used by private funds. The sales literature and other offering materials used by private funds are already subject to the antifraud provisions of Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b–5. The proposed amendments to Rule 156 are intended to provide helpful guidance to private fund issuers in developing sales literature that is neither fraudulent nor misleading. The proposal may also encourage private funds to include additional disclosure regarding performance and other statements or representations about the characteristics of the fund. Funds may incur some costs in reviewing their sales literature for consistency with the interpretive guidance set forth in Rule 156. We note, however, that private funds should already be reviewing their sales literature for misleading statements to avoid violating the antifraud provisions of the federal securities laws. Accordingly, we believe that the amendments to Rule 156 would not impose significant compliance costs on private funds.
Commenters have suggested that there be standards or requirements that would govern the content and/or manner of general solicitations by private funds in Rule 506(c) offerings. As discussed above, there may be investor protection concerns with respect to the offering materials used by private funds as these funds are not subject to specific disclosure requirements in reporting their performance, unlike registered funds. Some commenters have advocated that, in order to engage in general solicitation, the materials used by private funds should be held to standards that are analogous to those that are applicable to the materials used by mutual funds. They have also advocated for restricting the use of performance data in general solicitation materials by private funds until the Commission can develop standardized performance calculation and reporting requirements. We recognize, however, that prescribing performance standards in general solicitation materials could reduce the flexibility of issuers when methodologies for calculating performance may vary for legitimate reasons, including investor preferences, and could be burdensome for issuers, especially if their general solicitation materials are otherwise not misleading.
Proposed new Rule 510T in Regulation D would require an issuer conducting a Rule 506(c) offering to submit to the Commission any written general solicitation materials prepared by or on behalf of the issuer and used in connection with the Rule 506(c) offering. This requirement would enable the Commission to evaluate the use of written general solicitation materials. It could also serve as a deterrent against potential forms of misleading advertising or other fraud because the written general solicitation materials would be submitted to the Commission and accessible to other securities regulators. Having access to the written general solicitation material could help regulators evaluate market practices.
The written general solicitation material would not be treated as filed or furnished with the Commission and is therefore not subject to the particular liability provisions under the Securities Act or the Exchange Act for filings. Conditioning the future availability of Rule 506 on not being subject to any order, judgment or court decree for failure to comply with proposed Rule 510T would provide incentives for submitting written general solicitation material. Inclusion of a two-year sunset period for this rule would provide a finite period of time (and information) for issuers to submit written general solicitation materials for the Commission's consideration in assessing general solicitation in Rule 506(c) offerings and would therefore also limit issuers' costs of compliance.
Under the proposed rule, written general solicitation materials would be required to be submitted no later than the date of first use of such materials. Issuers are required to submit only written general solicitation materials, so to the extent issuers' written general solicitation materials do not change, they should not be costly to submit. If the written general solicitation materials change or are updated during the course of an offering, however, submission of these materials at multiple times could create an increased burden for issuers.
The proposed amendments to the Form D filing requirements would enable the Commission to evaluate the effectiveness of Regulation D market more systematically and to more accurately determine the economic impact of eliminating the prohibition against general solicitation in Rule 506 offerings. A more complete understanding of how and where capital is being raised in offerings relying on Rule 506(b) or Rule 506(c) would help the Commission better assess the risk in these markets and evaluate the effectiveness of the use of general solicitation materials in capital-raising activity. Appropriate and timely regulatory responses to Rule 506 market developments would enhance investor protection, and could encourage greater investor participation in the Rule 506 markets, which would lead to higher aggregate of capital formation.
The proposed amendments to the Form D filing requirements would also provide the Commission, other regulators and investors with more information about market participants and practices in the private offering market. The increased quantity and quality of information about private offerings is designed to make it easier
The inclusion of legends and additional disclosures would inform investors about the differences between Rule 506(c) offerings and registered offerings, allowing for greater transparency and better understanding of the differences in the underlying risks of the two types of offerings. This would improve investor decision-making and thereby, the allocative efficiency of capital in the Rule 506 market. The proposed amendments to Securities Act Rule 156 may also make private funds and their investment advisers more aware of potentially misleading statements in their sales literature and written general solicitation material.
The elimination of the prohibition against general solicitation may enhance the ability of accredited investors to identify and evaluate investment opportunities in private funds that would not have previously been available. This could increase the level of competition between private funds and registered funds and result in a shift in the flow of invested capital from registered to private funds. The proposed amendments to require legends and disclosures in written general solicitation materials are intended to limit such a shift to only those investors that are qualified to participate in Rule 506(c) offerings. We are not, however, able to quantify the magnitude of such a potential substitution of investment in private funds and registered funds or the extent to which the proposed legends will affect that shift.
We recognize the proposed rule and form amendments in this release could increase the regulatory burden for issuers in the Rule 506(b) and Rule 506(c) markets, which could drive potential issuers, especially small issuers, to the Rule 504 and Rule 505 markets. Some issuers may even find accessing public markets more attractive. However, with the availability of general solicitation in Rule 506(c) offerings, the benefits of using Rule 506(c) are still likely to justify the higher costs of complying with the proposed rule and form amendments.
For purposes of the Small Business Regulatory Enforcement Fairness Act of 1996 (“SBREFA”),
• An annual effect on the economy of $100 million or more (either in the form of an increase or a decrease);
• a major increase in costs or prices for consumers or individual industries; or
• significant adverse effects on competition, investment or innovation.
If a rule is “major,” its effectiveness will generally be delayed for 60 days pending Congressional review.
We request comment on whether our proposed amendments would be a “major rule” for purposes of SBREFA. We solicit comment and empirical data on:
• The potential effect on the U.S. economy on an annual basis;
• any potential increase in costs or prices for consumers or individual industries; and
• any potential effect on competition, investment or innovation.
We request those submitting comments to provide empirical data and other factual support for their views to the extent possible.
The Commission has prepared this Initial Regulatory Flexibility Analysis in accordance with Section 603 of the Regulatory Flexibility Act.
The primary reason for, and objective of, the proposed amendments to Form D and the proposed amendments to Regulation D relating to Form D is to improve the Form D data collection process with respect to offerings under Rule 506 of Regulation D and, in particular, to assist our efforts to assess the use of general solicitation in Rule 506(c) offerings. We believe these amendments, in general, would improve our Form D data collection efforts by providing a greater incentive for issuers to file Form D and by amending the information requirements of Form D to require additional information on Rule 506 offerings. Proposed Rule 509, which would require issuers to include certain legends and other disclosures in written general solicitation materials used in Rule 506(c) offerings, is intended to address investor protection concerns arising from the ability of issuers to engage in general solicitation in these offerings. Proposed Rule 510T, which would require issuers to submit to the Commission any written general solicitation materials used in Rule 506(c) offerings, is intended to facilitate the Commission's understanding of the market practices relating to how issuers solicit potential purchasers through written general solicitation materials for their Rule 506(c) offerings. The proposed amendments to Rule 156 are intended to provide helpful antifraud guidance to those preparing sales literature for private funds.
We are proposing the amendments to Regulation D and Form D under the authority in Sections 4(a)(2), 19(a) and 28 of the Securities Act,
For purposes of the Regulatory Flexibility Act, under our rules, an issuer, other than an investment company, is a “small business” or “small organization” if it has total assets of $5 million or less as of the end of its most recent fiscal year and is engaged or proposing to engage in an offering of securities which does not exceed $5 million.
The proposed amendments would apply to all issuers that conduct offerings under Rule 506 and would affect small issuers (including both operating businesses and pooled investment funds that raise capital under Rule 506) relying on this exemption from Securities Act registration. All issuers that sell securities in reliance on Rule 506 are required to file a Form D with the Commission reporting the transaction.
The proposed amendments to Regulation D and Form D would impose certain reporting and compliance requirements on issuers that conduct Rule 506 offerings. The proposed amendment to disqualify an issuer from relying on the Rule 506 exemption if the issuer, or any predecessor or affiliate of the issuer, did not comply, within the last five years, with Form D filing requirements in a Rule 506 offering would not add a new reporting, recordkeeping or other compliance requirement because the filing of Form D is currently a requirement of Regulation D. The proposed amendments to Regulation D to require an Advance Form D filing for Rule 506(c) offerings, a closing Form D amendment for Rule 506 offerings, temporary submission of written general solicitation materials used in Rule 506(c) offerings, prescribed legends and disclosure in written general solicitation materials used in Rule 506(c) offerings, as well as the proposed amendments to Form D to require additional information, would, however, impose additional reporting and compliance requirements on issuers that conduct offerings under Rule 506 and, to a much lesser extent, offerings under Rule 504, Rule 505 and Section 4(a)(5). We expect that small entities would incur additional initial and ongoing costs related to complying with these requirements. Initial costs include those associated with preparing the first Form D filing that includes the required additional information in Form D, preparing legends and disclosures to be included in written general solicitation materials for Rule 506(c) offerings and submitting such materials to the Commission prior to the date of first use. Ongoing costs include the additional costs arising from providing this additional information in each subsequent filing of a Form D or Form D amendment when required, including the prescribed legends in written general solicitation materials, submitting updated or new written general solicitation materials to the Commission and submitting Advance Form D filings for Rule 506(c) offerings and closing amendments to Form D for Rule 506 offerings. The proposed amendments to Rule 156 may cause small entities to incur some costs in reviewing their sales literature for consistency with the interpretative guidance set forth in Rule 156, but we do not expect these costs to be significant.
The Commission believes that the proposed amendments would not duplicate, overlap or conflict with other federal rules.
The Regulatory Flexibility Act directs us to consider significant alternatives that would accomplish the stated objectives of our amendments, while minimizing any significant adverse impact on small entities. In connection with the proposed amendments, we considered several alternatives, including the following:
• Establishing different compliance or reporting requirements or timetables that take into account the resources available to small entities;
• further clarifying, consolidating or simplifying the proposed requirements;
• using performance rather than design standards; and
• providing an exemption from the proposed requirements, or any part of them, for small entities.
The Commission is not proposing the establishment of different compliance or reporting requirements or timetables for the rules, as proposed, for small entities. The Commission believes that, as to small entities, differing compliance, reporting or timetable requirements, a partial or complete exemption from the proposed requirements or the use of performance rather than design standards would be inappropriate because these approaches would detract from the completeness and uniformity of the Form D dataset and, as a result, reduce the expected benefits of more consistent submission of Rule 506 information and improved collection of data for Commission enforcement and rulemaking efforts. We believe that the proposed amendments to Rule 156 should apply to all private funds, regardless of size. The Commission solicits comment, however, on whether differing compliance, reporting or timetable requirements, a partial or complete exemption, or the use of performance rather than design standards would be consistent with the main goal of improving the Form D data collection process with respect to Rule 506 offerings.
The Commission is soliciting comments regarding this analysis. In particular, the Commission requests comment regarding:
• The number of small entities that may be affected by the proposed amendments;
• the existence or nature of the potential impact of the proposed amendments on small entities as discussed in this analysis, as well as any effects that have not been discussed; and
• how to quantify the impact of the proposed amendments.
The Form D and Regulation D amendments contained in this release are being proposed under the authority set forth in Sections 4(a)(2), 19(a) and 28 of the Securities Act, as amended, and Section 201(a) of the JOBS Act. The amendments to Rule 156 contained in this release are being proposed under the authority set forth in Section 19(a) of the Securities Act and Sections 10(b) and 23(a) of the Exchange Act.
Reporting and recordkeeping requirements, Securities. Advertising, Investment companies, Securities.
For the reasons set out above, the Commission proposes to amend Title 17, chapter II of the Code of Federal Regulations, as follows:
15 U.S.C. 77b, 77b note, 77c, 77d, 77f, 77g, 77h, 77j, 77r, 77s, 77z–3, 77sss, 78c, 78d, 78j, 78
The revisions and addition read as follows:
(a) * * *
(b) * * *
(3) A statement involving a material fact about the characteristics or attributes of an investment company or a private fund could be misleading because of:
(i) * * *
(ii) Exaggerated or unsubstantiated claims about management skill or techniques, characteristics of the investment company or the private fund or an investment in securities issued by such entity, services, security of investment or funds, effects of government supervision, or other attributes; and
(c) For purposes of this section, the term sales literature shall be deemed to include any communication (whether in writing, by radio, or by television) used by any person to offer to sell or induce the sale of securities of any investment company or private fund. Communications between issuers, underwriters and dealers are included in this definition of sales literature if such communications, or the information contained therein, can be reasonably expected to be communicated to prospective investors in the offer or sale of securities or are designed to be employed in either written or oral form in the offer or sale of securities.
(d) For purposes of this section, the term private fund means an issuer that would be an investment company, as defined in section 3 of the Investment Company Act of 1940 (15 U.S.C. 80a–3), but for section 3(c)(1) or 3(c)(7) of that Act (15. U.S.C. 80a–3(c)(1) or 80a–3(c)(7)).
The revisions and additions read as follows:
(a)
(i) The issuer's identity (Item 1);
(ii) Principal place of business and contact information (Item 2);
(iii) Related persons (Item 3);
(iv) Industry group (Item 4);
(v) Federal exemptions and exclusions claimed (Item 6);
(vi) Type of filing (Item 7);
(vii) Type(s) of Securities Offered (Item 9);
(viii) Business combination transaction (Item 10);
(ix) Sales compensation (Item 12); and
(x) Use of proceeds (Item 16).
(2) An issuer offering or selling securities in reliance on § 230.504, § 230.505, or § 230.506 (other than an issuer that has previously filed a notice for such offering under paragraph (a)(1) of this section) must file with the Commission a notice of sales containing the information required by Form D (17 CFR 239.500) for each new offering of securities no later than 15 calendar days after the first sale of securities in the offering.
(4) * * *
(iv) To contain the information required by Form D for such offering of securities in reliance on § 230.506(c), if the issuer is offering or selling securities in reliance on § 230.506(c) and has previously filed the notice under paragraph (a)(1) of this section, no later than 15 calendar days after the first sale of securities in the offering; and
(v) Not later than 30 calendar days after the termination of an offering conducted in reliance on § 230.506, unless all the information that would be included in such amendment is included in a notice previously filed under this paragraph (a) and such notice indicated that it was the closing amendment to the Form D.
(5) Where the end of a period specified for filing under paragraph (a)(1), (a)(2), (a)(4)(iv) or (a)(4)(v) of this section falls on a Saturday, Sunday or holiday, the due date for such filing would be the first business day following.
The revision and addition read as follows:
(a) No exemption under § 230.504, § 230.505 or § 230.506 shall be available for an issuer if such issuer, or any of its predecessors or affiliates, has been subject to any order, judgment, or decree of any court of competent jurisdiction temporarily, preliminary or permanently enjoining such person for failure to comply with § 230.503. No exemption under § 230.506 shall be available for an issuer if such issuer, any of its predecessors or affiliates have been subject to any order, judgment, or decree of any court of competent jurisdiction temporarily, preliminary or permanently enjoining such person for failure to comply with § 230.509 or § 230.510T.
(b) (1) No exemption under § 230.506 shall be available for an issuer if such issuer, or any of its predecessors or affiliates, has, within the five preceding years, failed to comply with the requirements of § 230.503 in connection with an offering conducted in reliance on § 230.506, except that such exemption shall be available for offers and sales in connection with offerings that commenced before the failure to comply occurred. In determining compliance with § 230.503 for purposes of this paragraph (b)(1), a notice on Form D (§ 239.500) or amendment thereto will be deemed timely if it is filed not later than 30 calendar days after the date specified for such filing in § 230.503, unless the issuer previously failed to comply with
(2) One year after the filing by the issuer and such predecessor(s) and affiliate(s), as the case may be, of all notices on Form D (§ 239.500) and amendments thereto required under § 230.503 in connection with each offering conducted in reliance on § 230.506 that has not been terminated, and of the closing amendment required under § 230.503(a)(4)(v) with respect to each previous offering conducted in reliance on § 230.506 within the five preceding years that has been terminated, the issuer shall be permitted to rely on the exemption under § 230.506.
(3) For purposes of paragraph (b)(1) of this section, failures to comply with § 230.503 that occurred before [effective date of final rule] shall be disregarded.
5. Add § 230.509 to read as follows:
(a)
(1) The securities may be sold only to “accredited investors,” which for natural persons are investors who meet certain minimum annual income or net worth thresholds;
(2) The securities are being offered in reliance on an exemption from the registration requirements of the Securities Act and are not required to comply with specific disclosure requirements that apply to registration under the Securities Act;
(3) The Commission has not passed upon the merits of or given its approval to the securities, the terms of the offering, or the accuracy or completeness of any offering materials;
(4) The securities are subject to legal restrictions on transfer and resale and investors should not assume they will be able to resell their securities; and
(5) Investing in securities involves risk, and investors should be able to bear the loss of their investment.
(b)
(c)
(1) The private fund shall include in such written communication a legend disclosing that the performance data represents past performance; that past performance does not guarantee future results; that current performance may be lower or higher than the performance data presented; that the private fund is not required by law to follow any standard methodology when calculating and representing performance data; and that the performance of the private fund may not be directly comparable to the performance of other funds. The legend should also identify either a telephone number or a Web site where an investor may obtain current performance data.
(2) All performance data must be as of the most recent practicable date considering the type of private fund and the media through which the data will be conveyed, and the private fund must disclose the period for which performance is presented.
(3) If the performance presentation does not include the deduction of fees and expenses, the private fund must disclose that the presentation does not reflect the deduction of fees and expenses and that if such fees and expenses had been deducted, performance may be lower than presented.
A private fund is an issuer that would be an investment company, as defined in section 3 of the Investment Company Act of 1940 (15 U.S.C. 80a–3), but for section 3(c)(1) or 3(c)(7) (15 U.S.C. 80a–3(c)(1) or 80a–3(c)(7)) of that Act. If applicable, a private fund may modify the required legend to reflect any higher minimum requirements to purchase in the offering, such as for qualified clients, as defined in § 275.205–3(d)(1) of this chapter, and qualified purchasers, as defined in section 2(a)(51) of the Investment Company Act of 1940 (15 U.S.C. 80a–2(a)(51)) and the rules thereunder.
(a) An issuer shall submit to the Commission any written communication that constitutes a general solicitation or general advertising in any offering conducted in reliance on § 230.506(c) no later than the date of first use. The communication shall be submitted using the intake page designated on the Commission's Web site for the submission of such materials.
(b) This temporary rule shall expire and no longer be effective on [ ].
15 U.S.C. 77f, 77g, 77h, 77j, 77s, 77z–2, 77z–3, 77sss, 78c, 78
The revisions and additions read as follows:
The text of Form D does not, and the amendments will not, appear in the Code of Federal Regulations.
Issuer's publicly accessible Web site address, if any: ____
Relationship(s): * * * [ ] Controlling Person (for Rule 506(c) offerings only)
Clarification of Response (if Other): ____
Trading Symbol for the Offered Securities, if any: ____
Generally Available Security Identifier Number for the Offered Securities, if any: ____
Item 16. * * *
What fraction of offering proceeds was or will be used to repurchase/retire existing securities:
What fraction of offering proceeds was or will be used to pay offering expenses:
What fraction of offering proceeds was or will be used to acquire assets, otherwise than in the ordinary course of business:
What fraction of offering proceeds was or will be used to finance acquisitions of other businesses:
What fraction of offering proceeds was or will be used for working capital:
What fraction of offering proceeds was or will be used to discharge indebtedness:
Item 18.
If the issuer's securities are traded on a national securities exchange, alternative trading system or any other organized trading venue, the name of such trading venue __________
If a class of the issuer's securities is registered under the Securities Exchange Act of 1934, the SEC file number for such class of securities __________
Check this box [ ] if the securities being offered in reliance on Rule 506 are of the same class of securities or are convertible into or exercisable or exchangeable for such class of securities.
If the issuer used a registered broker-dealer in connection with the offering, were general solicitation materials filed with the Financial Industry Regulatory Authority (FINRA)?
If the issuer is a pooled investment fund, the name and SEC file number for each registered investment adviser or exempt reporting adviser that functions directly or indirectly as a promoter of the issuer __________
Item 21.
Non-exclusive List of Verification Methods in Rule 506(c)(2)(ii):
Verification Using Other Methods (check all that apply):
* * *
• When to file:
○ For offerings under Rule 504, Rule 505 and Rule 506(b) of Regulation D and Section 4(a)(5) of the Securities Act, an issuer must file a new notice with the SEC for each new offering of securities no later than 15 calendar days after the “date of first sale” of securities in the offering as explained in the Instruction to Item 7. For this purpose, the date of first sale is the date on which the first investor is irrevocably contractually committed to invest, which, depending on the terms and conditions of the contract, could be the date on which the issuer receives the investor's subscription agreement or check. An issuer may file the notice at any time before that if it has determined to make the offering. An issuer must file a new notice with each state that requires it at the time set by the state. For state filing information, go to
○ When an issuer intends to offer or sell securities under Rule 506(c) of Regulation D and has not previously filed a Form D for the offering, the issuer must file a new notice with the SEC for each new offering of securities no later than 15 calendar days prior to the first use of general solicitation or general advertising for the offering. The advance Form D is required to include the following information for such offering: the issuer's identity (Item 1), principal place of business and contact information (Item 2), related persons (Item 3), industry group (Item 4), federal exemptions and exclusions claimed (Item 6), type of filing (Item 7), type(s) of securities offered (Item 9), business combination transaction (Item 10), sales compensation (Item 12), and use of proceeds (Item 16). The information under Item 9 and Item 12 is required only to the extent that the information is known at the time of the filing of the advance Form D.
○ An issuer must file an amendment to a previously filed notice for an offering:
Enter the issuer's publicly accessible Web site address, if any.
• Each executive officer and director of the issuer and person performing similar functions (title alone is not determinative) for the issuer, such as the general and managing partners of partnerships and managing members of limited liability companies; and
• Each person who has functioned directly or indirectly as a promoter of the issuer within the past five years of first sale of securities or the date upon which the Form D filing was required to be made, whichever date is later.
• For offerings conducted in reliance on Rule 506(c) only, each person who directly or indirectly controls the issuer.
If necessary to prevent the information supplied from being misleading, also provide a clarification in the space provided.
Identify additional persons having the specified relationships by checking the box provided and attaching Item 3 continuation page(s).
If Other, provide a brief description of the issuer's industry group in the space provided.
•
•
By the Commission.
Environmental Protection Agency (EPA).
Notice.
The Toxic Substances Control Act (TSCA) Interagency Testing Committee (ITC) transmitted its 72nd ITC Report to the Acting EPA Administrator on June 13, 2013. In the 72nd ITC Report, which is included with this notice, the ITC is revising the TSCA section 4(e)
Comments must be received on or before August 23, 2013.
Submit your comments, identified by docket identification (ID) number EPA–HQ–OPPT–2013–0248, by one of the following methods:
•
•
•
This notice is directed to the public in general. It may, however, be of particular interest to you if you manufacture (defined by statute to include import) and/or process TSCA-covered chemicals and you may be identified by the North American Industrial Classification System (NAICS) codes 325 and 32411. Because this notice is directed to the general public and other entities may also be interested, the Agency has not attempted to describe all the specific entities that may be interested in this action.
1.
2.
i. Identify the document by docket ID number and other identifying information (subject heading,
ii. Follow directions. The Agency may ask you to respond to specific questions or organize comments by referencing a Code of Federal Regulations (CFR) part or section number.
iii. Explain why you agree or disagree; suggest alternatives and substitute language for your requested changes.
iv. Describe any assumptions and provide any technical information and/or data that you used.
v. If you estimate potential costs or burdens, explain how you arrived at your estimate in sufficient detail to allow for it to be reproduced.
vi. Provide specific examples to illustrate your concerns and suggest alternatives.
vii. Explain your views as clearly as possible, avoiding the use of profanity or personal threats.
viii. Make sure to submit your comments by the comment period deadline identified.
The Toxic Substances Control Act (TSCA) (15 U.S.C. 260l
You may access additional information about the ITC at
The ITC is revising the TSCA section 4(e)
The TSCA section 4(e)
Environmental protection, Chemicals, Hazardous substances.
The ITC is revising the Toxic Substances Control Act (TSCA) section 4(e)
The TSCA section 4(e)
The ITC was established by TSCA section 4(e) “to make recommendations to the Administrator respecting the chemical substances and mixtures to which the Administrator should give priority consideration for the promulgation of rules for testing under section 4(a) * * * At least every six months * * *, the Committee shall make such revisions to the
The ITC welcomed a new member and new alternate member from the Department of Commerce's National Institute of Standards and Technology and a new member from the National Science Foundation.
During this reporting period, the ITC discussed the 16 chemicals with insufficient dermal absorption rate data, branched 4-nonylphenol (mixed isomers), phenol, 4-(1,1,3,3-tetramethylbutyl)-, 148 HPV Challenge Program orphan chemicals, cadmium and cadmium compounds, 6 non-phthalate plasticizers, 25 phosphate ester and 2 other flame retardants, 9 chemicals to which children living near hazardous waste sites may be exposed, and 69 diisocyanates and related compounds remaining on the TSCA section 4(e)
As noted in this unit, the ITC also discussed the following chemicals that remain on the TSCA section 4(e)
Branched 4-nonylphenol (mixed isomers) (CAS No. 84852–15–3) and phenol, 4-(1,1,3,3-tetramethylbutyl)- (CAS No. 140–66–9) were added to the TSCA section 4(e)
Cadmium and cadmium compounds were added to the TSCA section 4(e)
Six non-phthalate plasticizers, 25 phosphate ester flame retardants, and 2 other flame retardants were added to the TSCA section 4(e)
The U.S. Department of the Interior (DOI) and Environment Canada are collaborating on a study involving exposure of American Kestrels (
Nine chemicals to which children living near hazardous waste sites may be exposed were added to the TSCA section 4(e)
In its 31st, 32nd, and 35th ITC Reports, the Occupational Safety and Health Administration (OSHA) requested that the ITC add 24, 34, and 25 chemicals, respectively, to the TSCA section 4(e)
In 2004, at the EPA's request, the ITC added 281 HPV Challenge Program orphan (unsponsored) chemicals to the TSCA section 4(e)
At the request of the current EPA member to the ITC, 69 diisocyanates and related compounds were added to the TSCA section 4(e)
TSCA Interagency Testing Committee (7405M), Office of Pollution Prevention and Toxics, Environmental Protection Agency, 1200 Pennsylvania Ave. NW., Washington, DC 20460–0001; email address: