[Federal Register Volume 69, Number 216 (Tuesday, November 9, 2004)]
[Rules and Regulations]
[Pages 64829-64832]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-24886]



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Rules and Regulations
                                                Federal Register
________________________________________________________________________

This section of the FEDERAL REGISTER contains regulatory documents 
having general applicability and legal effect, most of which are keyed 
to and codified in the Code of Federal Regulations, which is published 
under 50 titles pursuant to 44 U.S.C. 1510.

The Code of Federal Regulations is sold by the Superintendent of Documents. 
Prices of new books are listed in the first FEDERAL REGISTER issue of each 
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Federal Register / Vol. 69, No. 216 / Tuesday, November 9, 2004 / 
Rules and Regulations

[[Page 64829]]



DEPARTMENT OF AGRICULTURE

Rural Housing Service

Rural Business-Cooperative Service

Rural Utilities Service

Farm Service Agency

7 CFR Part 4279

RIN 0570-AA39


Business and Industry Loans; Revisions to Implement 2002 Farm 
Bill Provisions

AGENCY: Rural Business-Cooperative Service, USDA.

ACTION: Interim final rule with request for comments.

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

SUMMARY: The Rural Business-Cooperative Service (RBS) revises its 
regulations to incorporate provisions outlined in Sections 6013, 6017, 
and 6019 of the Farm Security and Rural Investment Act of 2002 (Pub. L. 
104-424) (2002 Farm Bill). This action is taken to comply with the 
amendments to sections 310(B) and 333A of the Consolidated Farm and 
Rural Development Act (7 U.S.C. 1932 and 1983a). The intended effect of 
this action is to expand eligibility for the Business and Industry 
Guaranteed Loan Program, provide for a simplified application form for 
loans of up to $600,000, and allow the Agency to require specialized 
appraisals on collateral.

DATES: The effective date of this interim final rule is December 9, 
2004. Written or e-mail comments must be received on or before December 
9, 2004, to be assured of consideration.

ADDRESSES: You may submit commments to this rule by any of the 
following methods:
    <bullet> Agency Web Site: http://rdinit.usda.gov/regs/. Follow 
instructions for submitting comments on the Web Site.
    <bullet> E-mail: <a href="/cdn-cgi/l/email-protection#8cefe3e1e1e9e2f8ffccf9ffe8eda2ebe3fa"><span class="__cf_email__" data-cfemail="d8bbb7b5b5bdb6acab98adabbcb9f6bfb7ae">[email protected]</span></a>. Include the RIN No. 0570-AA39 
in the subject line of the message.
    <bullet> Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
    <bullet> Mail: Submit written comments via the U.S. Postal Service 
to the Branch Chief, Regulations and Paperwork Management Branch, U.S. 
Department of Agriculture, STOP 0742, 1400 Independence Avenue, SW., 
Washington, DC 20250-0742.
    <bullet> Hand Deliver/Courier: Submit written comments via Federal 
Express Mail or other courier service requiring a street address to the 
Branch Chief, Regulations and Paperwork Management Branch, U.S. 
Department of Agriculture, 300 7th Street, SW., 7th Floor, Washington, 
DC 20024.
    All written comments will be available for public inspection during 
regular work hours at the 300 7th Street, SW., 7th Floor address listed 
above.

FOR FURTHER INFORMATION CONTACT: Brenda Griffin, Loan Specialist, 
Business and Industry Division, Rural Business-Cooperative Service, 
U.S. Department of Agriculture, STOP 3224, 1400 Independence Ave. SW., 
Washington, DC 20250-3224. Telephone: (202) 720-6802. The TDD number is 
(800) 877-8339 or (202) 708-9300.

SUPPLEMENTARY INFORMATION:

Classification

    This rule has been determined to be significant and was reviewed by 
the Office of Management and Budget (OMB) under Executive Order 12866.

Programs Affected

    The Catalog of Federal Domestic Assistance number for the program 
impacted by this action is 10.768, Business and Industry Loans.

Intergovernmental Review

    The Business and Industry loan programs are subject to the 
provisions of Executive Order 12372, which require intergovernmental 
consultation with state and local officials. RBS will conduct 
intergovernmental consultation in the manner delineated in RD 
Instruction 1940-J, ``Intergovernmental Review of Department of 
Agriculture Programs and Activities'' in 7 CFR part 3015, subpart V.

Paperwork Reduction Act

    The information collection requirements contained in this 
regulation have been approved by OMB under the provisions of 44 U.S.C. 
chapter 35 and have been assigned OMB control numbers 0570-0014 and 
0570-0017, in accordance with the Paperwork Reduction Act (PRA) of 
1995.

Regulatory Flexibility Act

    In compliance with the Regulatory Flexibility Act (5 U.S.C. 601-
612), the undersigned has determined and certified by signature of this 
document that this rule will not have a significant economic impact on 
a substantial number of small entities. Some provisions published as a 
part of this rule are, in fact, a benefit to small entities. 
Eligibility for the cooperative stock purchase program, a program that 
provides loan guarantees for the purchase of stock in a cooperative by 
an individual farmer or rancher, has been expanded to include more 
entities. Additionally, provisions allow the Agency to accept financial 
statements from farmers and ranchers that are generally accepted by 
commercial agricultural lenders. Since this rule has no significant 
economic impact on a substantial number of small entities, a regulatory 
flexibility analysis was not performed.

Civil Justice Reform

    This interim rule has been reviewed under Executive Order 12988, 
Civil Justice Reform. In accordance with this Executive Order: (1) All 
State and local laws and regulations that are in conflict with this 
rule will be preempted, (2) no retroactive effect will be given to this 
rule, and (3) administrative proceedings in accordance with the 
regulations of the Agency at 7 CFR part 11 must be exhausted before 
bringing litigation challenging action taken under this rule unless 
those regulations specifically allow bringing suit at an earlier time.

Environmental Impact Statement

    This document has been reviewed in accordance with 7 CFR part 1940, 
subpart G, ``Environmental Program.'' RBS has determined that this 
action does not constitute a major Federal action significantly 
affecting the quality

[[Page 64830]]

of the human environment and, in accordance with the National 
Environmental Policy Act of 1969, 42 U.S.C. 4321 et seq., an 
Environmental Impact Statement is not required.

Unfunded Mandates Reform Act

    Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), Pub. 
L. 104-4, establishes requirements for Federal agencies to assess the 
effects of their regulatory actions on State, local, and tribal 
governments and the private sector. Under section 202 of the UMRA, RBS 
must prepare a written statement, including a cost-benefit analysis, 
for proposed and final rules with ``Federal mandates'' that may result 
in expenditures to State, local or tribal governments, in the 
aggregate, or to the private sector, of $100 million or more in any 1 
year. When such a statement is needed for a rule, section 205 of UMRA 
generally requires RBS to identify and consider a reasonable number of 
regulatory alternatives and adopt the least costly, more cost-
effective, or least burdensome alternative that achieves the objectives 
of the rule.
    This rule contains no Federal mandates (under the regulatory 
provisions of title II of the UMRA) for State, local, and tribal 
governments or the private sector. Thus, this rule is not subject to 
the requirements of sections 202 and 205 of the UMRA.

Executive Order 13132

    It has been determined under Executive Order 13132, Federalism, 
that this rule does not have sufficient federalism implications to 
warrant the preparation of a Federalism Assessment. The provisions 
contained in this rule will not have a substantial direct effect on 
States or their political subdivisions or on the distribution of power 
and responsibilities among the various levels of government.

Background

    The 2002 Farm Bill contains provisions to be incorporated into 
existing Business and Industry program regulations. Changes include 
specifically adding renewable energy systems to eligible loan purposes, 
allowing the Agency to require specialized appraisals, and using a 
simplified application for loans of up to $600,000. The cooperative 
stock purchase program has also been expanded to allow for guaranteed 
loans to purchase stock in existing cooperatives, to allow for 
cooperatives whose members receive cooperative stock purchase loans to 
contract for services to process agricultural commodities or otherwise 
process value-added agricultural products during its first 5 years, and 
to allow the Agency to accept financial statements from farmers and 
ranchers that are generally accepted by commercial agricultural 
lenders. The 2002 Farm Bill also contains provisions (under certain 
conditions) that allow cooperative organizations to apply for 
guaranteed loans for the financing of facilities in non-rural areas, 
for the refinancing of existing B&I loans, and in amounts up to $40 
million.
    These revisions are being published as an interim final rule 
because the changes being made are mandated by sections 6013, 6017, and 
6019 of the 2002 Farm Bill and provide limited administrative 
discretion. This interim final rule will be effective 30 days after 
publication, and a final rule will be published at a later date 
addressing any comments received. Section 6020 of the 2002 Farm Bill 
created a new definition of ``rural'' and ``rural area'' for the B&I 
Guaranteed Loan Program. Part of that new definition precludes loans 
being made in ``* * * a city or town that has a population of greater 
than 50,000 inhabitants. * * *'' Many States have communities that 
while not legally designated as ``towns'' under State law are the 
functional equivalent (e.g., villages or boroughs, or for which there 
is State law recognition as an incorporated general purpose public 
entity). RBS believes it is consistent with the intent of the 2002 Farm 
Bill to include these functionally equivalent localities in the meaning 
of ``town'' and proposes to do so in the future. RBS requests public 
comment on this position.

List of Subjects in 7 CFR Part 4279

    Loan programs--Business and industry, Loan Programs--Rural 
development assistance, Rural areas.

0
Accordingly, chapter XLII, title 7, Code of Federal Regulations, is 
amended as follows:

CHAPTER XLII--[AMENDED]

PART 4279--GUARANTEED LOANMAKING

0
1. The authority citation for part 4279 continues to read as follows:

    Authority: 7 U.S.C. 1989.

Subpart B--Business and Industry Loans

0
2. Section 4279.108 is amended by revising paragraphs (a) introductory 
text, (a)(4), and (c); redesignating paragraph (d) as paragraph (e); 
and by adding a new paragraph (d) to read as follows:


Sec.  4279.108  Eligible borrowers.

    (a) Type of entity. A borrower may be a cooperative organization, 
corporation, partnership, or other legal entity organized and operated 
on a profit or nonprofit basis; an Indian tribe on a Federal or State 
reservation or other Federally recognized tribal group; a public body; 
or an individual. A cooperative organization is a cooperative or an 
entity, not chartered as a cooperative, that operates as a cooperative 
in that it is owned and operated for the benefit of its members, 
including the manner in which it distributes its dividends and assets. 
A borrower must be engaged in or proposing to engage in a business. 
Business may include manufacturing, wholesaling, retailing, providing 
services, or other activities that will:
* * * * *
    (4) Reduce reliance on nonrenewable energy resources by encouraging 
the development and construction of solar energy systems and other 
renewable energy systems (including wind energy systems, geothermal 
energy systems, and anaerobic digesters for the purpose of energy 
generation).
* * * * *
    (c) Rural area. The business financed with a B&I Guaranteed Loan 
must be located in a rural area, except for cooperative organizations 
financed in accordance with paragraph (d)(3) of this section. Loans to 
borrowers with facilities located in both rural and non-rural areas 
will be limited to the amount necessary to finance the facility in the 
eligible rural area, except for cooperative organizations financed in 
accordance with paragraph (d)(3) of this section. Rural areas are any 
areas other than:
    (1) A city or town that has a population of greater than 50,000 
inhabitants; and
    (2) The urbanized area contiguous and adjacent to such a city or 
town, as defined by the U.S. Bureau of the Census using the latest 
decennial census of the United States.
    (d) Loans to cooperative organizations. (1) B&I loans to eligible 
cooperative organizations may be made in principal amounts up to $40 
million if the project is located in a rural area, the cooperative 
facility being financed provides for the value-added processing of 
agricultural commodities, and the total amount of loans exceeding $25 
million does not exceed 10 percent of the funds available for the 
fiscal year.
    (2) Cooperative organizations that are headquartered in a non-rural 
area may be eligible for a B&I loan if the loan is

[[Page 64831]]

used for a project or venture that is located in a rural area.
    (3) B&I loans to eligible cooperative organizations may also be 
made in non-rural areas provided:
    (i) The primary purpose of the loan is for a facility to provide 
value-added processing for agricultural producers that are located 
within 80 miles of the facility;
    (ii) The applicant satisfactorily demonstrates that the primary 
benefit of the loan will be to provide employment for rural residents;
    (iii) The principal amount of the loan does not exceed $25 million; 
and
    (iv) The total amount of loans guaranteed under this section does 
not exceed 10 percent of the funds available for the fiscal year.
    (4) An eligible cooperative organization may refinance an existing 
B&I loan provided that the existing loan is current and performing, the 
existing loan is not and has not been in payment default (more than 30 
days late) or the collateral of which has not been converted, and there 
is adequate security or full collateral for the new B&I loan.
* * * * *

0
3. Section 4279.113 is amended by redesignating paragraphs (j) through 
(aa) to be paragraphs (k) through (bb); by revising paragraphs (i) and 
newly redesignated paragraph (r); and by adding a new paragraph (j) to 
read as follows:


Sec.  4279.113  Eligible loan purposes.

* * * * *
    (i) Purchase of membership, stocks, bonds, or debentures necessary 
to obtain a loan from Farm Credit System institutions and other lenders 
provided that the purchase is required for all of their borrowers.
    (j) Purchase of cooperative stock by individual farmers or ranchers 
in a farmer or rancher cooperative established for the purpose of 
processing an agricultural commodity.
    (1) The cooperative may contract for services to process 
agricultural commodities or otherwise process value-added agricultural 
products during the 5-year period beginning on the operation startup 
date of the cooperative in order to provide adequate time for the 
planning and construction of the processing facility of the 
cooperative.
    (2) Notwithstanding Sec. Sec.  4279.131(d) and 4279.137, the 
individual farmer or rancher may provide financial information in the 
manner that is generally required by commercial agricultural lenders in 
order to obtain a loan.
* * * * *
    (r) To refinance outstanding debt when it is determined that the 
project is viable and refinancing is necessary to improve cash flow and 
create new or save existing jobs. Except as provided for in Sec.  
4279.108(d)(4) of this subpart, existing lender debt may be included 
provided that, at the time of application, the loan has been current 
for at least the past 12 months (unless such status is achieved by the 
lender forgiving the borrower's debt), the lender is providing better 
rates or terms, and the refinancing is a secondary part (less than 50 
percent) of the overall loan.
* * * * *

0
4. Section 4279.119(a) is revised to read as follows:


Sec.  4279.119  Loan guarantee limits.

    (a) Loan amount. The total amount of Agency loans to one borrower, 
including: The guaranteed and unguaranteed portions; the outstanding 
principal and interest balance of any existing Agency guaranteed loans; 
and new loan request, must not exceed $10 million, except as outlined 
in paragraphs (a)(1) and (2) of this section.
    (1) The Administrator may, at the Administrator's discretion, grant 
an exception to the $10 million limit for loans of $25 million or less 
under the following circumstances:
    (i) The project to be financed is a high-priority project. Priority 
will be determined in accordance with the criteria contained in Sec.  
4279.155 of this subpart;
    (ii) The lender must document to the satisfaction of the Agency 
that the loan will not be made and the project will not be completed if 
the guarantee is not approved;
    (iii) The percentage of guarantee will not exceed 60 percent. No 
exception to this requirement will be approved under paragraph (b) of 
this section for loans exceeding $10 million; and
    (iv) Any request for a guaranteed loan exceeding the $10 million 
limit must be submitted to the Agency in the form of a preapplication. 
The preapplication must be submitted to the National Office for review 
and concurrence before encouraging a full application.
    (2) The Secretary, whose authority may not be redelegated, may 
approve guaranteed loans in excess of $25 million, at the Secretary's 
discretion, for rural cooperative organizations that process value-
added agricultural commodities in accordance with Sec.  4279.108(d)(1) 
of this subpart.
* * * * *

0
5. Section 4279.144 is revised to read as follows:


Sec.  4279.144  Appraisals.

    Lenders will be responsible for ensuring that appraisal values 
adequately reflect the actual value of the collateral. All real 
property appraisals associated with Agency guaranteed loanmaking and 
servicing transactions will meet the requirements contained in the 
Financial Institutions Reform, Recovery and Enforcement Act (FIRREA) of 
1989 and the appropriate guidelines contained in Standards 1 and 2 of 
the Uniform Standards of Professional Appraisal Practices (USPAP). In 
accordance with USPAP, the Agency will require documentation that the 
appraiser has the necessary experience and competency to appraise the 
property in question. All appraisals will include consideration of the 
potential effects from a release of hazardous substances or petroleum 
products or other environmental hazards on the market value of the 
collateral. For additional guidance and information concerning the 
completion of real property appraisals, refer to ``Standard Practices 
for Environmental Site Assessments: Transaction Screen Questionnaire'' 
and ``Phase I Environmental Site Assessment,'' both published by the 
American Society of Testing and Materials. Chattels will be evaluated 
in accordance with normal banking practices and generally accepted 
methods of determining value.

0
6. Section 4279.161 is amended by adding a sentence at the end of the 
introductory text and by adding paragraph (c) to read as follows:


Sec.  4279.161  Filing preapplications and applications.

    * * * Guaranteed loans of $600,000 and less may be processed under 
paragraph (b) or (c) of this section, but guaranteed loans exceeding 
$600,000 must be processed under paragraph (b) of this section.
* * * * *
    (c) Applications of $600,000 and less. Guaranteed loan applications 
may be processed under this paragraph if the request does not exceed 
$400,000. Beginning in fiscal year 2004, this limit may be increased on 
a case-by-case basis to $600,000 provided that the Agency determines 
that there is not a significant increased risk of a default on the 
loan. Applications may be resubmitted under paragraph (b) of this 
section when the application under this paragraph contains insufficient 
information for the Agency to guarantee the loan. Applications 
submitted under this paragraph must use the Agency's short

[[Page 64832]]

application form and include the information contained in paragraphs 
(b)(3), (5), (7), (8), and (11) of this section. The lender must have 
the documentation identified in paragraph (b) of this section, with the 
exception of paragraphs (b)(1), (2), (14), and (15), available in its 
file for review.

    Dated: November 2, 2004.
Gilbert Gonzalez,
Acting Under Secretary, Rural Development.
[FR Doc. 04-24886 Filed 11-8-04; 8:45 am]
BILLING CODE 3410-XY-P


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