[Federal Register Volume 72, Number 76 (Friday, April 20, 2007)]
[Proposed Rules]
[Pages 19807-19818]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 07-1922]


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Proposed Rules
                                                Federal Register
________________________________________________________________________

This section of the FEDERAL REGISTER contains notices to the public of 
the proposed issuance of rules and regulations. The purpose of these 
notices is to give interested persons an opportunity to participate in 
the rule making prior to the adoption of the final rules.

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Federal Register / Vol. 72, No. 76 / Friday, April 20, 2007 / 
Proposed Rules

[[Page 19807]]



DEPARTMENT OF AGRICULTURE

Rural Housing Service

Rural Business-Cooperative Service

Rural Utilities Service

Farm Service Agency

7 CFR Parts 1942 and 4284

RIN 0570-AA28


Rural Business Enterprise Grant Program

AGENCY: Rural Business-Cooperative Service, USDA.

ACTION: Proposed rule.

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SUMMARY: The Rural Business-Cooperative Service (RBS), an agency within 
the United States Department of Agriculture (USDA), Rural Development 
proposes to implement 7 CFR part 4284, subpart B in order to have an 
all-inclusive processing and servicing regulation. USDA Rural 
Development intends to provide a more user-friendly regulation that 
will be a better resource for public understanding and improvement in 
program administration.

DATES: Written comments on this proposed rule must be received on or 
before June 19, 2007 to be assured of consideration. The comment period 
for the information collection under the Paperwork Reduction Act of 
1995 continues through June 19, 2007.

ADDRESSES: You may submit comments to this rule by any of the following 
methods:
    <bullet> Federal eRulemaking Portal: http://www.regulations.gov. 
Follow instructions for submitting comments.
    <bullet> Mail: Submit written comments via the U.S. Postal Service 
to the Branch Chief, Regulations and Paperwork Management Branch, Rural 
Development U.S. Department of Agriculture, STOP 0742, 1400 
Independence Avenue, SW., Washington, DC 20250-0742.
    <bullet> Hand Delivery/Courier: Submit written comments via Federal 
Express mail or another courier service requiring a street address to 
the Branch Chief, Regulations and Paperwork Management Branch, 
Attention: Cheryl Thompson, Rural Development, 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: Cindy Mason, Loan Specialist, Business 
Programs, USDA Rural Development (U.S. Department of Agriculture) STOP 
3225, 1400 Independence Ave., SW., Washington, DC 20250, Telephone 
(202) 690-1433. The TDD number is (800) 795-3272 or (202) 720-6382.

SUPPLEMENTARY INFORMATION:

Classification

    This rule has been determined to be non-significant under Executive 
Order 12866 and has, therefore, not been reviewed by the Office of 
Management and Budget (OMB).

Programs Affected

    The Catalog of Federal Domestic Assistance number for the program 
impacted by this action is 10.769, Rural Business Enterprise Grants.

Intergovernmental Review

    The Rural Business Enterprise Grant (RBEG) Program is subject to 
the provisions of Executive Order 12372, which requires 
intergovernmental consultation with State and local officials. USDA 
Rural Development will conduct intergovernmental consultation in the 
manner delineated in RD Instruction 1940-J, ``Intergovernmental Review 
of Rural Development Programs and Activities,'' and 7 CFR part 3015, 
subpart V.

Regulatory Flexibility Act

    In compliance with the Regulatory Flexibility Act (5 U.S.C. 601-
602), 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. New provisions included in this 
rule will not impact a substantial number of small entities to a 
greater extent than large entities. Therefore, a regulatory flexibility 
analysis was not performed.

Civil Justice Reform

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

Environmental Impact Statement

    This document has been reviewed in accordance with 7 CFR part 1940, 
subpart G, ``Environmental Program.'' RBS has determined that this 
action does not constitute a major Federal action significantly 
affecting the quality of the human environment, and, in accordance with 
the National Environmental Policy Act of 1969, Pub. L. 91-190, 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 USDA Rural Development 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.

[[Page 19808]]

Federalism

    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.

Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act of 1995, USDA Rural 
Development will seek OMB approval of the reporting and recordkeeping 
requirements contained in this proposed rule.

E-Government Act Compliance

    USDA Rural Development is committed to complying with the E-
Government Act, to promote the use of the Internet and other 
information technologies to provide increased opportunities for citizen 
access to Government information and services, and for other purposes. 
For information pertinent to E-GOV compliance related to this proposed 
rule, please contact Jeanette Waters on (202) 720-4059.
    Title: Rural Business Enterprise Grant Program.
    Type of Request: New collection.
    Abstract: The Rural Business Enterprise Grant (RBEG) Program is 
authorized under section 310B(c) of the Consolidated Farm and Rural 
Development Act, as amended. The purpose of the program is to finance 
or facilitate the development of small and emerging private business 
enterprises; to create, expand or operate rural distance learning 
networks or programs that provide educational or job training 
instruction related to the potential employment or job advancement of 
adult students; and to provide technical assistance and training to 
rural communities for the purpose of improving passenger transportation 
services or facilities. An additional purpose authorized under section 
310B(f) of the Consolidated Farm and Rural Development Act is for 
statewide broadcasting systems that provide information on agriculture 
and other issues of importance to farmers and other rural residents. 
USDA Rural Development intends to incorporate all of the authorized 
purposes discussed above into one program regulation, 7 CFR part 4284, 
subpart B. This subpart contains various requirements for information 
from grantees, and some requirements may cause the grantees to require 
information from other parties. The information requested is vital for 
USDA Rural Development to be able to process applications in a 
responsible manner, make prudent program decisions, and effectively 
monitor the grantees' activities to protect the Government's financial 
interest and ensure that funds obtained from the Government are used 
appropriately. This collection of information is necessary in order to 
implement 7 CFR part 4284, subpart B.
    Estimate of Burden: Public reporting burden for this collection of 
information is estimated to average 7 hours per response.
    Respondents: Nonprofits and public bodies.
    Estimated Number of Respondents: 700.
    Estimated Number of Responses per Respondent: 12.
    Estimated Number of Responses: 8,160.
    Estimated Total Annual Burden on Respondents: 53,435.
    Copies of this information collection can be obtained from Cheryl 
Thompson, Regulations and Paperwork Management Branch, at (202) 692-
0043.

Comments

    Comments are invited on: (a) Whether the proposed collection of 
information is necessary for the proper performance of the functions of 
USDA Rural Development, including whether the information will have 
practical utility; (b) the accuracy of the USDA Rural Development 
estimate of the burden of the proposed collection of information, 
including the validity of the methodology and assumptions used; (c) 
ways to enhance the quality, utility, and clarity of the information to 
be collected; and (d) ways to minimize the burden of the collection of 
information on those who are to respond, including through the use of 
appropriate automated, electronic, mechanical, or other technological 
collection techniques or other forms of information technology. 
Comments may be sent to Cheryl Thompson, Regulations and Paperwork 
Management Branch, U.S. Department of Agriculture, Rural Development, 
STOP 0742, 1400 Independence Ave., SW., Washington, DC 20250. 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.

Background

    The current 7 CFR part 1942, subpart G, has recently been updated 
with a rural area definition change made by section 6020 of the Farm 
Security and Rural Investment Act of 2002; however, the regulation has 
not been completely reissued since 1992. USDA Rural Development 
consistently reissues administrative notices year after year to our 
field offices regarding clarifications and policies on our program. 
This guidance should officially be made part of the regulation through 
the Federal government regulatory review process and allow the public 
the opportunity to make comments on the policy decisions. 7 CFR part 
1942, subpart G, along with Attachment 1, is currently used to 
administer the program and at times can be difficult to follow. USDA 
Rural Development hopes to provide a more user-friendly regulation with 
the implementation of 7 CFR part 4284, subpart B. The existing 
regulation for the Rural Business Enterprise Grants and Television 
Demonstration Grants founds in 7 CFR part 1942, subpart G, will be 
removed upon publication of the final rule.

List of Subjects

7 CFR Part 1942

    Business and industry, Grant programs--Housing and community 
development, Industrial park, Rural areas.

7 CFR Part 4284

    Business and industry, Economic development, Grant programs--
Housing and community development, Rural areas.

    Therefore, chapters XVIII and XLII, title 7, of the Code of Federal 
Regulations are proposed to be amended as follows:

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

PART 1942--ASSOCIATIONS

    1. The authority citation for part 1942 continues to read as 
follows:

    Authority: 5 U.S.C. 301, 7 U.S.C. 1932, 7 U.S.C. 1989, and 16 
U.S.C. 1005.

Subpart G [Removed and Reserved]

    2. Subpart G of part 1942 is removed and reserved.

CHAPTER XLII--RURAL BUSINESS-COOPERATIVE SERVICE AND RURAL UTILITIES 
SERVICE, DEPARTMENT OF AGRICULTURE

PART 4284--GRANTS

    3. The authority citation for part 4284 is revised to read as 
follows:


[[Page 19809]]


    Authority: 5 U.S.C. 301, 7 U.S.C. 1932, 7 U.S.C. 1989, and 16 
U.S.C. 1005.

    4. Subpart B is added to part 4284 to read as follows:
Subpart B--Rural Business Enterprise Grant Program
Sec.
4284.101 Purpose.
4284.102 Policy.
4284.103 Definitions.
4284.104 Exception authority.
4284.105 [Reserved]
4284.106 Applicant eligibility requirements.
4284.107-4284.108 [Reserved]
4284.109 Eligible purposes.
4284.110 Ineligible purposes.
4284.111-4284.112 [Reserved]
4284.113 Project eligibility.
4284.114-4284.115 [Reserved]
4284.116 Small business eligibility certification.
4284.117 Small business eligibility exception.
4284.118 Private tribally-owned business.
4284.119-4284.120 [Reserved]
4284.121 Grant ownership.
4284.122 Leveraging.
4284.123-4284.124 [Reserved]
4284.125 Preapplication.
4284.126 Preapplication contents.
4284.127 Scope of work requirements.
4284.128 Other narrative information.
4284.129-4284.130 [Reserved]
4284.131 Program income.
4284.132 Indirect cost rate.
4284.133-4284.134 [Reserved]
4284.135 Civil rights requirements.
4284.136 Environmental review.
4284.137-4284.138 [Reserved]
4284.139 Project selection criteria.
4284.140-4284.141 [Reserved]
4284.142 Application.
4284.143 Application contents.
4284.144 Revolving loan fund work plan requirements.
4284.145-4284.148 [Reserved]
4284.149 Application selection.
4284.150-4284.151 [Reserved]
4284.152 Letter of Conditions.
4284.153 Grant Agreement.
4284.154-4284.155 [Reserved]
4284.156 Time frame for use of grant funds.
4284.157 Financial management system.
4284.158 Grant disbursement.
4284.159-4284.160 [Reserved]
4284.161 Insurance requirements.
4284.162-4284.163 [Reserved]
4284.164 Changes in scope of work, work plan or budget.
4284.165-4284.166 [Reserved]
4284.167 Reporting requirements.
4284.168-4284.169 [Reserved]
4284.170 Site visits.
4284.171-4284.172 [Reserved]
4284.173 Record retention.
4284.174-4284.177 [Reserved]
4284.178 Disposition of real property, equipment, and supplies.
4284.179-4284.180 [Reserved]
4284.181 Construction requirements.
4284.182-4284.183 [Reserved]
4284.184 Clarification of revolving loan fund operation.
4284.185-4284.188 [Reserved]
4284.189 Grant termination.
4284.190 Transfer and assumption.
4284.191-4284.193 [Reserved]
4284.194 Appeal rights.
4284.195-4284.200 [Reserved]

Subpart B--Rural Business Enterprise Grant Program


Sec.  4284.101  Purpose.

    This subpart outlines policies and procedures for administering the 
Rural Business Enterprise Grant (RBEG) Program. The purpose of this 
program is to provide grants to stimulate economic activity and 
employment in rural areas by:
    (a) Financing and facilitating development of small and emerging 
private business enterprises;
    (b) Creating, expanding, and operating rural distance learning 
networks or rural learning programs that provide educational or job 
training instruction related to the potential employment or job 
advancement of adult (as defined per State law) students;
    (c) Providing technical assistance and training to rural 
communities for the purpose of improving passenger transportation 
services or facilities; and
    (d) Financing statewide broadcasting systems that provide 
information on agriculture and other issues of importance to farmers 
and other rural residents.


Sec.  4284.102  Policy.

    (a) The RBEG Program will be administered under this subpart; 
however, the requirements of 7 CFR parts 3015, 3016, 3017, 3018, 3019, 
and 3052 also govern the United States Department of Agriculture (USDA) 
grant programs. USDA Rural Development has attempted to address these 
requirements in this subpart. Nevertheless, any conflicts between those 
parts and this subpart will be resolved in favor of the applicable 7 
CFR parts of 3015, 3016, 3017, 3018, 3019, and 3052.
    (b) Grants will not be awarded under this program unless all 
eligibility requirements are met in accordance with this subpart.
    (c) Any processing or servicing activity conducted pursuant to this 
subpart involving authorized assistance to USDA Rural Development 
employees, members of their families, close relatives, or business or 
close personal associates is subject to the provisions of RD 
Instruction 1900-D. Applicants will be required to identify any 
relationship or association with a USDA Rural Development employee.
    (d) Grantees and USDA Rural Development program administrators will 
be held accountable for following the procedures provided in this 
subpart.


Sec.  4284.103  Definitions.

    The following definitions pertain to this subpart:
    Agriculture production. The cultivation, production, growing, 
raising, feeding, housing, breeding, hatching, or managing of crops, 
plants, animals or birds, either for fiber, food for human consumption 
or livestock feed.
    Cognizant agency. The Federal agency that has the largest dollar 
value of awards with a grantee and the one responsible for negotiating 
and approving indirect cost rates for that grantee.
    Conflict of interest. When the grantee's immediate family, 
employees, or board of directors including their immediate families 
have a legal or personal financial interest in the recipient(s) 
receiving the benefits or services of the grant.
    Corporation. A body of persons granted a charter legally by a state 
government or Federally recognized Indian tribe recognizing it as a 
separate entity having its own rights, privileges, and liabilities 
distinct from its members.
    Cost of goods sold. The amount determined by subtracting the value 
of the ending merchandise inventory from the sum of the beginning 
merchandise inventory and the net purchase for the fiscal period.
    Grant closeout. When all required work is completed, administrative 
actions relating to the completion of work and expenditures of funds 
have been accomplished, and USDA Rural Development accepts final 
expenditure information.
    Grant period. The period of time to complete a project and receive 
grant funds as reimbursement for allowable expenses.
    Gross profit. Net sales minus cost of goods sold.
    Indirect cost rate. A percentage of an organization's total 
indirect costs to its direct cost base.
    Long-term. The period of time covered by the three most recent 
decennial censuses of the United States to the present.
    Net sales. Gross sales less discounts, allowances and returns.
    Non-metropolitan median household income. Median household income 
of the state's non-metropolitan counties and portions of metropolitan 
counties outside of cities, towns, and places of 50,000 or more 
population.
    Predominantly rural coverage area. The area covered by the signal 
of a statewide, private, nonprofit public

[[Page 19810]]

television system that is more than 50 percent of the rural (as defined 
in this section) population according to the latest decennial census of 
the United States.
    Private business. A business owned and controlled either by 
individuals or by a nonpublic entity, which is legally organized under 
State law or under the laws or codes of a Federally recognized Indian 
tribe.
    Private nonprofit corporation. A corporation created for private 
purposes including Federal Credit Unions if properly organized as a 
private nonprofit corporation (not controlled or associated with 
government interest) that does not distribute any part of its income to 
its members and has a 501(c)(3) Internal Revenue Service tax-exempt 
revenue code.
    Program income. Gross income earned by the grantee directly 
generated by the grant-supported activity or earned as a result of the 
grant award during the grant period.
    Project. The real property, equipment, supplies, revolving loan 
fund, technical assistance or any other assistance funded under this 
program.
    Public body. A state; county; city; township; and incorporated 
towns and villages, boroughs, authorities, districts; and Federally 
recognized Indian tribes.
    Qualified national nonprofit organization. A corporation created 
for private purposes (not controlled or associated with government 
interest) that does not distribute any part of its income to its 
members and has a 501(c)(3) Internal Revenue Service tax-exempt revenue 
code. The corporation must also operate in a Multi-state area.
    Revolved funds. The portion of the revolving loan fund that is not 
composed of USDA Rural Development grant funds including principal and 
interest payments and fees collected on loans made from the revolving 
loan fund. Revolved funds shall not be considered Federal funds.
    Revolving loan fund. A fund created with grant funds under this 
program and/or funds from other sources used to make loans to small 
businesses for economic development and job creation purposes that uses 
the loan repayments to make additional loans in accordance with the 
approved work plan.
    Rural and rural area. Any area other than a city or town that has a 
population of greater than 50,000 inhabitants and the urbanized area 
contiguous and adjacent to such a city or town according to the latest 
decennial census of the United States.
    Rural Development. For purposes of this regulation, the Rural 
Business-Cooperative Service (RBS), an Agency of the United States 
Department of Agriculture, or a successor Agency, will be referred to 
as USDA Rural Development.
    Rural distance learning networks. A telecommunication link between 
instructors and adult students.
    Rural distance learning programs. A system or means of providing 
education or job training instruction relating to potential employment 
or job advancement of adult students.
    Small and emerging private business enterprise. Any private 
business that will employ 50 or fewer new employees and has less than 
$1 million in projected gross profit (per generally accepted accounting 
principles). Small and emerging private business enterprise is referred 
to as ``small business'' in this subpart.
    State. Any of the 50 States, the District of Columbia, the 
Commonwealth of Puerto Rico, the Virgin Islands of the United States, 
Guam, American Samoa, the Commonwealth of the Northern Mariana Islands, 
the Republic of Palau, the Federated States of Micronesia, and the 
Republic of the Marshall Islands.
    Statewide. Having a coverage area of not less than 90 percent of 
the population of a State and not less than 80 percent of the rural 
land area of the State.
    Technical assistance. Providing support by analyzing, evaluating, 
or training to solve a problem. USDA Rural Development will determine 
whether a specific activity qualifies as technical assistance.
    Third-party, in-kind contributions. The value of non-cash 
contributions provided by non-Federal third parties. Third-party, in-
kind contributions may be in the form of real property, equipment, 
supplies and other expendable property. The value of the goods and 
services must directly benefit and be specifically identifiable to the 
project.
    Total project cost. The sum of all costs associated with a 
completed, operational project.


Sec.  4284.104  Exception authority.

    The Administrator may, in individual cases, make an exception to 
any requirement or provision of this subpart that is not inconsistent 
with the authorizing statute or any applicable law if the Administrator 
determines that requirement or provision would adversely affect the 
government's interest.


Sec.  4284.105  [Reserved]


Sec.  4284.106  Applicant eligibility requirements.

    The applicant eligibility requirements will be listed by type of 
grant followed by other requirements that must be met by the applicant 
for eligibility unless otherwise noted.
    (a) Project grant (other than paragraphs (b) or (c) of this 
section). Applicants must be a public body or a private, nonprofit 
corporation.
    (b) Passenger transportation technical assistance grant. Applicants 
must be a qualified national nonprofit organization with experience in 
providing technical assistance and training to rural communities for 
the purpose of improving passenger transportation service or 
facilities.
    (c) Television demonstration grant. Applicants must be a statewide, 
private, nonprofit public television system (licensed by the Federal 
Communications Commission under its non-commercial classification), 
whose coverage area is predominantly rural, for the purpose of 
demonstrating the effectiveness of such systems in providing 
information on agriculture and other issues of importance to farmers 
and other rural residents. The National Public Broadcasting System 
makes the determination of eligibility for statewide and predominantly 
rural coverage area as defined in this subpart.
    (d) Other applicant eligibility requirements. Applicants must also 
meet the following requirements to be eligible for assistance. A 
certification must be signed stating that the applicant has:
    (1) The legal authority to carry out the purpose(s) of the proposed 
project;
    (2) No delinquent debt to the Federal Government or any outstanding 
Federal judgments;
    (3) At least 3 years experience as an organization in the proposed 
type of project. The only exception is if the project is for a 
revolving loan fund and a third-party with the required experience will 
be hired to do the credit and financial analysis. The applicant may 
certify if this is the case;
    (4) No conflict of interest in the proposed project;
    (5) Ownership and control of the proposed project; and
    (6) At least 51 percent ownership by those who are either citizens 
of the United States or reside in the United States after being legally 
admitted for permanent residence (applies only if the applicant is a 
private nonprofit).

[[Page 19811]]

Sec. Sec.  4284.107-4284.108  [Reserved]


Sec.  4284.109  Eligible purposes.

    Grant funds may be used to do the following; however, if the grant 
is to benefit a small business by using purposes defined in paragraphs 
(a) through (c) of this section, the small business must lease any real 
property or equipment from the applicant at rates that would ensure 
sustainability of the project (i.e., the grantee's cost of operating 
the facility including insurance premiums):
    (a) Purchase and develop land, easements, and right-of-ways;
    (b) Construct or improve buildings; plants; access streets and 
roads; parking areas; utilities; and pollution control and abatement 
facilities;
    (c) Purchase of machinery and equipment;
    (d) Provide technical assistance or training;
    (e) Create, expand, and operate rural distance learning networks or 
rural learning programs that provide educational instruction or job 
training instruction related to potential employment or job advancement 
of adult (as defined per State law) students. Paragraphs (a) through 
(d) of this section may be utilized for this purpose;
    (f) Establish or recapitalize a revolving loan fund;
    (g) Pay for reasonable fees and charges for professional services 
necessary for the planning and development of a construction project;
    (h) Pay off an interim financing loan incurred in connection with a 
construction project when a preapplication is received by USDA Rural 
Development before construction is started;
    (i) Pay for on-site technical assistance and training to local and 
regional governments, public transit agencies, and related nonprofit 
and for-profit organizations in rural areas, the development of 
training materials, and the provision of necessary training assistance 
to local officials and agencies in rural areas for the purpose of 
improving passenger transportation services or facilities; and
    (j) Pay for capital equipment expenditures, start-up and program 
costs, and other costs necessary to the operation of television 
demonstration programs.


Sec.  4284.110  Ineligible purposes.

    Grant funds may not be used for the following:
    (a) Costs incurred on the project before receipt of the completed 
preapplication by USDA Rural Development unless it is for professional 
services necessary for the planning and development of a construction 
project;
    (b) Agriculture production;
    (c) Residential housing;
    (d) Any illegal or gambling activities;
    (e) Lending and investment institutions and insurance companies;
    (f) Charitable institutions and fraternal organizations;
    (g) Duplicating current services or replacing or substituting 
support previously provided beyond a 2-year period of time;
    (h) Paying the costs of preparing the preapplication or application 
package for funding under this program;
    (i) Technical assistance which duplicates assistance provided by 
the Forest Service to implement an action plan under the National 
Forest-Dependent Rural Communities Economic Diversification Act;
    (j) Making loans from a revolving loan fund that do not have 
reasonable rates and terms as compared to what is charged in the area 
where the project is located;
    (k) Transferring jobs from one area to another or increasing the 
production of goods when there is not sufficient demand or the 
availability of services or facilities;
    (l) Funding part of a project that is dependent on other funding 
unless there is a firm commitment in writing of other funding to ensure 
completion of the project;
    (m) Projects where USDA Rural Development determines that 
construction was initiated to avoid Federal environmental compliance 
requirements;
    (n) Financial assistance requests in excess of $500,000;
    (o) Passing grant funds directly to a third-party recipient;
    (p) Using technical assistance to pay for operating expenses of a 
small business.
    (q) Operating expenses of an eligible applicant unless it is for 
television demonstration projects or the salaries and expenses related 
to employees who directly perform technical assistance to small 
businesses, adult students or passenger transportation projects;
    (r) Fund political activities; and
    (s) Paying for construction or improvement projects when the 
applicant is leasing the real property where the construction or 
improvement will occur.


Sec. Sec.  4284.111-4284.112  [Reserved]


Sec.  4284.113  Project eligibility.

    The applicant must provide supporting documentation to illustrate 
the project:
    (a) Has a demonstrated need;
    (b) Is economically feasible to ensure sustainability beyond grant 
assistance unless the project is for a feasibility study;
    (c) Is located in a rural area;
    (d) Will benefit small business or provide job placement or 
advancement for adult students as the end result of the project unless 
the project is for passenger transportation or television demonstration 
grants; and
    (e) Is measurable to document performance outcomes and demonstrate 
results of the program.


Sec. Sec.  4284.114-4284.115  [Reserved]


Sec.  4284.116  Small business eligibility certification.

    Any small business receiving assistance under this program must be 
a separate, private business and cannot be the grantee or any affiliate 
thereof. Each small business must sign a certification stating they:
    (a) Meet the small and emerging private business enterprise 
definition contained in Sec.  4284.103 of this subpart;
    (b) Are located in a rural area as defined in Sec.  4284.103 of 
this subpart;
    (c) Have no delinquent debt to the Federal Government or any 
outstanding Federal judgments;
    (d) Have no conflict of interest in the proposed project;
    (e) Have at least 51 percent ownership by those who are either 
citizens of the United States or reside in the United States after 
being legally admitted for permanent residence.


Sec.  4284.117  Small business eligibility exception.

    If the small business is a nonprofit entity or other tax-exempt 
organization (as defined by the Internal Revenue Service revenue codes) 
located in a city, town or unincorporated area with a population of 
5,000 or less and has a principal office on land of an existing or 
former Native American reservation, the small business does not need to 
meet the small business definition contained in Sec.  4284.103 of this 
subpart. However, the small business receiving assistance must sign a 
certification stating they meet the requirements of paragraphs (b) 
through (e) defined in Sec.  4284.116.


Sec.  4284.118  Private tribally-owned business.

    For a tribally-owned business to be considered a private business, 
it must be

[[Page 19812]]

held through a separate entity, such as a tribal corporation. The 
corporation may be owned by the tribe and distribute profits to the 
tribe. However, the governing board must be independent from the tribal 
government and elected or appointed for a specific time period. Board 
members must not be subject to removal without cause by the tribal 
government. A majority of the board members must not now or in the 
future, as long as they are board members, be members of the tribal 
council or other governing board of the tribe. Tribally-owned small 
businesses will be required to sign a small business certification in 
accordance with either Sec.  4284.116 or Sec.  4284.117.


Sec. Sec.  4284.119-4284.120  [Reserved]


Sec.  4284.121  Grant ownership.

    The grantee must have ownership and control of the project until 
transfer, disposition, or termination of the project occurs.
    (a) The grantee must retain ownership of any real property that 
will be purchased or improved with grant funds. In the case of 
installation or improvements to utilities or streets, the grantee does 
not have to own the land, utility, or street that is improved in the 
public right of way, but must retain ownership of the land surrounding 
the improvements.
    (b) The grantee must retain ownership of any equipment or supplies 
acquired with grant funds.
    (c) The grantee must establish a separate bank account for a 
revolving loan fund, secure the account by signing a control agreement 
(available from any USDA Rural Development State Office) and direct and 
manage the fund.
    (d) The grantee must oversee and control technical assistance, 
passenger transportation and television demonstration projects until 
the grants are closed out.


Sec.  4284.122  Leveraging.

    Supplemental funding at a minimum of 20 percent of the total 
project cost must be included in the project. Supplemental funds may be 
from cash injection by the applicant, financial institutions, state or 
local governmental sources, or third-party, in-kind contributions. 
Third-party, in-kind contributions will be limited to 10 percent of 
supplemental funding and USDA Rural Development will advise if the 
third-party, in-kind contributions are acceptable. Applicants may not 
use third-party, in-kind contributions for revolving loan fund 
projects. Other Federal grant awards cannot be used to meet the 20 
percent leveraging match.


Sec. Sec.  4284.123-4284.124  [Reserved]


Sec.  4284.125  Preapplication.

    A preapplication is required to establish communication between the 
potential applicant and USDA Rural Development, determine the potential 
applicant's eligibility, and identify projects which have little or no 
chance for funding before applicants incur significant costs.


Sec.  4284.126  Preapplication contents.

    A complete preapplication must be submitted to the USDA Rural 
Development State Office where the project is located. Multi-state 
projects must be submitted to the USDA Rural Development State Office 
where the applicant is headquartered. A complete preapplication must 
include:
    (a) An SF-424, ``Application for Federal Assistance,'' including 
the appropriate non-construction (SF-424A and SF-424B) or construction 
(SF-424C and SF-424D) budget and assurance forms, and a Dun and 
Bradstreet Universal Numbering System (DUNS) number handwritten or 
typed on the SF-424;
    (b) Intergovernmental review comments from the State Single Point 
of Contact, or evidence that the State has elected not to review the 
program under Executive Order 12372. Applicants can obtain the 
necessary state clearinghouse contacts from the USDA Rural Development 
State Office where the project is located;
    (c) Evidence of legal existence including a copy of the articles of 
incorporation, by-laws, and certificate of good standing or 
incorporation;
    (d) Form RD 1940-20, ``Request for Environmental Information,'' 
unless the project is considered a categorical exclusion in accordance 
with 7 CFR part 1940, subpart G. Applicants can verify if their project 
is a categorical exclusion with the USDA Rural Development State Office 
where the project is located;
    (e) A signed applicant eligibility certification;
    (f) A copy of the most recent year-end financial statements that 
should include a balance sheet and income statement prepared in 
accordance with generally accepted accounting principles;
    (g) A preliminary architectural or engineering report for 
construction projects that includes a description of the facility; 
including size, location, related facilities, schematic cost estimate, 
and schematic plans; and
    (h) A scope of work.


Sec.  4284.127  Scope of work requirements.

    The scope of work is a detailed written narrative identifying the 
aspects of a proposed project. It must be completed for all projects 
and contain the following:
    (a) Specific purposes, objectives, and need for grant funds 
including identification of the proposed project in a local or regional 
plan;
    (b) Timeframes to complete the proposed project;
    (c) Names and responsibilities of key personnel who will carry out 
the objectives of the proposed project;
    (d) Experience specifically related to the type of project 
proposed;
    (e) Availability of other funds and sources;
    (f) Number and type of small businesses to be assisted as a result 
of the grant including number of jobs created and/or saved and other 
anticipated goals and/or benefits of the proposed project, if 
applicable. This should be based on letters of interest or commitments;
    (g) Number of adult students to be assisted as a result of the 
grant and other anticipated goals and/or benefits of the proposed 
project when the grant is for a rural distance learning network or 
rural learning program, if applicable. This should be based on letters 
of interest or commitments; and
    (h) Anticipated goals and/or benefits for passenger transportation 
or television demonstration projects as a result of the grant, if 
applicable.


Sec.  4284.128  Other narrative information.

    The following narrative information should be addressed in your 
preapplication to assist USDA Rural Development in assigning points 
under the scoring criteria. You may address it in the scope of work or 
in a separate document.
    (a) Documented statistical information on population, unemployment 
rate, and median household income for the area to be served by the 
proposed project;
    (b) Documented information on sudden and severe economic 
dislocation produced by such factors as the departure or downsizing of 
a major employer, or natural disaster, if applicable; and
    (c) Documented statistical information on long-term decline in 
population, if applicable.


Sec. Sec.  4284.129-4284.130  [Reserved]


Sec.  4284.131  Program income.

    Program income must be addressed in the SF-424 and the respective 
budget forms. Any program income earned during the grant period may be 
retained by the grantee to further the objectives and goals of the 
project.

[[Page 19813]]

Sec.  4284.132  Indirect cost rate.

    The maximum indirect cost rate USDA Rural Development will pay is 
25 percent of the grant request unless the grantee already has a 
negotiated agreement with its cognizant agency. A copy of the 
negotiated agreement must be provided with the preapplication.


Sec. Sec.  4284.133-4284.134  [Reserved]


Sec.  4284.135  Civil rights requirements.

    (a) All grants made under this subpart are subject to Title VI of 
the Civil Rights Act of 1964, Title IX of the Education Amendments of 
1972, Section 504 of the Rehabilitation Act of 1973, the Age 
Discrimination Act of 1975, and part 1901, subpart E of this title.
    (b) USDA Rural Development will inform grantees of their civil 
rights requirements in accordance with paragraph (a) of this section. 
Grantees may be required to collect certain information on their 
project or program to ensure that they are serving the public without 
discrimination.


Sec.  4284.136  Environmental review.

    (a) All grants under this subpart are subject to the environmental 
requirements of 7 CFR part 1940, subpart G before any application is 
approved. The grantee must not take any actions that would have an 
adverse impact on the environment or limit the range of alternatives 
USDA Rural Development considers during the environmental review. If 
USDA Rural Development finds evidence that construction was initiated 
to avoid compliance requirements, the preapplication will not be 
considered for assistance. Any mitigation measures will be included in 
the Letter of Conditions or other grant approval document. The grantee 
is responsible for communicating the mitigation measures to the project 
designers for inclusion in the project construction documents.
    (b) USDA Rural Development will conduct an initial environmental 
review on revolving loan fund projects and a separate environmental 
review on each loan the grantee is proposing to provide funds for until 
all grant funds have been expended. However, if the grantee has one 
loan project committed to use the total amount of the grant, USDA Rural 
Development will only conduct an individual project review.
    (c) The grantee will be responsible for preparation of 
environmental reviews after they have lent out an amount equal to the 
grant award. Preparation will be accomplished using professional 
consultant services and the review document will conform to the 
requirements and formats of 7 CFR part 1940, subpart G.


Sec. Sec.  4284.137-4284.138  [Reserved]


Sec.  4284.139  Project selection criteria.

    USDA Rural Development will evaluate the preapplication and give it 
a priority score based on criteria in this section. This process will 
assist USDA Rural Development in prioritizing for funding approval. Any 
scoring criteria not addressed will automatically receive zero points. 
Applicants may average any figures that are based on the rural area to 
be served. All written commitment supporting documentation for priority 
points must be submitted to USDA Rural Development no later than the 
application stage. Points will be distributed as follows:
    (a) Population. Figures from the latest decennial census of the 
United States must be used to score population on the area to be served 
by the proposed project as follows:
    (1) The proposed project will be located in areas of under 5,000 
population--15 points;
    (2) The proposed project will be located in areas of between 5,000 
and 15,000 population--10 points;
    (3) The proposed project will be located in areas of between 15,001 
and 25,000 population--5 points.
    (b) Economic Conditions. Figures must be used for the area to be 
served by the proposed project as follows:
    (1) Unemployment rate. Unemployment figures must come from the most 
recent published unemployment data by the Bureau of Labor Statistics, 
U.S. Department of Labor or State Department of Labor Statistics. 
Projects serving all of a State's rural area or Multi-State rural areas 
will compare State unemployment rates to the national unemployment 
rate.
    (i) The proposed project will be located in areas where the 
unemployment rate exceeds the State rate by 50 percent or more--20 
points;
    (ii) The proposed project will be located in areas where the 
unemployment rate exceeds the State rate by 25 percent or more but less 
than 50 percent--10 points;
    (iii) The proposed project will be located in areas where the 
unemployment rate exceeds the State rate by less than 25 percent--5 
points.
    (2) Median household income. Income figures must come from the 
latest decennial census of the United States, updated according to 
changes in the consumer price index. The poverty line figure used must 
be as defined in section 673(2) of the Community Services Block Grant 
Act (42 U.S.C. 9902 (2)) for a family of four for the State. Projects 
serving all of a State's rural area or Multi-State rural areas will 
compare State non-metropolitan median household incomes to the national 
poverty line.
    (i) The proposed project will be located in areas where the median 
household income is less than poverty line--25 points;
    (ii) The proposed project will be located in areas where the median 
household income is more than the poverty line, but less than 85 
percent of the State non-metropolitan median household income--15 
points;
    (iii) The proposed project will be located in areas where the 
median household income is between 85 percent and 100 percent of the 
State non-metropolitan median household income--10 points;
    (c) Supplemental funding. Written commitments from other financing 
sources must be provided with the application. Third-party, in-kind 
contributions will not be considered under this criterion only as part 
of the matching requirement. Points are awarded as follows:
    (1) The proposed project will have supplemental funding in an 
amount equal to or greater than 75 percent of total project cost--25 
points;
    (2) The proposed project will have supplemental funding in an 
amount equal to or more than 50 percent, but less than 75 percent of 
total project cost--15 points;
    (3) The proposed project will have supplemental funding in an 
amount equal to or more than 25 percent, but less than 50 percent of 
total project cost--10 points.
    (4) The proposed project will have supplemental funding above 20 
percent, but less than 25 percent of the total project cost--5 points.
    (d) Full-time direct jobs created or saved. Evidence of full-time 
direct jobs created or saved must be included in the application. Full-
time direct jobs must be calculated based on the total project cost and 
scored as follows:
    (1) The proposed project will create or save one job per each 
$15,000 of the total project cost--10 points;
    (2) The proposed project will create or save one job per each 
$25,000 of the total project cost--5 points.
    (e) Fund utilization. Points will be awarded if the proposed 
project will utilize grant funds of $100,000 or less--25 points;
    (f) Local or regional plans. The proposed project is identified in 
a local or regional economic development plan adopted by the area to be 
served by the project--5 points. A copy of the plan

[[Page 19814]]

must be included with the application to receive points.
    (g) Small business. The small business to be assisted is a 
nonprofit entity or other tax-exempt organization (as defined by the 
Internal Revenue Service revenue codes) located in a city, town or 
unincorporated area with a population of 5,000 or less and has a 
principal office on land of an existing or former Native American 
reservation--5 points. Evidence of organization and location must be 
provided with the application.
    (h) Discretionary points. USDA Rural Development may assign up to 
additional 30 points for discretionary items if the proposed project is 
an initial grant. An initial grant means that this would be the first 
time grant funds are being requested for the proposed project. 
Subsequent grant requests are not eligible for discretionary points. 
Evidence must be provided in the application to receive points. In 
addition, discretionary points will be awarded in the following 
situations:
    (1) The proposed project is located in a Champion Community--5 
points;
    (2) The area to be served by the proposed project has had a loss of 
a major employer or industry within the last 3 years--5 points;
    (3) The area to be served by the proposed project has had a 
Presidential or Secretarial natural disaster designation within the 
last 3 years--5 points;
    (4) The area to be served by the proposed project has had a long-
term decline in population--5 points;
    (5) This would be the applicant's first grant award under the RBEG 
Program--10 points;


Sec. Sec.  4284.140--4284.141  [Reserved]


Sec.  4284.142  Application.

    USDA Rural Development will issue Form AD-622, ``Notice of 
Preapplication Review Action,'' or similar letter notifying the 
applicant that they are eligible to complete and submit an application 
or ineligible for assistance under this subpart due to legal existence 
or intended use of grant funds.


Sec.  4284.143  Application Contents.

    A complete application will be submitted to the USDA Rural 
Development State Office and include the following:
    (a) An updated SF-424 signed by the applicant, if necessary;
    (b) Preliminary plans and specifications for construction projects; 
which will include a preliminary floor plan, site plan and elevations 
in sufficient detail for preparing an appraisal along with a 
preliminary estimate of construction costs;
    (c) Comments from the State Historical Preservation Office or the 
Tribal Historical Preservation Office for construction projects;
    (d) An independent third-party appraisal if the proposed project is 
to purchase real property;
    (e) A work plan if the proposed project is for a revolving loan 
fund;
    (f) Written commitments for supplemental funding;
    (g) Letters of interest or commitment from small businesses needing 
assistance, if applicable;
    (h) Small business certification, if applicable;
    (i) Letters of interest or commitment from local employers, 
schools, training facilities, etc. to show the need of employment or 
job advancement opportunities for adult students, if applicable;
    (j) A copy of the local or regional plan in which the proposed 
project is identified;
    (k) Form RD 400-1, ``Equal Opportunity Agreement'' if the proposed 
project includes construction;
    (l) Form RD 400-4, ``Assurance Agreement';
    (m) Form AD 1049, ``Certification Regarding Drug-Free Workplace 
Requirements'';
    (n) Form AD 1047, ``Certification Regarding Debarment, Suspension, 
and Other Responsibility Matters--Primary Covered Transactions'';
    (o) RD Instruction 1940-Q, Exhibit A-1, ``Certification for 
Contracts, Grants and Loans (Lobbying Activities)'' if the grant 
request is over $100,000; and
    (p) SF-LLL, ``Disclosure of Lobbying Activities,'' if the grant is 
over $100,000 and the applicant has made or has agreed to make any 
payments to influence a decision in connection with the specific 
project.


Sec.  4284.144  Revolving loan fund work plan requirements.

    If the grant will be used to create or add to a revolving loan 
fund, the requirements of this section must be met. The revolving loan 
fund plan governs the operation of the fund and must have sufficient 
detail to provide USDA Rural Development with a complete understanding 
of what will be accomplished. It must contain the following:
    (a) Demonstrated need of the fund including identification of the 
proposed project in a local or regional plan and the accomplishments to 
be completed with the fund. This should include a list of eligible 
small businesses (based on letters of interest or commitments) that 
need loans with the anticipated amount needed, purpose, and number of 
jobs to be created and/or saved.
    (b) Experience of the organization in operating a revolving loan 
fund;
    (c) Marketing and outreach plan with specific timeframes to 
complete the proposed accomplishments of the fund;
    (d) Key personnel involved in the operation of the fund and their 
specific responsibilities;
    (e) Availability of other funds and their sources;
    (f) Service area where the loans will be offered;
    (g) Eligibility criteria, loan purposes, and loan limits of the 
fund;
    (h) Proposed fees, loan interest rate, and loan terms and how they 
are determined. These charges should be sufficient to support the 
operating expenses of the fund;
    (i) Proposed collateral requirements;
    (j) Application review and loan committee approval process;
    (k) A copy of your application that must include, at a minimum, a 
space for the name and address of the loan recipient; loan purpose; 
interest rate and terms; location, nature, and scope of the project 
being financed; other funding included in the project; type and lien 
priority of collateral; and jobs to be created and/or saved.
    (l) Process to be followed if a loan applicant is rejected;
    (m) Monitoring system for distribution of approved funds and loan 
recipient accomplishments;
    (n) Monitoring system for financial and activity reports; and
    (o) Any other information pertinent to the revolving loan fund.


Sec. Sec.  4284.145-4284.148  [Reserved]


Sec.  4284.149  Application selection.

    (a) Pending the availability of sufficient funds, USDA Rural 
Development State Offices receive an allocation of funds under this 
subpart each fiscal year. State Offices use the scoring criteria as 
defined in Sec.  4284.139 to select the highest-ranking applications 
until the state allocation has been depleted. State Offices set 
internal cut-off dates for receipt of preapplications and attempt to 
make the information public knowledge. However, it is recommended that 
applicants contact the State Office to find out the specific amounts 
available and funding deadlines for this program. Applicants will 
receive a Letter of Conditions for grant approval and instructions from 
the State Office if the application is selected for funding.
    (b) The National Office generally holds a minimal amount of 
appropriated

[[Page 19815]]

funds for a national reserve competition each fiscal year. State 
Offices that have depleted the state allocation are eligible to submit 
applications to the National Office for competition. Starting with the 
highest-ranking application received nationwide, the highest-ranking 
application per state is selected until the reserve is exhausted. This 
ensures USDA Rural Development is distributing funds on a geographical 
basis. If a tie exists in the competition, projects are selected based 
on viability of the projects in accordance with the funds available. 
State Offices will submit applications to the National Office for 
reserve competition. Applicants will receive a Letter of Conditions and 
instructions for grant approval from the USDA Rural Development State 
Office if the application is selected for funding.


Sec. Sec.  4284.150-4284.151  [Reserved]


Sec.  4284.152  Letter of Conditions.

    The Letter of Conditions establishes conditions that must be 
understood and agreed to by the applicant before any obligation of 
funds can occur. The applicant must sign a Form RD 1942-46, ``Letter of 
Intent to Meet Conditions,'' and a Form RD 1940-1, ``Request for 
Obligation of Funds,'' if they wish to accept the conditions of the 
grant. These forms will be enclosed with the Letter of Conditions. The 
grant will be obligated when the USDA Rural Development State Office 
receives an executed Letter of Intent and Request for Obligation of 
Funds from the applicant.


Sec.  4284.153  Grant Agreement.

    The applicant will also be required to sign a Form RD 4284-1, 
``Grant Agreement,'' which is a contract between the grantee and USDA 
Rural Development for receipt of grant funds under the RBEG Program. 
The Grant Agreement will also be enclosed with the Letter of Conditions 
and must be signed and returned to the USDA Rural Development State 
Office before any grant funds can be disbursed.


Sec. Sec.  4284.154-4284.155  [Reserved]


Sec.  4284.156  Timeframe for use of grant funds.

    The grant period will be established in your Letter of Conditions 
for a 12-month timeframe unless USDA Rural Development approves the 
scope of work or work plan for a longer period of time.


Sec.  4284.157  Financial management system.

    The grantee will provide for a financial management system, which 
will include:
    (a) Accurate, current, and complete disclosure of the financial 
result of each grant.
    (b) Records that identify adequately the source and application of 
funds for grant-supporting activities, together with documentation to 
support the records. These records shall contain information pertaining 
to grant awards, authorizations, obligations, unobligated balances, 
assets, outlays, income and interest.
    (c) Effective control over and accountability for all funds, 
property and other assets. Grantee shall adequately safeguard all such 
assets and assure that funds are used solely for authorized purposes.


Sec.  4284.158  Grant disbursement.

    Grant funds are disbursed on a reimbursement basis except if they 
are for revolving loan funds. Grant disbursement for revolving loan 
funds will be advanced. The financial management system of the grantee 
must provide for effective control and accountability of all funds. 
Grant funds may be requested as follows:
    (a) Reimbursement requests. An SF-270, ``Request for Advance or 
Reimbursement,'' may be submitted to USDA Rural Development once every 
30 days for reimbursement on allowable grant expenses. A pro rata 
portion of supplemental funds must be included in the request. An SF-
271, ``Outlay Report and Request for Reimbursement for Construction 
Programs,'' or similar form may be submitted to USDA Rural Development 
once every 30 days on construction projects.
    (b) Advance requests. An SF-270 may be submitted once every 30 days 
for an advance of funds. A pro rata portion of supplemental funds must 
be included in the request for an advance. Before any grant funds can 
be advanced, the grantee must submit information on each loan that they 
are proposing to make for review and concurrence by USDA Rural 
Development. The specific information required is defined in Sec.  
4284.184. Grantees must remit any interest earned on advanced grant 
funds. Interest should be forwarded to USDA Rural Development on a 
quarterly basis.


Sec. Sec.  4284.159-4284.160  [Reserved]


Sec.  4284.161  Insurance requirements.

    (a) Fidelity bond coverage will be required on grantees that are 
nonprofit organizations. Coverage may be provided either for all 
individual positions or persons, or through blanket coverage that 
provides protection for all appropriate employees and officials. The 
amount of coverage will be at least equal to the maximum amount of 
monies that the grantee will have on hand at any one time. The grantee 
must renew fidelity bond coverage on a yearly basis if they are 
operating a revolving loan fund. There are no fidelity bond coverage 
requirements for a public body.
    (b) Hazard insurance will be maintained by grantees whose project 
involves purchase or improvements to real property or purchase of 
machinery or equipment. In the case of a revolving loan fund, the loan 
recipient will be required to maintain hazard insurance with a standard 
mortgagee clause naming the grantee as beneficiary as long as a lien 
exists. The grantee's interest in the insurance will be assigned to 
USDA Rural Development, upon USDA Rural Development's request, in the 
event of termination of the revolving loan fund. The amount of coverage 
should be at least the lesser of the depreciated replacement value of 
the property being insured or the amount of the grant or loan. Hazard 
insurance includes fire, windstorm, lightning, hail, business 
interruption, explosion, riot, civil commotion, vehicle, marine, smoke, 
builder's risk, public liability, property damage, and any other hazard 
insurance that may be required to protect the property being insured or 
the grantee's security.
    (c) Worker's compensation insurance will be required on the grantee 
and any recipient who receives a loan from a revolving loan fund in 
accordance with State law.
    (d) Flood insurance will be required on grantees and loan 
recipients if their project is located in a special flood or mudslide 
hazard area.


Sec. Sec.  4284.162-4284.163  [Reserved]


Sec.  4284.164  Changes in scope of work, work plan or budget.

    (a) Prior approval must be obtained from USDA Rural Development for 
any of the following changes to the approved project:
    (1) Project scope or objectives;
    (2) Need to extend the period of availability of funds;
    (3) Change in key personnel as specified in the application;
    (b) Prior approval must be obtained from USDA Rural Development for 
any of the following budget revisions:
    (1) Transfer of amounts budgeted for indirect costs to absorb 
increases in direct costs, or vice versa;
    (2) Transfer of amounts previously budgeted for training allowances 
to other categories of expense;

[[Page 19816]]

    (3) Costs that require prior approval in accordance with the 
applicable OMB cost principles circulars; or
    (4) Need for additional funds.
    (c) Prior approval must be obtained from USDA Rural Development on 
projects that have both construction and nonconstruction activities 
before making any fund or budget transfer from the nonconstruction or 
construction budgets or vice versa.
    (d) Prior approvals will not be valid unless they are in writing 
and approved by USDA Rural Development. Failure to obtain prior 
approval of changes to the approved project or budget may result in 
suspension or termination of grant funds.


Sec. Sec.  4284.165-4284.166  [Reserved]


Sec.  4284.167  Reporting requirements.

    (a) Project performance reports. Grantees shall constantly monitor 
performance to ensure time schedules and other performance objectives 
are being achieved. A project performance report is not required for 
construction projects. On-site technical inspections and certified 
percentage-of-completion data will serve as the performance monitoring 
system for construction projects. This will be done in accordance with 
RD Instruction 1942-A, Sec.  1942.18. A project performance report is 
required for all non-construction projects on a quarterly basis. The 
report is due 30 days after the end of the quarter. The final report 
can serve as the last quarterly report. The report should include the 
following:
    (1) A comparison of actual accomplishments to the objectives 
established for that period;
    (2) Reasons why established goals were not met;
    (3) Any significant developments that would have an adverse or 
favorable affect on the overall project objectives. This notification 
must include a statement of the action taken or contemplated, and any 
assistance needed to resolve the situation;
    (4) Objectives and timetables for the next reporting period; and
    (5) Additional information on the final report as follows:
    (i) Actual accomplishments as a result of the grant, i.e. number of 
jobs created, saved, and number of businesses assisted or other 
performance goals established in the scope of work.
    (ii) What have been the most challenging or unexpected aspects of 
this program?
    (iii) What advice would the grantee give to other organizations 
planning a similar program? These should include strengths and 
limitations of the program. If the grantee had the opportunity, what 
would they have done differently?
    (iv) If an innovative approach was used successfully, the grantee 
should describe its program in detail so that other organizations might 
consider replication in their areas.
    (b) Financial reports. The following financial reports will be 
required and are available in any USDA Rural Development State Office:
    (1) All projects. An SF 269 or 269A, ``Financial Status Report,'' 
is required for all nonconstruction and construction projects on a 
quarterly basis. The report is due 30 days after the end of the 
quarter. SF 269A may be used by the grantee if there is no program 
income being generated in the project.
    (2) Additional revolving loan fund reports. Grantees will also be 
required to submit a Form RD 1951-4, ``Reporting of IRP/RDLF Lending 
Activity,'' report on a quarterly basis until all of the grant funds 
have been loaned out to small businesses. The report is due 30 days 
after the end of the quarter. Thereafter, reports will be required 
semiannually 30 days after the end of the period.
    (c) Audits. Grantees must provide an annual audit in accordance 
with 7 CFR part 3052. USDA Rural Development will inform the grantee of 
its auditing requirements.


Sec. Sec.  4284.168-4284.169  [Reserved]


Sec.  4284.170  Site visits.

    (a) The grantee is responsible for managing the day-to-day 
operations of the project to ensure time schedules are met and that 
performance goals are achieved. However, USDA Rural Development will 
make site visits, as necessary, to assure compliance with applicable 
Federal requirements. After all grant funds have been disbursed for 
revolving loan fund, capital improvements or equipment purchase 
projects, a site visit will occur every 3 years until the project is 
transferred, terminated, disposed of, or has met its useful life term 
in accordance with the Grant Agreement.
    (b) During the site visit the USDA Rural Development representative 
will perform and document due diligence if actual or potential site 
contamination by hazardous materials or petroleum products is observed 
on the site or adjacent sites. Due diligence documentation is necessary 
to assure USDA Rural Development maintains lender liability protection 
under the Comprehensive Environmental Response, Conservation and 
Liability Act (CERCLA).
    (c) Site visits can include a civil rights compliance review; a 
physical inventory of any property purchased or improved with grant 
funds or equipment purchased with grant funds; a revolving loan fund 
review to ensure the fund is still operating in accordance with the 
work plan, if applicable; and other reviews as needed to ensure the 
project is in compliance with the Letter of Conditions and Grant 
Agreement.


Sec. Sec.  4284.171-4284.172  [Reserved]


Sec.  4284.173  Record retention.

    USDA Rural Development must have access to grantees records 
including financial, supporting documents, statistical or other records 
pertinent to the grant. Records must be retained for 3 years after the 
date of the final grant disbursement unless there is:
    (a) Any litigation, claim, negotiation, audit or other action 
involving the records that have been started before the expiration date 
of the 3-year period. The records must be retained until completion of 
the action and resolution of all issues that arise from it or until the 
end of the regular 3-year period, whichever is later.
    (b) Real property; equipment; and revolving loan fund project 
records. Records must be retained until transfer, termination, 
disposition, or replacement occurs or the useful life term has expired 
in accordance with the grant agreement. The 3-year retention period 
would start the date of transfer, termination, disposition, replacement 
or the date the useful life term has expired.
    (c) Indirect cost rate proposals, cost allocation plans, etc. 
Records must be retained for 3 years from the date the proposal is 
submitted for negotiation. If the proposal is not required to be 
submitted for negotiation, then the 3-year retention period starts the 
end of the fiscal year covered by the proposal.


Sec. Sec.  4284.174-4284.177  [Reserved]


Sec.  4284.178  Disposition of real property, equipment, and supplies.

    (a) If grant funds are used to acquire or improve real property, 
and if the property is sold or is no longer needed for any reason, USDA 
Rural Development will have an interest in the current fair market 
value of the property in proportion to its participation in the 
project. Installation or improvements to utilities or streets in the 
public right of way is considered improving the surrounding property or 
land owned by the grantee. USDA Rural Development also has the right to 
the current fair market value of that property in proportion to its 
participation in the project if that property is sold or not used for 
its originally approved purpose. The

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grantee may be required to file a Notice of Interest when grants funds 
are used to purchase or improve real property unless it is prohibited 
by State law.
    (b) If grant funds are used to purchase equipment and the equipment 
is no longer needed for any reason, the grantee may retain, sell or 
otherwise dispose of the equipment with no further obligation to USDA 
Rural Development if the current fair market value of the equipment 
(per unit) is less than $5,000. However, if the current fair market 
value (per unit) is $5,000 or more USDA Rural Development has the right 
to an amount calculated by multiplying the current fair market value 
(per unit) if it is retained or proceeds from the sale if sold by the 
Federal share of the equipment.
    (c) If the grant funds are used to purchase supplies and the grant 
is closed out, the grantee may keep unused supplies if the total 
aggregate fair market value of the supplies was less than $5,000. 
Otherwise, the grantee will compensate USDA Rural Development the 
current fair market value of the unused supplies to its participation.


Sec. Sec.  4284.179-4284.180  [Reserved]


Sec.  4284.181  Construction requirements.

    Section 1942.18 of this title will be followed in the planning and 
performance of construction projects.


Sec. Sec.  4284.182-4284.183  [Reserved]


Sec.  4284.184  Clarification of revolving loan fund operation.

    The following paragraphs will provide clarification on operating 
revolving loan funds under this subpart:
    (a) A revolving loan fund must be operated on a long-standing basis 
and not duplicate services provided by an existing loan fund serving 
the same geographic area. It should not be established to assist one 
small business with a short-term working capital need and never have 
another loan made from it to assist other small businesses.
    (b) A third-party with required experience can be hired to do the 
credit and financial analysis, but the grantee is still responsible for 
approving loans and managing the fund. USDA Rural Development will 
review and concur in any service agreement when this is the case before 
the grant is approved.
    (c) Grantees are required to deposit grant funds and the 20 percent 
matching funds into a separate FDIC insured account. A control 
agreement will be executed to allow USDA Rural Development a security 
interest in the revolving loan fund deposit account as well as access 
to account information. The control agreement will also ensure that the 
deposit account/revolving loan fund will not be closed without prior 
approval of USDA Rural Development.
    (d) Loans made from the revolving loan fund must be for purposes in 
accordance with the revolving loan fund work plan. However, the loan 
purposes are limited to the eligible purposes defined in paragraphs (a) 
through (c) of Sec.  4284.109, working capital and debt refinancing.
    (e) Loans made from the revolving loan fund must be economically 
feasible to ensure sustainability of the revolving loan fund.
    (f) The receivables created by making loans from the fund, the 
grantee's security interest in collateral pledged by small businesses, 
collections on the receivables, interest, fees, and any other income 
from the operation of the revolving loan fund are considered to be part 
of the revolving loan fund.
    (g) All debt instruments and collateral documents used by the 
grantee in connection with making loans from the fund must be 
assignable. Security for a loan from the revolving loan fund to a third 
party will be negotiated between the grantee and the third party within 
the policies established in the work plan.
    (h) USDA Rural Development will review and concur in each loan the 
grantee is proposing to make until all of the grant funds are expended. 
Eligibility, environmental concerns, and other issues necessary to 
ensure sustainability of the fund will be reviewed. The following will 
be required for each loan:
    (1) A copy of the application;
    (2) Loan Committee recommendation or write-up;
    (3) Intergovernmental comments;
    (4) Small business certification;
    (5) Form RD 1940-20;
    (6) Form AD 1048, ``Certification of Debarment, Suspension, 
Ineligibility and Voluntary Exclusion--Lower Tier Covered 
Transactions;'' and
    (7) Form RD 400-4.
    (i) USDA Rural Development loan review and concurrence will not be 
necessary once the grantee lends out an amount equal to the grant. 
However, the grantee must continue to operate the revolving loan fund 
in accordance with the work plan, collect civil rights data and obtain 
all required items defined in paragraphs (h)(1) through (7) of this 
section for each loan made thereafter. USDA Rural Development will 
conduct a site visit at least every 3 years to ensure the grantee is 
complying with all Federal requirements and administering the fund in 
accordance with the work plan.
    (j) Grantees may use principal and interest payments plus fee 
income received from their borrowers (revolved funds) for debt service, 
administrative expenses, or making additional loans.
    (k) A reasonable amount of revolved funds should be used to create 
a reserve for bad debts. USDA Rural Development recommends a reserve 
for bad debts of 6 percent of outstanding loans, which can be 
accumulated over 3 years and should be maintained from then on.
    (l) Grantees may also use up to a maximum of 20 percent of interest 
and fee income per fiscal year for the administrative costs associated 
with operating the revolving loan fund.
    (m) Failure, inability or unwillingness of the grantee to carry out 
or comply with the work plan, grant agreement or any applicable Federal 
or State law is cause for termination. If the grant is terminated, USDA 
Rural Development takes control of the deposit account in which the 
fund is located, the pending note receivables and any security interest 
pledged on the pending note receivables.


Sec. Sec.  4284.185-4284.188  [Reserved]


Sec.  4284.189  Grant termination.

    The grant award can be terminated in the following situations:
    (a) Termination for cause. If the grantee fails to comply with the 
conditions of the Letter of Conditions or the Grant Agreement, USDA 
Rural Development can terminate the grant. USDA Rural Development will 
notify the grantee in writing of the decision to terminate, including 
the reasons and the effective date of the grant termination.
    (b) Termination by mutual agreement. The grantee must provide 
written notification to USDA Rural Development explaining the reasons 
why they wish to terminate the grant and the proposed effective date. 
If USDA Rural Development mutually agrees that the continuation of the 
project would not produce beneficial results the grant can be 
terminated.
    (c) Deobligation of grant funds. USDA Rural Development will 
automatically deobligate grant funds if a project is not completed 
within 3 years from the date of obligation.


Sec.  4284.190  Transfer and assumptions.

    USDA Rural Development will not approve any transfer and 
assumptions on grants awarded under this subpart.


Sec. Sec.  4284.191-4284.193  [Reserved]


Sec.  4284.194  Appeal rights.

    The applicant or grantee may have review or appeal rights on 
adverse decisions made by USDA Rural

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Development. Written instructions will be provided to the applicant or 
grantee by USDA Rural Development when review or appeal rights are 
applicable in accordance with 7 CFR part 11.


Sec. Sec.  4284.195-4284.200  [Reserved]

    Dated: March 29, 2007.
Thomas C. Dorr,
Under Secretary, Rural Development.
[FR Doc. 07-1922 Filed 4-19-07; 8:45 am]
BILLING CODE 3410-XY-P