16922 Federal Register / Vol. 60, No. 63 / Monday, April 3, 1995 / Proposed Rules

DEPARTMENT OF THE INTERIOR

Bureau of Reclamation

43 CFR Parts 426 and 427

RIN 1006–AA32

Acreage Limitation and Water

Conservation Rules and Regulations

AGENCY: Bureau of Reclamation,

Interior.

ACTION: Notice of proposed rulemaking.

SUMMARY: This proposed rulemaking

would retitle and revise the existing

Rules and Regulations for Projects

Governed by Federal Reclamation Law

(Part 426) and add new Water

Conservation Rules and Regulations

(Part 427). These rules would replace

and expand upon existing rules that

pertain to the administration of the

Reclamation Reform Act of 1982 (RRA)

and are in partial fulfillment of the

requirements of a Settlement Contract

between the Department of the Interior,

Department of Justice, and the Natural

Resources Defense Council (NRDC).

DATES: Written comments on these

proposed rules and regulations must be

received by June 2, 1995.

ADDRESSES: Written comments should

be mailed to the Westwide Settlement

Manager, Bureau of Reclamation, P.O.

Box 25007 (Mail Code D–5010), Denver,

Colorado 80225.

FOR FURTHER INFORMATION CONTACT:

Concerning part 426, contact Richard

Rizzi, Bureau of Reclamation, P.O. Box

25007 (Mail Code D–5200), Denver,

Colorado 80225, telephone (303) 236–

1061 ext. 235; concerning part 427,

contact Craig Phillips, Bureau of

Reclamation, P.O. Box 25007 (Mail Code

D–5300), Denver, Colorado 80225,

telephone (303) 236–1061 ext. 265.

SUPPLEMENTARY INFORMATION: The RRA

(43 U.S.C. 390aa, et seq.) was signed

into law on October 12, 1982. It was the

culmination of an effort to modernize

Federal reclamation law. The RRA made

a number of changes to prior Federal

reclamation law while retaining the

basic principle of limiting the amount of

land in ownership which may receive

water deliveries from Bureau of

Reclamation (Reclamation) projects.

Rules and regulations for

implementing the RRA were published

in the Federal Register (43 FR 54768,

Dec. 6, 1983) and became effective on

January 5, 1984. In 1987, the rules and

regulations were amended, primarily to

implement Section 203(b) of the RRA,

which was not addressed in the 1983

rulemaking. Revisions also were made

to those provisions of the rules and

regulations pertaining to submission of

certification and reporting forms, trusts,

non-resident aliens, water transfers,

covenant restrictions, and religious and

charitable organizations.

The 1987 rules and regulations and

three alternatives were evaluated in an

Environmental Assessment (EA)

published by Reclamation in April

1987. The EA concluded that the

impacts of the proposed rulemaking

were primarily economic in nature and

that no significant impacts to the natural

environment would result from the

rulemaking. A Finding of No Significant

Impact concerning the 1987 rulemaking

was therefore issued by Reclamation on

April 8, 1987. The final rules and

regulations were published in the

Federal Register (52 FR 11954, Apr. 13,

1987) and became effective on May 13,

1987.

The Omnibus Budget Reconciliation

Act of 1987, enacted on December 22,

1987, included amendments to the RRA.

The amendments addressed revocable

trust agreements, provisions for audits

by Reclamation to confirm information

from reporting procedures, application

of full-cost water rates for lands under

extendable recordable contracts, and

interest on underpayments or

nonpayments. Consequently, further

proposed amendments to the rules and

regulations were evaluated in a

supplemental EA published by

Reclamation in September 1988. The

supplemental EA concluded that the

impacts of the proposed rulemaking

were primarily economic in nature and

that no significant impacts to the natural

environment would result from the

rulemaking. A Finding of No Significant

Impact concerning the 1988 rulemaking

was therefore issued by Reclamation on

September 23, 1988. The final rules and

regulations were published in the

Federal Register (53 FR 50535, Dec. 16,

1988) and became effective on January

17, 1989.

Litigation Concerning the RRA Rules

and Regulations

The NRDC and others filed a lawsuit

challenging the validity of the 1987 and

1988 rules and regulations (NRDC v.

Underwood, No. Civ. S–88–375–LKK).

On July 26, 1991, the United States

District Court for the Eastern District of

California (Court) granted NRDC’s

partial motion for summary judgment.

The Court ruled that Reclamation had

not complied with the requirements of

the National Environmental Policy Act

(NEPA) and the regulations of the

Council of Environmental Quality in

preparing the EA and the Findings of No

Significant Impact in the promulgation

of the 1987 rules and regulations.

Reclamation appealed the District

Court’s decision to the Ninth Circuit

Court of Appeals. In September 1993,

while the appeal was still pending, the

Department of the Interior (Interior), the

Department of Justice, and NRDC

entered into a Settlement Contract

which requires Reclamation ‘‘to propose

new rules and regulations

implementing, on a westwide basis, the

* * * (RRA) as part of a new

rulemaking proceeding that

comprehensively reexamines the

implementation of the RRA.’’ The

Settlement Contract also requires

Interior to prepare an environmental

impact statement (EIS) considering the

impact of the proposed rules and

regulations and alternatives thereto.

However, nothing in the contract

requires Interior to adopt changes to the

rules now in effect.

The required draft EIS has been

published separately and notice of its

availability will be published in the

‘‘notice’’ section of the Federal Register.

Public Scoping

A notice of intent regarding the EIS

and a notice of intent regarding the

rulemaking were both published in the

Federal Register (58 FR 64277 and 58

FR 64336, Dec. 6, 1993). A press release

was issued on December 29, 1993, and

approximately 3,500 information

packets were distributed to

environmental groups, entities that have

contracts with Reclamation for project

water supplies, the media, and other

interested parties. Public scoping

meetings were held in January 1994 to

receive public input regarding the issues

and alternatives to be considered in the

EIS and rulemaking. Scoping sessions

were held in Billings, MT; Fresno, CA;

Salt Lake City, UT; Phoenix, AZ; Boise,

ID; Spokane, WA; Portland, OR; and

Denver, CO. In addition to the oral

comments received at the scoping

sessions, approximately 150 letters were

received.

Public comments generally focused

on 5 areas: process, acreage limitations

on receipt of project water, water

conservation, the Settlement Contract,

and EIS alternatives. Each comment was

considered in the development of EIS

alternatives, the EIS analysis, and these

proposed rules and regulations.

Partnerships for Improved Resources

Management

In December 1994, the Commissioner

of Reclamation announced a new

initiative to develop formal partnerships

between Reclamation and water districts

in a collaborative effort to improve the

management of water and associated

resources throughout the Western
Federal Register / Vol. 60, No. 63 / Monday, April 3, 1995 / Proposed Rules 16923

United States. The partnerships will

address mutually desirable water

resources management objectives and

provide for public involvement to

consider the broadest range of

traditional and emerging societal needs

and water resources management

solutions.

Under this initiative, partnerships

will be formed with one or more

districts on a district basis, project basis,

or watershed basis. Partnerships will

involve agricultural water districts,

municipal and industrial water districts,

other Reclamation contractors, and

other water suppliers and users

throughout the 17 Western States. The

initiative will also provide for State

participation in the partnerships to

assure compliance with State water law

and consideration of State resources

priorities.

These proposed regulations

acknowledge this new partnership

initiative. Certain requirements are

modified if a formal partnership with a

district achieves the same objectives

through similar or alternative means.

One section specifically allows for this

type of flexibility: § 426.17 regarding

landholder information requirements.

Description and Analysis of Part 426

Reclamation has taken advantage of

the opportunity afforded by the NRDC

settlement to rework part 426 in its

entirety. The majority of the changes

have been made for the sole purpose of

improving the clarity of the regulation.

Thus, the bulk of the changes do not

represent new Reclamation policy

regarding the RRA, but rather an attempt

on Reclamation’s part to resolve any

uncertainty that may have been

associated with the interpretation of the

existing regulations. In some cases,

these proposed regulations include

Reclamation policies that have been in

effect for some time, but which are not

specifically covered in the existing

regulations.

However, a number of substantive

changes have been proposed. The key

topics under which substantive changes

have been made is summarized as

follows:

• Reduction in certification and

reporting burden

• Definition of lease

• Nonresident alien and foreign legal

entity entitlements

• Types of contracts considered

additional and supplemental benefits

• Application of the RRA to religious

and charitable organizations

• Application of class 1 equivalency

• Involuntary acquisition and future

operation of formerly excess land by

excess land sellers

• Application of the compensation

rate and administrative fees in cases of

irrigation of ineligible excess land

• New procedures for administrative

appeals of RRA-related determinations.

Also, a new ordering of the sections

has been proposed with the objectives of

grouping related topics and of attaining

a more logical and progressive

sequence. For example, §§ 426.4

through 426.6 would address how basic

landholding entitlements are

determined, followed by §§ 426.7

through 426.9, which would discuss the

entitlements of particular types of

landholders. Sections 426.10 through

426.14 would be generally categorized

as addressing the status of land under

acreage limitation laws, and the

remaining sections would address

administrative and miscellaneous

provisions.

Finally, all examples would be

deleted from the text of the regulations

and would be instead included, if

necessary, in the following section-bysection analysis. This change would

make the rule more compact, and would

promote our effort to improve precision

in the text of the regulation.

Section-by-Section Analysis

Section 426.1. The proposed rule

would change the title of this section

from Objectives to Purpose, and the

narrative would be rewritten to include

a straightforward statement as to the

purpose of these regulations.

Section 426.2. The existing section on

applicability would be removed because

it is not possible to write a concise, yet

accurate, statement as to the

applicability of these regulations.

Because the rule’s scope of effect is not

the same for the various provisions of

the regulations, Reclamation proposes

that the best approach would be to have

each section speak for itself as to its

applicability.

The proposed § 426.2 defines terms

used in the regulation and would

replace § 426.4 from the existing

regulation.

Numerous changes would be made to

the definition section. The more

significant of the proposed changes are

discussed as follows in alphabetical

order:

Acreage limitation entitlement,

acreage limitation provisions, and

acreage limitation status would be

added to the proposed regulations to

add precision and to replace the

compound term ownership limitation

and pricing restrictions.

Arable land would be deleted because

the term’s only use is within the

definition of irrigable land. The term

arable land is included in the existing

rules because the definition of irrigable

land is based on one more useful for

formal land classification purposes. It is

suggested that a simpler definition of

the term irrigable land would be

appropriate for this regulation, and,

therefore, a definition of the term arable

land would be unnecessary.

Compensation rate would be newly

defined in these proposed regulations to

describe the full-cost charges applied to

certain types of illegal irrigation water

deliveries that are not discovered until

after they have taken place.

For conciseness only, the two

sentences in the definition of the term

contract would be merged. In addition,

the term agreement was added to

broaden the definition to ensure all

arrangements between Reclamation and

water users that may be subject to

application of the acreage limitation

provisions are captured.

Contract rate would be changed to

reflect awareness of the fact that many

contracts do not include per acre or per

acre-foot rates. For purposes of this part,

however, contract rate would mean

such a rate on a per acre or per-acre-foot

basis.

Direct and indirect would be defined

in this proposed regulation because they

are used in the RRA and are frequently

used in the text of the regulation. The

terms apply in situations wherein land

is held directly by a landowner or

lessee, or indirectly by a party that has

a beneficial interest in a legal entity that

is a landowner or lessee (such as a

stockholder, partner, or trust

beneficiary).

Discretionary provisions of Title II

would be deleted and would be

replaced with the more concise

discretionary provisions. Also, section

203(b) would be excepted from this

definition, since it applies even to prior

law districts and landholders. Finally,

United States Code citations would be

substituted, as they are more useful in

locating the relevant statutes.

District would be changed to replace

the phrase eligible to contract with can

potentially enter into a contract, in

order to avoid the use of the term

eligible, which has its own specific

meaning under part 426.

Eligible would be included to reflect

its common meaning among those

familiar with acreage limitation laws:

the right to receive irrigation water

without consideration of the price paid

for that water. This definition can be

compared with that of ineligible.

Exempt land would be replaced with

the term exempt primarily because that

term can be applied to districts and

certain types of landholders (e.g.,
16924 Federal Register / Vol. 60, No. 63 / Monday, April 3, 1995 / Proposed Rules

trustees and government agencies), as

well as to specific land parcels.

In the definition of the term full cost,

Secretary would be changed to

Reclamation.

Full-cost rate and full-cost charge are

defined to differentiate between the two

terms.

Indirect would be added. See the

above discussion of the term direct.

The reference to the Internal Revenue

Code would be deleted from the

definition of individual because that

concept is covered in the definition of

dependent.

Ineligible would be added to reflect

that term’s common meaning among

those familiar with acreage limitation

laws: The lack of eligibility to receive

irrigation water at any price. This

definition can be compared with that of

eligible.

Intermediate entity would be added to

define a term used in these regulations.

Irrevocable election would be changed

to delete both the reference to Title II

and the second sentence which

presently contains additional

explanation that is redundant with that

contained in the text of the existing rule.

Irrigable land would be changed to be

more concise and understandable. The

phrases from the existing regulation

excluding permanent buildings, etc.,

would be transferred to the definition of

nonexempt land.

Irrigation land would be modified

primarily to exclude land exempt from

acreage limitation laws. Also, the phrase

in a given water year would be added

to clarify that land which has received

irrigation water retains irrigation land

status for the entire water year, even if

irrigation is not taking place at any

particular time.

Landholder would be modified to

delete the references to the terms

qualified recipient, limited recipient,

and prior law recipient, because not all

landholders fall into these categories

(i.e. government agencies, Native

American tribes, etc.).

Landholding would be greatly

simplified. The proposed definition is

clearer, and takes advantage of the new

term nonexempt land. It should be

noted that involuntarily acquired land

would be included within this

definition of landholding.

Lease would be substantially

modified. Under the existing regulation,

one of the key elements in the definition

of lease is the assumption of economic

risk by the reputed lessee. This

definition permits the development of

arrangements under which an

individual or legal entity is paid a fixed

fee for operating a farming enterprise.

Since the operator under these

arrangements assumes no economic

risk, Reclamation currently does not

deem operator to be in a lease

relationship. Therefore, under the

existing rules, operators are not subject

to full-cost irrigation water rates.

The new definition would make

possession the singular element

indicating the existence of a lease. The

definition would eliminate economic

interest as an essential element of a

lease (although economic risk would

remain a factor indicating the existence

of a lease). Thus, under the proposed

regulation, whenever someone other

than the landowner has possession of

nonexempt land, a lease would exist.

Reclamation would consider fixed-fee

operations leases and would subject the

parties to full cost pricing if possession

of the land has been transferred, and if

nonfull-cost entitlements are exceeded.

The second and third sentences of the

definition would address the situation

where more than one party has some

degree of possession; for example, a

landowner may contract with a farm

manager but may retain some

decisionmaking authority.

Reclamation intends the proposed

definition of the term lease to exclude

arrangements between landholders and

custom operators, employees, lenders,

and other landholders with whom farm

equipment is shared.

Legal entity would be broadened to

include certain types of landholding

arrangements whose status for acreage

limitation purposes had been unclear

under the existing regulation.

Nondiscretionary provisions would be

modified to eliminate the reference to

Title II, to include section 203(b), and to

include the United States Code citation.

The second sentence of the current

definition has been eliminated because

that concept is covered elsewhere in the

regulations.

Nonexempt land would be newly

defined in these proposed regulations to

replace the compound term irrigable

and irrigation land. Nonexempt land

would be defined more precisely than

irrigable and irrigation land, and would

be used as a concise term to describe,

generally, all land subject to the acreage

limitation provisions of Federal

reclamation law.

Nonfull-cost entitlement would be

modified to enhance clarity by

including the defined term nonfull-cost

rate.

Nonresident alien entitlement would

be eliminated because, under the

proposed rules, nonresident aliens

would be treated as prior law recipients,

and their entitlements derived

accordingly. This fact would be made

clear in the definition of prior law

recipient.

Operation and maintenance costs or

O&M costs would be newly defined in

order to clarify the types of activities

that are included in the calculation of

operation and maintenance costs.

Part owner would be added to define

a term that is used in these regulations.

Prior law would be modified

primarily to include United States Code

citations.

Prior law recipient would be modified

to include within the definition,

nonresident aliens and legal entities not

registered in the United States. Under

the proposed regulations such persons

and entities could only be prior law

recipients. This conclusion results from

the RRA’s definitions of qualified

recipient and limited recipient.

Public entity would be added to

define a term that is used in these

regulations.

Qualified recipient would be modified

to include married couples in which

only one spouse is a U.S. citizen or

resident alien.

Reclamation fund would be modified

to eliminate unnecessary language.

RRA would be added. This term

would be used throughout the part as it

is concise and well understood by most

readers.

Title II would be eliminated in favor

of a definition of the term RRA which

would be used throughout the part.

Section 426.3. The section in the

existing regulations, entitled Authority,

would be removed because it is

redundant with the authorities

statement that immediately follows the

table of contents.

The proposed § 426.3, Conformance

to the discretionary provisions, would

replace the existing § 426.5 and add a

more precise description of the section’s

contents.

The section would be generally

rewritten to eliminate redundancy with

other sections and paragraphs within

the section. Paragraph (a) categorically

describes the conditions under which

districts remain subject to prior law.

These conditions are summarized in the

following table:
Federal Register / Vol. 60, No. 63 / Monday, April 3, 1995 / Proposed Rules 16925

If a district * * * then * * *

Executes a new or renewed contract with Reclamation after October

12, 1982.

The discretionary provisions apply as of the execution date of the new

or renewed contract.

Amends its contract to conform to the discretionary provisions (following the procedures specified in these regulations) and Reclamation

amends the contract.

The district is subject to the discretionary provisions from the date it

requests the amendment.

Amends its contract after October 12, 1982 to provide the district with

additional or supplemental benefits (as described in these regulations) and the amendment includes the district’s conformance to the

discretionary provisions.

The discretionary provisions apply as of the date that the Secretary

executes the contract amendment.

A new standard RRA contract article

is included under paragraph (c) to

clarify any misconceptions concerning

the applicability of the Acreage

Limitation Rules and Regulations and

Reclamation’s right to administer

contracts.

Another substantial proposed change

in the rule would involve specific

contract actions that would be

considered additional and supplemental

benefits. Under this proposed

regulation, Rehabilitation and

Betterment Act and Small Reclamation

Projects Act (SRPA) loans, which are

not currently considered additional and

supplemental benefits, would now be

considered as such. Any district already

subject to the acreage limitation

provisions that obtains benefits under

these programs would be required to

conform to the discretionary provisions.

Furthermore, Emergency Fund Act and

Distribution Systems Loan Act

contracts, whose treatment is not clearly

established under the current rules and

policy, would be considered additional

and supplemental benefits under this

proposal. The listing of types of contract

amendments requiring district

conformance to the discretionary

provisions should not, however, be

considered comprehensive.

Actions pursuant to the Reclamation

Safety of Dams Act of 1978 would be

added to the list of items not considered

to provide additional and supplemental

benefits, as provided by statute.

The following statement and table are

being considered as an alternative to

§ 426.3(a)(3)(iv)(F) in the final rules :

(F) Transfer of water on an annual

basis from one district to another if the

parties to the transfer meet the

conditions in the table below:

Party Condition

Both districts .............................................................................................. Must have contracts with the United States.

District receiving transferred water ........................................................... Must pay a rate that:

—is the higher of the applicable water rate for either district;

—does not result in any increased operating losses to the United

States above those that would have existed if there had not been a

transfer; and

—does not decrease the capital repayment to the United States below

what it would have been if there had been no transfer.

Recipients of transferred water ................................................................. Must pay a rate that is at least equal to the actual O&M costs or the

full-cost rate if the recipients would have been subject to these costs

in the absence of a transfer.

Paragraph (d), The effect of a master

contractor’s and subcontractor’s actions

to conform to the discretionary

provisions, of the proposed regulation

has been rewritten for conciseness. The

following examples illustrate the

application of this paragraph:

Example (1). Assume Districts A, B, and C

are members of a water conservancy district

which entered into a master contract with the

United States prior to October 12, 1982. The

water conservancy district has allocated all

the irrigation water made available to it

under the master contract to Districts A and

B, pursuant to pre-October 12, 1982,

subcontracts with the conservancy district to

which the United States is a party. The

irrigation water is not made available to

District C or any other districts or

landholders within the water conservancy

district. Consequently, Districts A and B are

subject to the acreage limitation and pricing

provisions of prior law. Districts A and B

may amend their subcontracts to conform to

the discretionary provisions without making

it necessary for the conservancy district or

the other subcontracting entity with the

conservancy district to so amend their

contract or the subcontract.

Example (2). Assume District XYZ has a

pre-October 12, 1982, contract with the

United States for the delivery of irrigation

water. The district also has allocated that

irrigation water pursuant to subcontracts

with six subcontracting entities. However,

the United States is not a party to these

subcontracts. A subcontractor may choose to

conform to the discretionary provisions only

if it makes the United States a party to the

subcontract. Such action will not require the

prior law master contractor or the other

subcontractors to so amend.

Example (3). Assume District A, a master

contracting agency, executes a water service

contract with the United States after October

12, 1982. The irrigation water is to be

delivered to only two of the eight member

agencies within District A. Subcontracts are

executed between District A, the United

States, and each of the two member agencies

to provide irrigation water service to the two

member agencies. In this instance, the

discretionary provisions become applicable

to only the two member agencies which

execute subcontracts with District A and the

United States.

Paragraph (e) is new that would

explain the effect of a district’s

becoming subject to the discretionary

provisions on a landholder’s status. It

would explain how certain indirect

landholders in districts with an

amended contract can conform to the

discretionary provisions by simply

submitting a certification form. The

provision would also explain how

Reclamation would treat direct and

indirect landholdings of nonresident

aliens and foreign entities in amended

districts.

Paragraph (f) would expand on the

current rules’ discussion of individual

elections to address the effects of

elections by part owners on entities and

vice versa.

Section 426.4 in the existing

regulations, Definitions, would be

renumbered § 426.2. The proposed new

§ 426.4, entitled Attribution of land, is

intended to clarify how Reclamation

would attribute land to indirect

landholders, and to landholders who are
16926 Federal Register / Vol. 60, No. 63 / Monday, April 3, 1995 / Proposed Rules

part owners or are entities not wholly

owned by an individual. It would also

concisely summarize existing policy

regarding on how land is attributed for

entitlement purposes.

Paragraph (a) would establish the

general rule that individuals and

entities cannot enhance their

entitlements or eligibility through the

creation or acquisition of legal entities.

For example, a prior law recipient could

not increase his or her 160-acre

ownership entitlement (see § 426.5) by

creating or acquiring an interest in a

qualified recipient legal entity. Such a

prior law recipient would need to

conform to the discretionary provisions

(through district contract action or

individual irrevocable election) in order

to realize an increase in his or her

entitlements.

Example (1). Corporation A, a limited

recipient that did not receive water on or

before October 1, 1981, and therefore is not

entitled to receive irrigation water at a

nonfull-cost rate (see § 426.6). Such an entity

may not gain entitlement to receive irrigation

water at a nonfull-cost rate by acquiring

Corporation B, an entity that received water

on or before that date. If the latter entity were

so acquired, irrigation water could be

delivered to the entities’ landholding only at

the appropriate full-cost rate.

The converse is also true. If the entities’

roles in the preceding example were reversed

(that is, if Corporation B acquired

Corporation A), the landholding of

Corporation A could be irrigated only at the

appropriate full-cost rate as long as

Corporation A continued to exist. In this

case, it should be noted that Corporation B,

which is eligible to receive irrigation water

at a nonfull-cost rate, could potentially

receive nonfull-cost irrigation water on other

land in its holding that is not held through

Corporation A; but any land held by or

through Corporation A could be irrigated

only at full cost.

Example (2). Corporation C is a qualified

recipient which owns and irrigates 500 acres.

Corporation C is subsequently acquired by

Corporation D, a limited recipient which

received irrigation water on or before October

1, 1981, but which currently has no

landholdings other than Corporation C’s 500

acres. On the date of acquisition, Corporation

C becomes a limited recipient because it

benefits all the stockholders of Corporation

D. Thus, both Corporations C and D are

entitled to own and irrigate 640 acres (see

§ 426.5), but only 320 acres at the nonfullcost water rate (see § 426.6). Therefore, if all

500 acres are irrigated, the full-cost water rate

must be paid for water delivered to 180 of

those acres.

Example (3). The trustees of five

irrevocable trusts, each of which have six

natural persons as beneficiaries, form a

partnership that holds land subject to the

acreage limitation provisions in a

discretionary district. In order to determine

if that partnership is a limited or qualified

recipient, it is necessary to ascertain how

many natural persons will benefit from the

partnership. In this case, 30 natural persons

will benefit (none of the trust beneficiaries

benefit from more than one trust) and,

therefore, the partnership has the acreage

limitation status of limited recipient.

Although the five trusts are not limited in the

amount of land they can hold and receive

irrigation water at the nonfull-cost rate (other

than through the entitlements of their

beneficiaries) the acreage limitation status of

the partnership will limit how much land

can be held through that entity by the trusts

and receive such water.

Paragraph (b) would establish that, for

purposes of acreage limitation

entitlements, owned land is attributed

to each indirect landholder

proportionally based on that

landholder’s interest. Paragraph (c)

would establish that leased land counts

against the entitlements of both the

owner and the lessee. Paragraph (d)

would establish that if a series of legal

entities has ownership relationships

with each other, Reclamation would

proportionately attribute the land to

each such entity.

Example (4). Assume Trust A has two

beneficiaries, beneficiary A and beneficiary

B. Beneficiary A has a 60 percent interest in

the trust, and beneficiary B has a 40 percent

interest. Trust A owns 800 acres of

nonexempt land. Reclamation attributes 480

acres toward her ownership entitlement, and

beneficiary B must attribute 320 acres toward

his ownership entitlement.

Example (5). Assume Corporation C wholly

owns Corporation D, and that Corporation D

owns a 60 percent interest in Corporation E.

Corporation E leases 500 acres of irrigation

land. Reclamation will attribute to

Corporation E all 500 acres toward the

company’s nonfull-cost entitlement, and

Corporations C and D must each attribute 300

acres toward their nonfull-cost entitlements.

Example (6). Attribution to both owner and

lessee is demonstrated by Farmer A who

owns 400 acres of irrigation land which she

leases to Farmer B. Farmer A must count all

400 acres toward her ownership and nonfullcost entitlements, and Farmer B must count

all 400 acres toward his nonfull-cost

entitlement.

Paragraph (e) addresses how land that is

owned by a landholder and then is indirectly

leased by the same landholder will be

counted by that landholder.

Example (7). Farmer A owns 60 acres and

leases that land to Corporation XYZ that

leases a total of 200 acres. Farmer A also

owns 50 percent of Corporation XYZ. Farmer

A would claim his 60 owned acres, but

would not have to claim the entire 200 acres

leased by Corporation XYZ. Instead, Farmer

A would claim 70 acres leased by

Corporation XYZ (200 acres minus the 60

owned acres times the 50 percent ownership

interest). Accordingly, Farmer A would claim

a total landholding of 130 acres. If Farmer B

was the other part owner of Corporation XYZ

and leased his 140 owned acres to that entity,

his claimed landholding would be 170 acres

(140 owned acres, plus 200 acres minus the

140 owned acres times the 50 percent

ownership interest).

Paragraph (f) would establish that, for

purposes of eligibility, land is attributed

in its entirety to all direct and indirect

landholders, unless they hold divided

interests. The provision acknowledges

that irrigation water cannot be delivered

to a legal entity without benefiting all

indirect owners of undivided interests

in that entity; therefore, all such indirect

owners must be eligible in order for the

entity to be eligible.

If the interests of the entity’s indirect

owners are divided, however, then the

district could deliver irrigation water to

the entity without necessarily benefiting

all such owners. In this situation, it may

be possible to deliver irrigation water to

the entity even if one or more of the

entity’s indirect owners is not eligible.

Example (8). Assume two qualified

recipients, Farmer A and Farmer B, form a

qualified recipient partnership with equal,

undivided interests. Farmer A has no

landholding outside the partnership, but

Farmer B owns 960 acres of nonexempt and

nonexcess land outside the partnership, and

has therefore completed his ownership

entitlement. The partnership has no

remaining ownership entitlement, because

any land irrigated by the partnership would

cause Farmer B to exceed his ownership

entitlement.

If, however, the partnership agreement in

this example provided that the partners’

interests were separable and alienable, the

partnership could receive irrigation water on

that land attributable to Farmer A. It would

need to be shown that Farmer B does not

benefit from the receipt of irrigation water by

the partnership.

Section 426.5 in the existing

regulations, Contracts, would be

renamed and renumbered § 426.3. The

proposed new § 426.5, Ownership

entitlement, would replace § 426.6 of

the existing regulations. This section

would summarize the ownership

entitlements of individuals and most

types of entities, and would be generally

rewritten for conciseness.

Paragraph (a) would be rewritten to

achieve better organization and clarity.

Moreover, the reference in the current

language to the regulation on class 1

equivalency would be deleted because

that topic is addressed in the discussion

of qualified and limited recipient

entitlement.

All descriptions of what constitutes

qualified, limited, and prior law

recipients would be deleted because

they are redundant with the definitions

found in § 426.2.

The trust discussion would be placed

in a new § 426.7.

The following table summarizes the

ownership entitlements specified in this

section:
Federal Register / Vol. 60, No. 63 / Monday, April 3, 1995 / Proposed Rules 16927

If the landowner is a: The size of his or her ownership entitlement is: Basis of computation

Qualified recipient ...................................... 960 acres or class 1 equivalent ................ Westwide.

Limited recipient ........................................ 640 acres westwide or class 1 equivalent Westwide

Prior law recipient and is a(n):

Individual ............................................ 160 acres .................................................. Westwide for land acquired after 12/6/79. District-bydistrict for land acquired on or before 12/6/79.

Husband and wife who jointly own

equal interest.

320 acres .................................................. Westwide for land acquired after 12/6/79. District-bydistrict for land acquired on or before 12/6/79.

Surviving spouse ................................ Up to 320 acres ........................................ Westwide for land acquired after 12/6/79. District-bydistrict for land acquired on or before 12/6/79.

Child ................................................... 160 acres .................................................. Westwide for land acquired after 12/6/79. District-bydistrict for land acquired on or before 12/6/79.

Joint tenancy or tenancy-in-common,

if interests are equal.

160 acres per tenant ................................. Westwide for land acquired after 12/6/79. District-bydistrict for land acquired on or before 12/6/79.

Partnership if interests are: alienable,

equal, and separable.

160 acres per partner ............................... Westwide for land acquired after 12/6/79. District-bydistrict for land acquired on or before 12/6/79.

Partnership if interests are: not alienable or not separable.160 acres total .......................................... Westwide for land acquired after 12/6/79. District-bydistrict for land acquired on or before 12/6/79.

Corporation ......................................... 160 acres .................................................. Westwide for land acquired after 12/6/79. District-bydistrict for land acquired on or before 12/6/79.

The following examples illustrate the

application of this section:

Example (1). Farmer A receives irrigation

water on 160 acres owned in District X, a

district subject to prior law. District X

subsequently amends its contract to conform

to the discretionary provisions. Farmer A

automatically becomes a qualified recipient

by virtue of the district decision and is

entitled to receive irrigation water on a

maximum of 960 acres of irrigation land in

his ownership.

Example (2). Farmer B and her husband are

a qualified recipient by virtue of an

irrevocable election. They own in joint

tenancy 960 acres of nonexempt land. As a

qualified recipient, they may irrigate the

entire 960-acre landholding. However, they

have completed their ownership entitlement.

Example (3). Farmer C and Farmer D are

a married couple, and each owns 480 acres

of irrigation land under separate title in

District A. District A has amended its

contract to conform to the discretionary

provisions. Even though the land is held in

separate title, Farmer C and Farmer D as a

married couple have reached the limits of

their ownership entitlement as a qualified

recipient.

Example (4). Farmer E is a citizen of

Germany, but has taken up permanent

residency in the United States. Farmer E

owns 160 acres in District Y and desires to

purchase an additional 800 acres. District Y

has not amended its contract to conform to

the discretionary provisions. Farmer E;

however, decides to execute an irrevocable

election. After the election, Farmer E

becomes entitled to receive irrigation water

on 960 acres of owned land. This entitlement

as a qualified recipient remains in force so

long as Farmer E, as a resident alien,

maintains permanent residency in the United

States. If Farmer E were to become a U.S.

citizen, his eligibility as a qualified recipient

would, of course, remain in force.

Example (5). Farmer F is a citizen and

resident of Switzerland. Farmer F owns 160

acres of irrigation land in District X, a district

subject to prior law. Subsequently, District X

amends its contract to conform to the

discretionary provisions. Farmer F, as a

nonresident alien, cannot meet the

requirements of either a qualified recipient or

limited recipient. For that reason, and

because he owned the irrigation land prior to

the district’s contract amendment, Farmer F

may, as set forth in § 426.11(e), place the land

under recordable contract and receive

irrigation water at the nonfull-cost rate for 5

years. (If the land were not placed under

recordable contract or had Farmer F not

acquired the irrigation land prior to the

district’s contract amendment, the 160 acres

owned would be ineligible for service until

such time as it was sold or otherwise

transferred to an eligible recipient or Farmer

F qualifies as a resident alien in the United

States.)

Example (6). ABC Farms is a general

partnership comprised of four individuals

who are qualified recipients and who own

equal interests in the partnership’s 960-acre

landownership. The land is located in

District Z, which is subject to the

discretionary provisions. Therefore, ABC

Farms satisfies the requirements for a

qualified recipient and may receive irrigation

water for all 960 acres in its ownership.

Moreover, the members of the partnership, as

qualified recipients, may each receive

irrigation water on a maximum of 720 acres

in some ownership or ownerships other than

ABC Farms.

Example (7). Six brothers who are citizens

and residents of Canada form a family

corporation registered in the State of

Montana with each brother holding equal

shares in the corporation. The corporation

makes an irrevocable election and is

therefore a qualified recipient entitled to

receive irrigation water on 960 acres or less

of owned land. The brothers cannot meet the

requirements to be qualified recipients since

none are citizens of the United States or

residents aliens thereof. Therefore, each

brother has completed his 160-acre

ownership entitlement as a prior law

recipient. In a district subject to the

discretionary provisions, nonresident aliens

may receive irrigation water only on lands

held through legal entities (i.e., indirectly)

and may not receive irrigation water on land

they hold directly.

Example (8). Corporation A is a qualified

recipient receiving irrigation water on a

landownership of 960 acres. Farmer Brown is

also a qualified recipient who owns 25

percent of Corporation A and farms 800 acres

of owned land using irrigation water. In this

instance, Farmer Brown exceeds his

individual ownership entitlement by 80 acres

and must either divest an appropriate share

of his ownership in Corporation A or

designate 80 acres of his directly owned land

as excess.

Example (9). Corporation B and

Corporation C, wholly owned subsidiaries of

Corporation D, each own 500 acres in District

Z which has amended its contract to conform

to the discretionary provisions. All three

corporations are qualified recipients. The

landholdings of Corporations B and C are

counted against the entitlement of the parent

corporation, Corporation D. Therefore,

Corporation D has exceeded its 960-acre

ownership entitlement by 40 acres, and 40

acres must be declared excess.

Example (10). AAA Land Company, a

corporation benefiting more than 25 persons

and registered in the State of California, owns

320 acres in District Y. In the absence of

district action, the company makes an

irrevocable election to conform to the

discretionary provisions. Thereby AAA Land

Company becomes a limited recipient and is

entitled to receive irrigation water on 640

acres or less owned westwide.

Example (11). BBB Fertilizer Company is a

corporation registered in Nebraska and owns

160 acres of nonexcess and 480 acres of

excess land in District X, a district subject to

prior law. District X subsequently amends its

contract to conform to the discretionary

provisions. BBB Fertilizer Company benefits

more than 25 persons and therefore

automatically becomes a limited recipient

with a 640-acre ownership entitlement. BBB

Fertilizer Company may therefore redesignate

the 480 excess acres as nonexcess.
16928 Federal Register / Vol. 60, No. 63 / Monday, April 3, 1995 / Proposed Rules

Example (12). CDE Development Company

is a corporation, incorporated in the Greater

Antilles, with more than 25 shareholders.

CDE Development Company buys 160 acres

in a district which has amended its contract

to conform to the discretionary provisions.

However, unless and until such time as CDE

Development Company establishes itself as a

legal entity under State or Federal law, it

cannot meet the requirements to become a

limited recipient, and none of its directly

held land is eligible for irrigation water. Had

CDE Development Company been receiving

irrigation water on the 160 acres prior to the

district’s amendment, it could have placed

the land under recordable contract as set

forth in § 426.11(e)(3) and could have

continued to receive irrigation water for 5

years.

Example (13). FGH Corporation is owned

by more than 25 stockholders and is

registered in France. IJK Corporation is

registered in California and is a whollyowned subsidiary of FGH Corporation. IJK

owns 640 acres in a district subject to the

discretionary provisions. IJK is a limited

recipient that would normally be entitled to

irrigate the entire 640-acre landownership;

however, FGH cannot become a limited

recipient because it is not registered in the

United States. Therefore, FGH has only the

160-acre ownership entitlement of a prior

law recipient. As a result, only 160 acres of

IJK’s owned land is eligible to receive

irrigation water. The remaining 480 acres

must be declared excess.

Example (14). Farmer G, a prior law

recipient, owns 160 acres of irrigation land

in each of four districts. None of the districts

in which Farmer G owns land has amended

its contract to conform to the discretionary

provisions, and Farmer G held title to the

land prior to December 6, 1979. Thus, Farmer

G remains eligible to receive irrigation water

on the 640 acres owned in the four different

districts.

Note: If title to the irrigated land changes

hands, the 160-acre westwide entitlement

will automatically apply to the transferred

land, assuming the new landholder is a prior

law recipient.

Example (15). Farmer H owns 160 acres in

each of two prior law districts, and all of the

acreage is eligible for irrigation water by

virtue of the fact Farmer H owned the land

prior to December 6, 1979. On January 1,

1983, Farmer H purchased another 160 acres

of nonexcess land which is located in a third

prior law district. The land newly purchased

in this district must be declared excess,

except as provided for in § 426.11(d).

Example (16). Farmer I and his wife own

320 acres of irrigation land in each of two

prior law districts, for a total of 640 acres.

The couple purchased both parcels of land in

1976. Farmer I and his wife have not made

an irrevocable election. Since the land was

purchased prior to December 6, 1979, Farmer

I and his wife are entitled to receive

irrigation water on all 640 acres. The couple

has reached the limit of their ownership

entitlement.

Example (17). Farmer J and Farmer K own

equal interests in a tenancy-in-common

which owns 320 acres of irrigation land in

District Y. District Y has not amended its

contract to become subject to the

discretionary provisions. Both Farmers J and

K own nonexempt land only through their

interests in the tenancy; however, Farmer J

wishes to purchase additional land in the

district so he makes an irrevocable election.

Since the tenancy remains subject to prior

law, Farmers J and K may each receive

irrigation water on a maximum of 160 acres

through their interests in the entity.

Therefore, the tenancy’s 320 acres remain

eligible to receive irrigation water, but the

tenancy and Farmer K have both reached the

limits of their ownership entitlements under

prior law. However, as a qualified recipient,

Farmer J may receive irrigation water on an

additional 800 acres of owned land.

Example (18). Mr. and Mrs. L, who

purchased all of their owned land prior to

December 6, 1979, may receive Reclamation

irrigation water on the 320 acres they jointly

own as prior law recipients in District A and

also on the 100 acres they own in District B.

On July 1, 1991, Mr. and Mrs. L purchase an

additional 40 acres in District B. Since the 40

acres were acquired after December 6, 1979,

all 460 acres in their ownership must be

taken into consideration to determine if the

newly acquired land is within the couple’s

ownership entitlement. In this case, the total

owned acres westwide (460 acres) exceeds

the couple’s maximum westwide entitlement

as prior law recipients (320 acres). Therefore,

the 40 newly acquired acres are considered

to be excess land and ineligible to receive

Reclamation irrigation water in the couple’s

landholding.

Example (19). EFG Farms, a partnership

composed of four individuals who hold

equal, separable, and alienable interests in

the partnership, owns 960 acres of

nonexempt land located in District Y. District

Y has not amended its contract to become

subject to the discretionary provisions. EFG

Farms and two of the partners are subject to

prior law; the other two partners have made

irrevocable elections. Neither EFG Farms nor

any of the partners owns irrigation land

outside the partnership. Based on these facts,

each partner may own and receive irrigation

water on a maximum of 160 acres through

the partnership. Therefore, 640 of the EFG

Farms’ 960 acres are entitled to receive

irrigation water; the remaining 320 acres

must be declared excess. The two partners

who have made irrevocable elections may

each purchase and receive irrigation water on

another 800 acres outside the partnership in

order to complete their individual 960-acre

ownership entitlement for qualified

recipients.

Example (20). Corporation GHI owns 320

acres in District Y, a prior law district.

Corporation GHI’s two shareholders, Farmer

L and Farmer M, hold equal interests in the

corporation. Both District Y and Farmer L are

subject to prior law; however, Farmer M is

a qualified recipient by virtue of having made

an irrevocable election. As a corporation

subject to prior law, only 160 of Corporation

GHI’s 320 acres can be declared nonexcess.

Eighty acres of the corporation’s nonexcess

ownership is attributed toward the

ownership entitlement of each shareholder.

As a prior law recipient, Farmer L may

receive irrigation water on another 80 acres

of irrigation land through ownership

arrangements outside the corporation in

order to complete his individual 160-acre

ownership entitlement. To complete his 960-

acre ownership entitlement as a qualified

recipient, Farmer M may receive irrigation

water on an additional 880 acres outside the

corporation.

Example (21). Farmer N and Farmer O

form a corporation in which Farmer N owns

a 60 percent interest and Farmer O owns a

40 percent interest. Neither individual owns

land outside the corporation. Farmer N and

the corporation are qualified recipients, but

Farmer O remains subject to prior law. The

maximum nonexempt acreage that the

corporation can own as nonexcess is 400

acres (160 divided by 40 percent). If the

corporation owned more than 400

nonexempt acres, this would cause Farmer O

to exceed his ownership entitlement.

Example (22). Farmer P, a qualified

recipient, owns 1,400 nonexempt acres and

has designated 960 acres as nonexcess and

eligible to receive irrigation water. In 1995,

Farmer P irrigates only 800 acres; however,

the entire 960 nonexcess acres are still

counted against his ownership entitlement.

Example (23). Farmer Q, a qualified

recipient, owns 640 acres receiving irrigation

water. Farmer Q also owns 320 acres which

are not in a district, but Farmer Q has

individually entered into a 10-year contract

with the United States for irrigation water for

that land. All 960 acres receiving irrigation

water must be counted for purposes of

determining ownership entitlement.

Example (24). Farmer R, a prior law

recipient, owns 160 nonexempt acres.

However, only 120 acres were deemed

irrigable and eligible to receive irrigation

water. Some years subsequent to this

determination, Farmer R installed a center

pivot irrigation system and now irrigates 160

acres with the same amount of water as he

once used to irrigate 120 acres. For purposes

of ownership entitlement under the RRA, all

160 acres must be counted.

Example (25). Farmer S remains under

prior law. Farmer S irrigates 160 acres of

owned land. Subsequently, Farmer S buys, in

another prior law district, a 160-acre farm

which is also receiving irrigation water. All

the land newly purchased by Farmer S

thereby becomes ineligible for service except

as provided for in § 426.11(d). If the 160 acres

which Farmer S purchased had never

received irrigation water and were in an area

for which water distribution facilities had not

been constructed, Farmer S could, as

provided in § 426.11(d)(1)(ii) or (2)(ii), place

the 160 acres under recordable contract when

the facilities became available to serve the

land.

Section 426.6 in the existing

regulations, Ownership entitlement,

would be renumbered § 426.5. The

proposed new § 426.6, Leasing and fullcost pricing, would replace § 426.7 of

the existing regulations. This section

would describe the conditions under

which full-cost charges would be

applied (see examples 1 through 14),

and would describe how full-cost rates
Federal Register / Vol. 60, No. 63 / Monday, April 3, 1995 / Proposed Rules 16929

are determined (see examples 15

through 21).

The paragraph in the existing

regulation on what constitutes a lease

would be deleted because it more

properly belongs in the definition

section.

Care has been taken to distinguish

between the definition of a lease and the

requirements of a lease. It is important

to note that failure to meet the

requirements of a lease does not mean

failure to meet the definition of a lease.

Thus, for example, it cannot be argued

that an agreement does not constitute a

lease because it is not in writing. Rather,

a lease which is not written would not

qualify for treatment as a lease for the

purposes of the RRA, and therefore, the

land associated with the lease would be

ineligible to receive irrigation water.

In the discussion of nonfull-cost

entitlements, the term irrigation land

would be used liberally. The reference

to exempt land would be deleted since

use of the term irrigation land

automatically excludes exempt land.

The citation regarding extended

recordable contracts would be deleted

because the paragraphs on extended

recordable contracts are proposed for

deletion from § 426.11 of the

regulations. (This deletion will be

addressed in the discussion of section

11.)

Under the discussion of nonfull-cost

entitlements of qualified, limited, and

prior law recipients, the sentences

describing various types of land not

subject to full cost would be deleted to

eliminate redundancy with other

sections. Land subject to recordable

contracts is discussed in § 426.11;

exempt land does not need discussion

because it has been excluded through

use of the term irrigation land; and

involuntarily acquired land is addressed

earlier in the section.

The paragraph on multidistrict

landholdings would be deleted because

it is redundant with the discussion of

these topics in § 426.3.

The following table summarizes the

nonfull-cost entitlements specified in

this section:

If the landholder is a:

The landholder’s

nonfull-cost entitlement is computed on a

westwide basis

and is:

Qualified recipient ........... 960 acres.

Limited recipient who acquired the land:

Prior to or on October

1, 1981.

320 acres.

After October 1, 1981 .. 0 acres.

If the landholder is a:

The landholder’s

nonfull-cost entitlement is computed on a

westwide basis

and is:

Prior law recipient and is

a(n):

Individual ..................... 160 acres.

Husband and wife who

jointly own equal interest.

320 acres.

Surviving spouse ......... Up to 320 acres.

Child ............................ 160 acres.

Joint tenancy or tenancy-in-common, if

interests are equal.

160 acres per

tenant.

Partnership if interests

are: alienable, equal,

and separable.

160 acres per

partner.

Partnership if interests

are: not alienable or

not separable.

160 acres total.

Corporation .................. 160 acres.

The application of § 426.6 is

illustrated by the following examples:

Example (1). Farmer A, a qualified

recipient, receives irrigation water on 900 of

the 960 acres of nonexempt land in his

ownership in District X. Farmer A leases and

receives irrigation water on another 320 acres

in District Y. Since Farmer A receives water

on 260 acres over and above his nonfull-cost

entitlement, he must select 260 acres of

owned land, leased land, or a combination of

both, and pay the full-cost rate for water

delivered to that land.

Example (2). Farmer B, a qualified

recipient, owns and receives irrigation water

on 960 acres in District X. Farmer B decides

to lease all 960 acres to another qualified

recipient, Farmer C. Farmer C, however,

already farms 960 acres receiving irrigation

water. Therefore, Farmer C would be eligible

for nonfull-cost rate irrigation water

delivered to only 960 acres.

Example (3). Farmer D has made an

irrevocable election and owns and receives

irrigation water on 960 acres. Farmer E is

subject to prior law and owns and receives

water on 160 acres. Farmer D hires Farmer

E to operate Farmer D’s equipment in

performance of all the physical farm work on

Farmer D’s 960 acres. Farmer E receives

compensation for such services, which does

not consist of a share of the crop and is not

based, in advance, on the degree of economic

success or failure of the production or

marketing of the crop. Farmer D retains at all

times the economic risk associated with both

crop production and marketing from his 960

acres. Farmer D also makes all major

decisions concerning the farming operation,

and Farmer E merely carries out Farmer D’s

instructions. This arrangement between

Farmer D and Farmer E does not constitute

a lease because Farmer D has not transferred

possession of his land to Farmer E.

Example (4). Assume the same facts as in

example 3 of this section, except that Farmer

E makes the major decisions concerning the

farming operation. This arrangement between

Farmer D and Farmer E constitutes a lease

because possession of the land has

transferred from Farmer D to Farmer E.

Therefore, Farmer E has exceeded her

nonfull-cost entitlement by 960 acres and

must pay full cost for water delivered to 960

acres of her landholding.

Example (5). Landholder F, a qualified

recipient, receives irrigation water on 960

acres of owned land in District X and 800

acres leased in District Y. At the beginning

of the water year, Landholder F selects 360

owned acres plus 600 leased acres to receive

irrigation water at the nonfull-cost rate. He

pays the full-cost rate for water delivered to

the remaining 800 acres. In July, Landholder

F terminates the lease on the 600 acres of

leased land which are part of his nonfull-cost

entitlement. However, since nonfull-cost

acreage is counted against one’s entitlement

on a cumulative basis during any 1 water

year, Landholder F has already reached the

limits of his nonfull-cost entitlement for this

water year. Therefore, Landholder F may not

replace in that water year those 600 nonfullcost acres, even though they no longer

receive irrigation water, with 600 acres from

his full-cost land. Landholder F also must

pay the full-cost rate for irrigation water

delivered to any new land he irrigates during

that water year.

Example (6). Landholder G, a qualified

recipient, owns and irrigates 1,200 acres, 400

of which are subject to a recordable contract.

Landholder G also irrigates 300 acres leased

from another party. All of Landholder G’s

landholding, a total of 1,500 acres, counts

against his nonfull-cost entitlement;

therefore, he is in excess of his nonfull-cost

entitlement by 540 acres. However, the 400

acres under recordable contract are not

subject to full-cost pricing, so Landholder G

need select only 140 acres for full-cost

pricing. The full-cost land may be selected

from the nonexcess, recordable contract, or

leased land in his holding.

Example (7). ABC Farms remains under

prior law. It owns and was receiving

irrigation water on 160 acres in District X

prior to October 1, 1981. ABC Farms also

owns and irrigates 480 acres in another prior

law district which are subject to a recordable

contract. ABC Farms may continue to receive

irrigation water at the nonfull-cost rate on its

entire landholding until the end of the

recordable contract period. At that time, if

ABC Farms remains under prior law, only

160 acres in District X may continue to

receive irrigation water. If ABC Farms makes

an irrevocable election prior to the maturity

of the recordable contract, it may amend the

recordable contract to allow it to own and

receive irrigation water on all 640 acres

owned. Upon electing, ABC Farms may

receive irrigation water at the nonfull-cost

rate on 320 acres, but it must pay the fullcost rate on the 320 acres by which it has

exceeded its nonfull-cost entitlement.

Example (8). CDE Farms, a limited

recipient, owns 640 acres of land eligible to

receive irrigation water. The purchase of the

land took place after October 1, 1981, and

CDE Farms was not receiving irrigation water

on any other land on or before October 1,

1981. Therefore, in order for CDE Farms to

receive irrigation water for any nonexempt

land, it must pay the full-cost rate for that

water.
16930 Federal Register / Vol. 60, No. 63 / Monday, April 3, 1995 / Proposed Rules

Example (9). FGH Fertilizer Company, a

limited recipient, buys 160 acres of land

receiving irrigation water in District X. The

purchase of the land is made subsequent to

October 1, 1981. However, the company was

receiving irrigation water on 160 leased acres

in District B prior to October 1, 1981.

Therefore, the 160 acres recently purchased

are eligible to receive irrigation water at the

nonfull-cost rate. If FGH Fertilizer Company

buys or leases additional land, the company

would have to select and pay the full-cost

rate for any irrigation water delivered to land

in excess of its 320-acre nonfull-cost

entitlement.

Example (10). The XYZ Corporation, a

limited recipient, owns 640 acres of irrigation

land in District A. Since the corporation was

receiving irrigation water prior to October 1,

1981, it is entitled to irrigate 320 acres at the

nonfull-cost rate and 320 acres at the full-cost

rate. If the corporation were to lease the

owned land subject to full cost to another

landholder, the full-cost rate would still

apply.

Example (11). Farmer H and her husband

receive irrigation water on 320 owned acres

of irrigation land and on 40 leased acres in

District X. District X has not amended its

contract to become subject to the

discretionary provisions and Farmer H and

her husband have not made an irrevocable

election. Since Farmer H and her husband

receive irrigation water on 40 acres in excess

of their 320-acre nonfull-cost entitlement, the

couple must select 40 acres in their

landholding and pay the full-cost rate for

water delivered to that land. If Farmer H and

her husband make an irrevocable election or

if District X amends its contract to become

subject to the discretionary provisions, the

couple would thereby become a qualified

recipient with a nonfull-cost entitlement of

960 acres. Since their landholding is within

that entitlement, Farmer H and her husband

would be able to receive irrigation water at

the nonfull-cost rate on all 360 acres.

Example (12). Farmer I and his wife lease

640 acres of irrigation land in District X and

another 640 acres of irrigation land in District

Y. Districts X and Y have not amended their

contracts to become subject to the

discretionary provisions and Farmer I and his

wife have not made an irrevocable election.

Since the couple has exceeded their 320-acre

nonfull-cost entitlement by 960 acres, Farmer

I and his wife must select 960 acres in their

landholding and pay the full-cost rate for

water delivered to that land.

Example 13. Four brothers hold equal,

separable, and alienable interests in a

partnership they formed. The partnership

owns 160 acres of irrigation land in District

X and also leases another 320 acres from

another party in District Y. The partnership

and both districts remain subject to prior law.

Since the partnership’s landholding is within

its 640-acre nonfull-cost entitlement (160

times 4), no full-cost charges will be assessed

to water delivered to any land in the holding.

Example (14). Farmer J, a prior law

recipient, owns 5,000 acres of irrigation land

in District X, 4,900 of which are under

recordable contract. He also receives

irrigation water on another 320 acres which

he leases in this same district. Thus, Farmer

J is receiving irrigation water on 5,160 acres

(5,320 minus 160) in excess of his nonfullcost entitlement. However, his recordable

contract land is not subject to full-cost

pricing; therefore, Farmer J must select 260

acres (5,160 minus 4,900) for full-cost

pricing. Although his recordable contract

land is not subject to full-cost pricing, Farmer

J may, at his option, select part or all of the

260 full-cost acres from the land under

recordable contract in lieu of his nonexcess

or leased land.

Example (15). District A contains 90,000

irrigable acres. The construction costs

allocated to irrigation for the project and to

be repaid by District A amount to $240

million. As of October 12, 1982, the district’s

accumulated repayments are $174 million,

and 11 years remain on its contract term. The

established annual contract rate is $66.67 per

acre. This amount repays the outstanding

balance of the contractual obligation ($66

million, or $733.33 per acre) in 11 years. The

applicable interest rate is determined to be

7.5 percent; therefore, the equal annual

payments for full cost would be $100.24.

This payment is calculated using standard

amortization procedures and is the annual

payment necessary to retire a debt of $733.33

at a 7.5 percent rate of interest over 11 years.

This full-cost charge will apply regardless of

when District A amends its contract. Full

O&M charges must be added to this charge

and included in the assessment for any

landholder subject to full-cost rates.

Example (16). District B has a water service

contract that establishes a rate of $6.50 per

acre-foot for 90,000 acre-feet of water

delivered to the district, a rate which is fixed

over the remaining 10 years of the contract

term. Currently, $1 of the $6.50 rate is used

to pay annual O&M charges. The remainder

is credited to the repayment of irrigation

construction costs, although inflation over

the next 10 years is expected to leave a $5

per acre-foot payment to irrigation, averaged

over the remaining 10 years. The

construction costs to be repaid from

irrigation revenues and assignable to be

repaid by the land in District B are $24

million, and the district has paid $15.5

million of those costs to date.

As of October 12, 1982, the accumulated

payments credited to repayment on

construction are $15.5 million. The unpaid

balance for full cost is $8.5 million ($24

million minus $15.5 million), and the

applicable interest rate is determined to be

7.5 percent. Amortizing the unpaid balance

over the remaining contract term of 10 years

results in an annual full-cost charge of

$1,384,016, or $15.38 per acre-foot. Full O&M

charges must be added to this charge and

included in the assessment for any

landholder subject to full-cost rates. Upon

expiration of the current contract, the district

expects to enter into a subsequent water

service contract in order to expand its water

deliveries. If District B desires to amortize its

unpaid balance for full cost over a longer

period than 10 years, it can choose to

renegotiate its existing contract before the

current contract expires to bring it into

conformance with current Reclamation

policy. When the district renegotiates its

contract, the unpaid balance for full cost

could be reamortized, at the district’s option,

for any period up to the term of the new

water service contract, which cannot exceed

the repayment period authorized by

Congress. For example, suppose the new

water service contract runs for 18 years and

is executed immediately. If the district

chooses to amortize full cost over the longest

permissible repayment period (18 years),

then the full-cost charge would be $10.88 per

acre-foot. If the district chooses to amortize

over 15 years, the full-cost charge would be

$11.96 per acre-foot, assuming the unpaid

costs remain the same.

Example (17). District C contains 90,000

irrigable acres, and the construction costs

allocated to irrigation for the project and

assignable to be repaid amount to $240

million. As of October 12, 1982, the

accumulated repayments of the district are

$174 million. The district’s repayment

obligation is $200 million. (The $40 million

difference between construction costs

allocated to irrigation and the repayment

obligation is scheduled to be paid from other

project revenues.) The unpaid obligation on

District C’s repayment contract is $26

million, and 11 years remain on its contract

term. The annual rate established by the

contract is $26.26 per acre. This amount

repays the outstanding balance of the

contractual obligation in 11 years. As of

October 12, 1982, the unpaid balance for full

cost is $66 million (allocated cost, less

payments) or $733.33 per acre, and the

applicable interest rate is determined to be

7.5 percent. Therefore, the equal annual

payment for full cost would be $100.24 per

acre.

Example (18). District D has a 40-year

water service contract for 90,000 acre-feet of

water per year. The District’s current contract

expires in 1997 and will be renewed for

another 40-year term, resulting in an

expiration date of 2036. Construction costs

assigned to District D are $24 million, and

such costs are to be repaid from irrigation

water service revenues. As of October 12,

1982, the accumulated payments credited to

construction costs are $15.5 million. The

unpaid balance for full cost is $8.5 million

and the applicable interest rate is determined

to be 7.5 percent. Water service rates for this

project are designed to completely repay

applicable expenditures by the end of the

authorized repayment period, which occurs

in 2030. Amortizing the unpaid balance over

the remaining authorized repayment period

of 48 years results in an annual full-cost

charge of $657,945 or $7.31 per acre-foot.

Normal O&M charges would be collected

annually in addition to this rate. It should be

noted that even though the contract renewal

extends beyond 2030, the repayment period

is limited to the authorized repayment period

ending in 2030, with full-cost charges

calculated accordingly.

Example (19). Farmer K, a qualified

recipient, owns 960 acres receiving irrigation

water in Alpha Irrigation District. Farmer K

also leases 100 acres receiving irrigation

water in Alpha Irrigation District from

another party. Alpha Irrigation District’s

repayment contract specifies an annual

assessment of $5 per irrigable acre. Alpha

Irrigation District’s annual full-cost rate is
Federal Register / Vol. 60, No. 63 / Monday, April 3, 1995 / Proposed Rules 16931

calculated to be $15 per irrigable acre.

Therefore, Farmer K’s total water charge for

that year is (960 acres times $5) plus (100

acres times $15), for a total of $6,300.

Example (20). Farmer L and his wife own

320 acres receiving irrigation water in Beta

Irrigation District and lease another 320 acres

receiving irrigation water in the same district.

Farmer L, his wife, and Beta Irrigation

District all remain subject to prior law. Beta

Irrigation District’s water service contract

specifies a rate of $10 per acre-foot, and its

full-cost rate is calculated to be $25 per acrefoot. Farmer L has a turnout and measuring

device to the 320 acres he has selected to pay

full cost, and a separate turnout and

measuring device to the 320 acres receiving

water at the contract rate. At the end of the

water year, district records show that Farmer

L received 1,000 acre-feet of water on his

full-cost land, and 1,050 acre-feet of water on

his nonfull-cost land. These measurements

are judged to be accurate and reliable;

therefore, Farmer L’s water charges for that

year are (1,000 acre-feet times $25) plus

(1,050 acre-feet times $10) for a total of

$35,500. If accurate records showing the

amounts of water delivered to Farmer L’s

full-cost and nonfull-cost land had not been

maintained, it would have been necessary to

assume that equal amounts of water per acre

had been delivered to both types of land.

Without accurate water delivery records,

Farmer L’s water charges for that year would

have been (1,025 acre-feet times $25) plus

(1,025 acre-feet times $10) or $35,875.

Example (21). Farmer M, a qualified

recipient, leases 1,000 acres in Gamma

Irrigation District where the contract rate is

$5 per acre-foot, and the full-cost rate is $15

per acre-foot. Farmer M applies irrigation

water to 960 acres and irrigates the remaining

40 acres from a private well. In 1 particular

year, Farmer M applied water to the land six

times during the irrigation season; but in the

final two applications, his well failed, so he

chose to apply irrigation water to his entire

landholding. Because there were no separate

measuring devices for the 40 full-cost acres,

it was necessarily assumed that equal

amounts of water per acre were applied to

the full-cost and nonfull-cost land during the

final two applications of water. Gamma

Irrigation District’s record showed that 600

acre-feet were delivered to Farmer M during

each of the first four applications, and 625

acre-feet during each of the last two

applications. Farmer M’s water charges for

that year were calculated as follows: The first

four applications did not include any fullcost water; therefore, the appropriate charge

was (4 times 600 acre-feet × $5) or $12,000.

The final two applications were 96 percent

contract rate and 4 percent full cost. Thus,

the appropriate charges were (2 times 625

acre-feet times .96 times $5) plus (2 times 625

times .04 times $15), or $6,750. Farmer M’s

total charge for the year was $12,000 for the

first four applications plus $6,750 for the last

two applications, for a total of $18,750.

Section 426.7 of the existing

regulations, Leasing and full-cost

pricing, would be renumbered § 426.6.

The proposed new § 426.7, Trusts,

would be a new section devoted to

describing the requirements and

entitlements of trusts. This new section

would not alter existing Reclamation

policy regarding trusts, but would

include some existing policies that are

not referenced in the current regulation.

Paragraph (a) would define the three

categories of trusts. The effects of

inclusion or absence of required

elements of each category of trust would

be described in paragraph (b)

Paragraph (b)(1) would establish that

land held by an irrevocable trust would

be attributed to the trust’s beneficiaries,

provided that the trust agreement is in

writing, has been approved by

Reclamation, and the beneficiaries and

that their interests are identified.

Otherwise, the land would be attributed

to the trustee.

Paragraph (b)(2) would describe

attribution of trusted land in the case of

a revocable trust that provides for

reversion of the trusted land to the

grantor upon revocation. Land held by

trusts in this situation would be

attributed to the grantor(s) of the trust,

conditioned on the facts immediately

prior to the transfer of the land to the

trust, if specified criteria are met.

Paragraph (b)(3) would describe

attribution of trusted land for all types

of revocable trusts other than those

covered under paragraph (b)(2). Land

held by trusts in this category would be

attributed to either the beneficiaries or

to the trustee, depending on whether

specified criteria are met. If the

revocable trust, however, does not

specify its grantors, the conditions

under which it may be revoked, or to

whom the land would revert upon

revocation, the trusted land would be

ineligible to receive irrigation water

until these issues were resolved.

Application of this section is

illustrated by the following examples:

Example (1). Bank X is the trustee for five

irrevocable trusts, each of which has more

than one beneficiary. The irrevocable trusts

contain 1,280, 960, 640, 800, and 400 acres,

respectively, and all meet the criteria set

forth in § 426.7(b)(1). All trust beneficiaries

are qualified recipients, and none has any

landholdings outside of the trusts. Since all

the trusts’ land is attributable to the trust

beneficiaries, and Reclamation determines all

the beneficiaries are within their ownership

and nonfull-cost entitlements, all 4,080 acres

in the five irrevocable trusts are eligible to

receive irrigation water.

Example (2). Farmer A, a qualified

recipient, provides in his will for the

establishment of a trust and the conveyance

of 640 acres of his land receiving irrigation

water into that trust for his daughter upon his

death. The trust meets the criteria set forth

in § 426.7(b)(1). The land is located in a

district which has amended its contract to

conform to the discretionary provisions. The

brother, who is designated as trustee for the

trust, owns 800 acres in the same district

which receives an irrigation water supply.

Farmer A dies, and the testamentary trust he

has established is activated. The trust’s land

is attributable to the daughter as the sole trust

beneficiary. Therefore, the trust’s land is

eligible to receive irrigation water at the

nonfull-cost rate, assuming the daughter has

not exceeded her acreage limitation

entitlements as a result of this action.

Example (3). Farmer B, a qualified

recipient, owns 960 acres eligible to receive

irrigation water in a district subject to the

discretionary provisions. He decides to place

160 acres of his land in an irrevocable trust

with his daughter as the life tenant. The trust

agreement satisfies the criteria of

§ 426.7(b)(1). The 160 acres of trust land shall

be attributed to the daughter’s entitlement if

she is independent. If she is dependent, the

160 acres of trust land shall be attributed to

Farmer B as her parent or to the person who

is acting as her guardian.

Example (4). ABC Corporation, a prior law

recipient, establishes a grantor revocable

trust and places 160 acres of land receiving

irrigation water in the trust for the benefit of

J. Jones. The trust agreement satisfies all

criteria of § 426.7(b)(2). Under the terms of

the revocable trust, the trust will terminate

and title to the 160 acres will revert back to

ABC Corporation in 10 years. All 160 acres

of the land in trust are attributed to the

corporation and to the corporation’s

stockholders in proportion to their percent of

stock held in the corporation.

Example (5). Assume the same facts as in

Example 4 above, except that Corporation X,

a legal entity fully independent of ABC

Corporation, contributes the 160 acres to the

trust created by ABC Corporation. In this

example, the 160 acres are attributed to the

beneficiary of the trust, J. Jones, since the

criteria for attribution to the grantor

(Corporation X) have not been met, namely,

the 160 acres will revert in 10 years to the

trustor (ABC Corporation), not the grantor,

and the grantor does not have the power to

revoke the trust. As such the trust is in fact

an otherwise revocable trust.

Example (6). Farmer C, a qualified

recipient, places 960 acres of land receiving

irrigation water in a trust for his son. The

trust agreement satisfies all criteria of

§ 426.7(b)(2) and (3). It provides that the trust

shall expire in 20 years, and ownership of the

trust land shall be vested in Corporation Y,

of which Farmer C is a part owner with 5

percent interest. Because title to 5 percent of

the trust land will revert indirectly to Farmer

C upon termination of the trust, 48 acres (960

times 5 percent) of the trust land are

attributed to Farmer C. The remaining 912

acres of trust land is attributable to the

beneficiaries of the trust. If Farmer C’s

interest in Corporation Y changes during the

term of the trust, the amount of trust land

attributed to Farmer C will change

accordingly.

Section 426.8 of the existing

regulations, Operation and Maintenance

(O&M) charges, would be renumbered

§ 426.22. The proposed new § 426.8,

Religious or charitable organizations,

would replace § 426.15 of the existing
16932 Federal Register / Vol. 60, No. 63 / Monday, April 3, 1995 / Proposed Rules

regulations. This section would describe

the entitlements of these types of

organizations.

Paragraph (a) would define religious

or charitable organizations for the

purpose of this section. The titles of

paragraphs (b) and (c) would be

modified to reflect their application to

both the ownership and nonfull-cost

entitlements of religious and charitable

organizations. This change would

eliminate the need for paragraph (d) in

the existing regulation.

A more significant modification

would change the consequences of

failure by a subdivision of a religious or

charitable organization to satisfy the

three criteria established by the RRA.

Under the current rules, failure by such

a subdivision to meet these criteria

results in the entire organization being

reduced to the entitlements of a single

limited recipient. Under the proposed

rules, only the subdivision in question

would be affected by its failure to meet

the criteria; the central organization and

other subdivisions would be unaffected.

The new language would also

establish that the qualified or limited

recipient status of a subdivision which

fails to meet the three criteria would be

determined by counting the

subdivision’s membership. Thus, most

subdivisions which fail to meet the

criteria would be treated as limited

recipients.

Paragraph (d) on leasing would be

deleted as unnecessary. The provisions

establishing that religious or charitable

organizations are treated either as

qualified or limited recipients would

eliminate any need for a separate

statement regarding leasing. The

proposed paragraph (d) on affiliated

farm management would replace the

existing paragraph.

Section 426.9 in the existing

regulations, Class 1 equivalency, would

be renumbered § 426.10. The proposed

new § 426.9, Public entities, would

replace § 426.17 of the existing

regulations. This section would describe

the application of acreage limitation

laws to public entities and would be

rewritten for clarity and organization.

Paragraph (a) would define the term

public entities for purposes of this

section. Paragraph (b) would be

rewritten to show that public entities

are exempt from certain acreage

limitation provisions rather than the

land. The rephrasing would more

accurately state Reclamation policy, as

the land can become subject to

ownership limitations through the

holding of a lessee. Also, the wording of

paragraph (d) would be changed to state

that land leased from a public entity

would count toward the lessee’s

ownership entitlement, rather than

being worded as a prohibition of leasing

in excess of ownership entitlements.

Section 426.10 in the existing

regulations, Information requirements,

would be replaced by §§ 426.17,

Landholder information requirements,

426.18, District responsibilities, and

426.24 Reclamation audits. The

proposed new § 426.10, Class 1

equivalency, would replace § 426.9 of

the existing regulations.

Substantial editorial and

organizational changes would be made

throughout this section. The only

substantive change would be in

§ 426.10(g). Provisions to this paragraph

would prohibit application of class 1

equivalency in cases where irrigation of

the land would result in hazardous or

toxic return flows. This rule would

affect existing equivalency

determinations only if the land is

reclassified for some reason.

The wording of paragraph (b) would

be changed to make clear that only

districts, and not individual

landholders, can make requests to

Reclamation for class 1 equivalency

determinations. Individual landholders

must work through their districts to

obtain class 1 equivalency.

The following examples illustrate the

application of § 426.10:

Example (1). Farmer X has a total

landholding of 1,300 acres in District A. That

acreage includes 800 acres of class 1 land,

300 acres of class 2 land, and 200 acres of

class 3 land. The equivalency factors for the

district have been determined to be: Class 1

equals 1.0, class 2 equals 1.20, and class 3

equals 1.50. Using these equivalency factors,

the following landholding in terms of class

1 equivalency would apply:

• Class 1: 800 acres divided by 1.0 equals

800 acres class 1 equivalent

• Class 2: 300 acres divided by 1.2 equals

250 acres class 1 equivalent

• Class 3: 200 acres divided by 1.5 equals

133 acres class 1 equivalent

Thus, Farmer X’s total landholding of

1,300 acres is equal to 1,183 acres of class 1

land in terms of productive capacity. It will

be necessary for him to declare the

equivalent of 223 acres of class 1 land (1,183

acres minus 960 acres), as excess and

ineligible to receive irrigation water while in

his landholding. This can be accomplished in

any combination of class 1, 2, and 3 land that

achieves the necessary result. If Farmer X

desires to maximize his actual nonexcess

acreage, he would declare 223 acres of class

1 land as excess and designate 577 acres of

class 1, 300 acres (250 acres class 1

equivalent) of class 2, and 200 acres (133

acres class 1 equivalent) of class 3 as

nonexcess and eligible to receive irrigation

water. This would result in a total of 1,077

actual acres which would equal 960 acres of

class 1 land in productive capacity. Or, he

could maximize his holding of class 1 and 2

lands by designating as nonexcess 800 acres

of class 1 land and 192 acres (192 divided by

1.2 equals 160 acres class 1 equivalent) of

class 2 land. This total landholding of 992

acres would, again, be equal in productive

capacity to 960 acres of class 1 land. In the

latter case, all 200 acres of Farmer X’s class

3 land and 108 acres of his class 2 land

would be considered excess and ineligible to

receive irrigation water in his landholding.

Example (2). A district with an existing

contract decides not to amend its contract to

conform to the discretionary provisions.

However, an individual landholder within

the district makes an irrevocable election to

conform to these provisions. The landholder

requests equivalency through the district,

and the district requests Reclamation to make

the equivalency determination for the entire

district. Under such conditions, the district

would be required to pay the United States

for the cost of making the equivalency

determination. The payment of the costs

between the landholder and the district

would be a district matter. The application of

equivalency would be available only to the

landholder(s) who exercise an irrevocable

election.

Example (3). A district decides to amend

its contract to conform to the discretionary

provisions, but it elects not to request

equivalency. Thus, individual landholders

within the district are not entitled to

equivalency until after the district makes the

equivalency request and Reclamation has

acted upon that request.

Example (4). Landholder X is a qualified

recipient who owns no land, but leases 1,100

acres in a district which has requested

equivalency. The land leased is a mix of class

1, 2, and 3 land. During the time the

equivalency determination was being made,

Landholder X would be required to pay the

full-cost water rate on 140 acres (1,100 acres

leased minus her 960-acre nonfull-cost

entitlement) if she continued to receive

irrigation water on that land. Once the

equivalency determinations had been

completed, Landholder X would be entitled

to lease the equivalent of 960 acres of class

1 land at the nonfull-cost rate (something

greater than 960 acres). Landholder X would

also be reimbursed for certain full-cost

payments made for land which became

nonfull-cost as a result of the equivalency

determination.

Example (5). Corporation Y is a limited

recipient that owns 600 acres of irrigation

land and leases another 160 acres in District

A. District A has requested and received an

equivalency determination. However,

Corporation Y was not receiving irrigation

water on or before October 1, 1981. Thus,

even with equivalency, Corporation Y would

be required to pay the full-cost water rate for

all land served in its landholding. (If

Corporation Y had been receiving irrigation

water on or before October 1, 1981, it would

have been entitled to receive irrigation water

on the equivalent of 320 acres of class 1 land

at the nonfull-cost rate. Deliveries on the

remaining 440 acres or less, depending on

application of class 1 equivalency, would be

at the full-cost rate.)

Example (6). Farmer Jones is a qualified

recipient and owns 320 acres in each of three

districts. One of those districts, District A,
Federal Register / Vol. 60, No. 63 / Monday, April 3, 1995 / Proposed Rules 16933

requests and receives an equivalency

determination. From the equivalency

determination, Farmer Jones is shown to own

the equivalent of 240 acres of class 1 land in

District A. Farmer Jones is therefore entitled

to purchase and receive irrigation water on

an additional 80 acres of irrigation land (or

the class 1 equivalent thereof in District A)

in any district. He could also lease 80 acres

(class 1 equivalent thereof in District A) in

any district and receive irrigation water on

that land at the nonfull-cost rate.

Example (7). Landholder Y owns 1,200

acres in District A and 160 acres in District

B. Landholder Y is a qualified recipient and

has designated 800 acres in District A as

nonexcess and 400 acres in District A as

excess. She has placed the 400 acres of

excess land under recordable contract so that

it can be irrigated while still in her

ownership. Subsequent to this nonexcess

land designation, District A requests and

receives an equivalency determination.

Landholder Y is then free to withdraw excess

land from recordable contract and

redesignate it as nonexcess to take advantage

of District A’s equivalency determination, as

provided in § 426.11(b) and (j)(5), if an

appraisal of the excess land has not already

been performed. The maturity date as

determined in the original recordable

contract, however, would not change.

Section 426.11 would be generally

rewritten for conciseness.

The In general section has been

deleted because the first sentence

contained a definition of excess land

redundant with that found in § 426.2.

Paragraphs (d) (2) and (3) of the

existing regulation would be merged in

paragraph (d)(2) of the proposed

regulation.

In the proposed paragraph (j)(4)(i),

paragraph (e) of the existing regulation,

the new language would make clear that

land subject to a recordable contract can

receive irrigation water at a less-thanfull O&M rate only if both the owner

and the lessee are subject to prior law.

The sentence from the current rules

allowing recordable contract land to be

selected as full-cost land was deleted

because that issue is addressed in

§ 426.6.

Paragraphs 426.11(g) and (i) of the

current rules would be deleted. These

paragraphs apply to only a very small

number of landholders who have pre1982 recordable contracts. Reclamation

proposes to not retain paragraphs in the

CFR that (1) currently apply to only a

few landholders, and (2) are likely to

become completely obsolete in the next

few years. These few landholders’

recordable contracts will continue to be

administered as provided in the existing

rule.

Paragraph 426.11(i) of the proposed

regulation, which corresponds to

paragraph 426.11(h) of the existing

regulation, would add a new paragraph

to the deed covenant language. The

proposed language would provide that

the covenant terms, which permit

removal of the covenant and eliminate

the requirement for sale price approval,

would not apply if the acquiring party

is the party who originally held the land

as excess. It should be noted that the

provisions of the deed covenant would

apply only when title to the land is

transferred. Thus, the deed covenant

would apply only to direct landowners,

and would not apply to the sale or

purchase of an indirect interest in a

legal entity that is the direct landholder.

In paragraph 426.11(e) of the

proposed regulation, which corresponds

to paragraph 426.11(k) of the current

regulation, a new provision has been

proposed. This language would permit

direct landowners to place under

recordable contract certain land

indirectly held by nonresident aliens or

legal entities not established under State

or Federal law. If such land is not

placed under a recordable contract it

would become ineligible as a result of

implementation of the proposed

regulation.

The proposed regulation would add a

new paragraph (g) which would

promote the intent of statutes

concerning the disposal of excess land

by prohibiting excess land sellers from

receiving irrigation water if they lease

back or reacquire the land either

voluntarily or involuntarily. Such lease

back or reacquisition situations,

however, would be grandfathered if the

agreement or transaction transferring the

land back to the excess land seller takes

place prior to July 1, 1995.

The proposed regulation would also

add a new paragraph (h) which would

provide for assessment of the

compensation rate (see § 426.2), which

has been Reclamation policy, and an

administrative fee (see § 426.19) if

ineligible excess land is irrigated in

violation of Federal reclamation law and

regulations.

Application of the section is

illustrated by the following examples:

Example (1). Landowner A owns 1,200

acres of irrigable land in District S. He

purchased this land before the district

entered its first repayment contract with the

United States after October 12, 1982.

Landowner A, as a qualified recipient,

designates 960 of his 1,200 acres as

nonexcess. With Reclamation approval,

Landowner A may designate the 240 acres,

which are now excess, as nonexcess and

eligible to receive irrigation water, provided

he redesignates 240 acres of presently

nonexcess land as excess.

Example (2). Landowner B is a U.S. citizen

and a qualified recipient by virtue of District

T’s contract amendment to conform to the

discretionary provisions. Landowner B

purchased 1,400 acres of irrigable land in this

district before the district entered a

repayment contract to receive an irrigation

water supply. After the district’s contract

amendment, Landowner B designates 960

acres of his land as nonexcess. Subsequent to

this designation, the district requests and

receives an equivalency determination. All

1,400 acres of Landowner B’s land is class 3

land, and in District T, 1 acre of class 1 land

is equal to 1.4 acres of class 3 land. With

equivalency, Landowner B may irrigate 1,344

acres of class 3 land in District T. Thus, he

may redesignate everything in his ownership

as nonexcess except for 56 acres. In the

future, if Landowner B sells some of this

1,344 acres of nonexcess land, he may not

designate any of the 56 excess acres as

nonexcess.

Example (3). Farmer C, who owns irrigable

land in excess of his ownership entitlement,

sells 960 acres of his excess land to Farmer

D, a qualified recipient, at a Reclamationapproved price. Farmer D owns no other

irrigable land and designates the 960 acres as

nonexcess and eligible to receive irrigation

water in his ownership. After the 10-year

period of the deed covenant expires, Farmer

D sells the 960 acres at fair market value and

purchases another 960 acres of irrigable land

located in yet another district. Farmer D

purchases the latter parcel at a Reclamationapproved price because the land was excess

in the seller’s holding. However, since

Farmer D has already reached his 960-acre

limit for recapturing the fair market value of

land purchased at a Reclamation-approved

price, the newly purchased land is not

eligible to receive irrigation water while in

his holding. In order to regain eligibility, the

land must be sold to an eligible buyer at a

Reclamation-approved price. After Farmer D

sells that land at a Reclamation-approved

price, he may purchase and receive irrigation

water on another 960 acres, provided it is

bought from nonexcess status.

Example (4). Landowner E is a resident

alien and owns 480 acres of irrigable land in

District X, which is subject to prior law.

Landowner E has designated 160 acres as

nonexcess, and it is receiving irrigation

water. Following this designation, District X

amends its contract to conform to the

discretionary provisions. As a result of the

district amendment, Landowner E satisfies

the requirements for a qualified recipient and

may designate all 480 acres owned as

nonexcess.

Example (5). Landowner F and his wife

own 1,200 acres of irrigable land in District

Y which is subject to prior law. They owned

this land even before District Y entered into

a repayment contract with the United States.

Landowner F and his wife have designated

320 acres as nonexcess and eligible to receive

irrigation water. The remaining 880 acres are

excess and ineligible to receive irrigation

water. This excess land cannot be placed

under recordable contract because the 10-

year grace period for executing recordable

contracts, as provided in the district’s

contract, has expired. Landowner F makes an

irrevocable election to conform to the

discretionary provisions. By that election,

Landowner F becomes a qualified recipient,

and is therefore entitled to redesignate 640
16934 Federal Register / Vol. 60, No. 63 / Monday, April 3, 1995 / Proposed Rules

additional acres as nonexcess. Landowner F’s

remaining 240 acres can become eligible if he

sells it to an eligible buyer at an approved

price or redesignates it, with the approval of

Reclamation, as nonexcess.

Example (6). Landowner G is a resident

alien and owns 160 acres of irrigation land

in District A. District A is subject to prior

law. Landowner G purchases an additional

160 acres which had been designated

nonexcess while in the landholding of the

seller. Since Landowner G has purchased

himself into excess status, the newly

purchased land becomes ineligible to receive

irrigation water in his holding. However, 3

weeks later, Landowner G makes an

irrevocable election. Since he meets the

requirements of a qualified recipient and

since he has become subject to the

discretionary provisions, Landowner G may

designate the newly purchased 160 acres as

nonexcess. As a qualified recipient, he may

also purchase and receive irrigation water on

another 640 acres of eligible land.

Example (7). In 1986, Landowner H bought

160 acres of irrigable land from excess status

in District Z. Landowner H, however, failed

to get sale price approval from Reclamation.

This land is ineligible for service in his

holding unless the sale is reformed at a

Reclamation-approved price. If the price is

not reformed, the 160 acres must be sold to

an eligible buyer at a Reclamation-approved

price in order to become eligible to receive

irrigation water.

Example (8). In 1980, Landowner I, a U.S.

citizen, buys 1,920 acres of land in District

U. In addition to its own water supply,

District U wishes to receive supplemental

irrigation water. Therefore, it enters into a

water service contract with the United States

on May 14, 1984. Thereby, all direct

landholders in the district automatically

become subject to the discretionary

provisions. As a qualified recipient,

Landowner I may receive irrigation water on

any 960 acres which he designates as

nonexcess. The remaining 960 acres are

excess and ineligible for service until

Landowner I places the land under

recordable contract, sells it to an eligible

buyer at a price approved by Reclamation, or

receives Reclamation approval to redesignate

the land as nonexcess. If Landowner I had

purchased the 1,920 acres from nonexcess

status in 1985, rather than before the date of

the district’s contract, he still would have

been able to designate 960 acres as nonexcess

and eligible to receive irrigation water.

However, the remaining 960 acres of excess

land would not have been eligible until sold

to an eligible buyer at a Reclamationapproved price, the sale is cancelled, or he

receives Reclamation approval to redesignate

the land as nonexcess. The excess acres

could not have been placed under recordable

contract unless irrigation water had not been

physically available when the land was

purchased.

Example (9). Landowner J is a qualified

recipient and owns 1,400 acres of irrigable

land in District Z. The landowner places 440

acres under recordable contract so that he

may receive irrigation water at the nonfullcost rate on all owned land in the district.

Subsequently, Landowner J leases the 440

acres under recordable contract to

Landowner K who is a limited recipient that

did not receive irrigation water prior to

October 1, 1981. Therefore, the full-cost rate

must be paid for irrigation water delivered to

the 440 leased acres. Leasing the land to

Landholder K does not affect other terms of

the recordable contract.

Example (10). Farmer L owns 160 acres of

irrigable land in District V and 1,000 acres in

District W. Districts V and W are both subject

to prior law, and both have fixed-rate water

service contracts which no longer cover

actual operation and maintenance costs.

Farmer L has designated the 160 acres in

District V as nonexcess and has placed the

1,000 acres in District W under recordable

contract. This means that Farmer L is able to

receive irrigation water at the contract rate on

all her owned land. Subsequently, District V

amends its contract to become subject to the

discretionary provisions. As provided in

§ 426.11(b)(1), Farmer L withdraws 800 acres

from under recordable contract and

redesignates that land as part of her 960-acre

entitlement as a qualified recipient. Since

Farmer L is now a qualified recipient, she

must pay the full operation and maintenance

costs applicable in each district for all land

in her landholding, including the 200 acres

remaining under recordable contract.

Example (11). Landowner M and his wife

are U.S. citizens and own 320 acres of

irrigation land purchased on or prior to

December 6, 1979, and designated as

nonexcess in each of Districts A, B, C, and

D. In June of 1980, Landowner M purchased

an additional 280 acres in District E. District

A amends its contract to conform to the

discretionary provisions. Landowner M and

his wife automatically and without benefit of

choice become a qualified recipient and as

such are entitled to irrigate no more than 960

acres westwide with irrigation water. Their

present ownership exceeds their 960-acre

ownership entitlement by 600 acres. Since

the 280 acres in District E were purchased

after December 6, 1979, that land was

ineligible to receive irrigation water even

under prior law. Therefore, no part of that

parcel can be placed under recordable

contract and the land remains ineligible until

sold to an eligible buyer at an approved

price, the sale is cancelled, or the land is

redesignated with Reclamation approval. The

remaining 320 excess acres, however, have

been eligible under prior law. Therefore, that

land can continue to receive irrigation water

if Landowner M either sells it to an eligible

buyer or places the land under a 5-year

recordable contract. In either case,

Landowner M can sell the land at fair market

value.

Example (12). ABC Corporation, which

was established under the laws of

Switzerland, is owned by two stockholders

who are citizens and residents of

Switzerland. The corporation owns 480 acres

of irrigation land in District X and has

designated 160 acres as nonexcess and

eligible to receive irrigation water, and the

remaining 320 acres as excess and ineligible.

District X subsequently amends its contract

to conform to the discretionary provisions.

Thereby, ABC Corporation becomes

ineligible to receive irrigation water as a

qualified recipient because it is not

established under State or Federal law.

However, since 160 acres of its land were

eligible to receive irrigation water under

prior law, this land will continue to be

eligible if it is placed under a recordable

contract or sold to an eligible buyer. The 160

acres, whether or not under recordable

contract, may be sold at fair market value;

however, the 320 acres which were excess

under prior law remain ineligible until sold

to an eligible buyer at an approved price.

Example (13). Corporation N, a foreign

corporation owned by two stockholders who

are citizens and residents of Norway,

purchased 480 acres of irrigation land in

District A. Subsequent to the purchase,

District A entered into its first contract with

the United States, thereby becoming subject

to the discretionary provisions. Corporation

N, however, is not eligible to receive

irrigation water as a qualified recipient

because it is not established under State or

Federal law. Since Corporation N’s land had

never been subject to prior law, it does not

fall under the purview of § 426.11(e)(2).

However, since the land was purchased

before the date of the district’s contract, the

corporation can receive irrigation water by

placing the land under a recordable contract

requiring Reclamation sale price approval, as

provided in § 426.11(e)(3)(i).

Example (14). Landholder O, a nonresident

alien, is the sole stockholder in Corporation

P, a qualified recipient legal entity registered

in Idaho. In 1990, Corporation P purchased

960 acres of nonexempt land in District B.

This land was all designated nonexcess

under the then-current regulations. However,

on the effective date of these regulations,

Landholder O’s ownership entitlement

decreases to 160 acres, even for indirectly

held land. The remaining 800 acres that

become excess can continue to receive

irrigation water if Corporation P places the

land under recordable contract, and the land

can be sold at fair market value and remain

eligible if sold to an eligible buyer.

Example (15). Landholder P sold 500 acres

of excess land to Landholder Q, and financed

the purchase, in 1996. In 1998, Landholder

Q defaults and Landholder P forecloses and

repossesses the land. Upon transfer of the

land’s title back to Landholder P, the land

becomes ineligible to receive irrigation water

because that transaction took place after the

effective date of these regulations.

Furthermore, Landholder P may not make

any part of the land nonexcess in his holding.

Thus, Landholder P must sell the land to an

eligible landholder at a Reclamationapproved price if it is to be eligible to receive

irrigation water.

Example (16). Landholder R sold 500 acres

of excess land to Landholder S in 1993. In

1994, Corporation T, of which Landholder R

is the sole stockholder, leases the land from

Landholder S. The land remains eligible until

the expiration or termination date of the

lease. If Corporation T renews the lease after

the effective date of these regulations, the

land becomes ineligible while the renewed

lease is in effect, because of Landholder R’s

interest in Corporation T and the renewed

agreement took effect after the effective date

of these regulations.
Federal Register / Vol. 60, No. 63 / Monday, April 3, 1995 / Proposed Rules 16935

Section 426.12. Editorial changes

would be made to the existing

regulation.

Section 426.13 in the existing

regulation, Exemptions, would be

renumbered § 426.15. The proposed

new § 426.13, Involuntary acquisition of

land, would replace § 426.16 of the

existing regulations.

Paragraph (a) would define

involuntarily acquired land. A change

would be made to paragraph (e) of this

section to reflect the changes discussed

in § 426.11 regarding the reacquisition

of formerly excess land by the party that

originally held the land as excess.

Section 426.14 in the existing

regulations, Residency, would be

deleted because residency has not been

a provision of acreage limitation law

since it was repealed by the RRA in

1982. The proposed new § 426.14,

Commingling, would replace § 426.18 of

the existing regulations. Editorial

changes would be made to the existing

regulation.

The following examples illustrate the

application of this section:

Example (1). District A has a distribution

system constructed without funds made

available pursuant to Federal reclamation

law and irrigates land therein with

nonproject surface supplies and ground

water distributed to users within the district

through its distribution system. The district

enters into a contract with the United States

for a supplemental irrigation water supply

and intends to distribute that supplemental

water through its distribution system. Only

the landholders within the district who are

eligible to receive a supply of irrigation water

as specified in § 426.14(c)(1) are subject to

reclamation law. The district is not restricted

in its use of the nonproject surface water or

ground water, and will be in compliance

with the provisions of its contract so long as

there is sufficient eligible land to receive the

Reclamation irrigation water supply.

Example (2). District A has a contract with

Reclamation for a supply of irrigation water.

Within the boundary of the district there are

several parcels of ineligible excess lands

which are not supplied with irrigation water.

Those lands are irrigated from the groundwater resources under them. If irrigation

water furnished to the district pursuant to the

contract reaches the underground strata of

these ineligible lands as an unavoidable

result of the furnishing of the irrigation water

by the district to eligible lands, the continued

irrigation of the ineligible excess lands with

that ground water shall not be deemed to be

in violation of reclamation law.

Note: Example 2 also is applicable to

the issue of unavoidable ground-water

recharge and can also serve as an

example in § 426.15.

Example (3). A district has nonproject

water available to deliver to lands considered

not eligible (ineligible) for irrigation water

under provisions of Federal reclamation law

and these regulations. To eliminate the need

to build a duplicate private conveyance

system to transport nonproject water, the

district would like to transport such water

through facilities constructed with funds

made available pursuant to Federal

reclamation law without the nonproject

water being subject to Federal reclamation

law and these regulations. If the district

agrees, with prior Reclamation approval, the

nonproject water may be commingled in

federally financed facilities and delivered to

ineligible lands if the district pays the

incremental fee, as determined by

Reclamation, for the use of the federally

financed facilities required to deliver the

nonproject water. The fee will be in addition

to the capital, operation, maintenance, and

replacement costs the district is obligated to

pay and will be based on a methodology

designed to reasonably reflect an appropriate

share of the cost to the Federal Government,

including interest, of providing the service.

Example (4). The State of Euphoria has a

water supply it wishes to transport in the

same direction and elevation as planned in

the Federal reclamation project. If

Reclamation and the State each finance their

share of the costs to construct and operate the

project, the water supply of the State will not

be subject to Federal reclamation law and

these regulations.

Example (5). District A has water rights to

divert water from a river. These water rights

are adequate to meet its requirements. It is

located immediately adjacent to a federally

subsidized facility, District B. District B is

located immediately adjacent to the river but

several miles from the Federal facility.

District B contracts with the United States for

a supply of irrigation water, but rather than

construct several miles of conveyance

facility, District B, with the approval of the

United States, contracts with District A to

allow District A’s water rights water to flow

down the river for use by District B, and the

irrigation water is in turn delivered to

District A. District A is not subject to Federal

reclamation law and these regulations by

virtue of this exchange, provided it does not

materially benefit from that exchange.

District B, however, is subject to Federal

reclamation law and these regulations since

it is the beneficiary of the exchange, i.e. a

water supply.

Section 426.15 in the existing

regulation, Religious and charitable

organizations, would be renumbered

§ 426.8. The proposed new § 426.15,

Exemptions and exclusions, would

replace § 426.13 of the existing

regulation.

This section would be rewritten for

editorial changes and clarification.

Paragraph (f) would be added to make

clear that the RRA is not applicable to

Indian trust or restricted lands.

It should be noted that a given

contract action could be considered an

additional or supplemental benefit

pursuant to § 426.3 of this proposed

regulation even though it neither

invokes nor extends the application of

acreage limitation laws in general. For

example, Rehabilitation and Betterment

Act contracts are considered additional

and supplemental benefits under § 426.3

even though they would neither extend

nor reinstate the application of acreage

limitations, as provided in § 426.15.

Section 426.16 in the existing

regulation, Involuntary acquisition of

land, would be renumbered § 426.13.

The proposed new § 426.16, Small

reclamation projects, would replace

§ 426.21 of the existing regulation.

The only substantive changes that

would be made to this section are in

paragraph (a). A phrase would be added

to reflect the fact that Small

Reclamation Projects Act loans would

be considered additional and

supplemental benefits as provided in

§ 426.3 of the new regulation. In

addition, language has been added to

reflect Title III of Pub. L. 99–546 and its

effect of reducing the acreage limitation

entitlements from 960 to 320 acres for

districts that enter into a new SRPA

contract or amend their SRPA contract

after October 27, 1986.

Section 426.17 in the existing

regulation, Land held by governmental

agencies, would be renumbered § 426.9.

The proposed new § 426.17, Landholder

information requirements, would

replace, in part, § 426.10 of the existing

regulation.

This section would be rewritten to

address only the certification and

reporting requirements of landholders.

A new definition paragraph and section

regarding district responsibilities

(§ 426.18) would be added. This section

would clarify district certification and

reporting requirements. In addition, a

new section concerning Reclamation

audits (§ 426.24) would be added.

References to the contents of the

certification and reporting forms would

be deleted because a comprehensive list

of these contents would be too unwieldy

for these regulations, and a partial list

would be inappropriate.

A paragraph on eligibility would be

added stating that landholders that have

not filed the required forms are not

eligible to receive irrigation water. The

phrase must not accept delivery of

would be added to make clear that the

landholder, as well as the district, is

responsible for water deliveries in the

absence of the required forms.

Wholly-owned subsidiaries would be

specifically exempted from forms

requirements, provided the ultimate

parent legal entity has met its forms

requirement.

The 40-acre certification and

reporting exemption threshold would be

replaced with a new system which

would permit higher exemption

thresholds for landholders in districts

that meet the following requirements:
16936 Federal Register / Vol. 60, No. 63 / Monday, April 3, 1995 / Proposed Rules

district conformance by contract with

the discretionary provisions; the

district’s financial obligations are not

delinquent; and the district has entered

into a formal resources management

partnership with Reclamation. Districts

that meet the requirements would be

granted Category 1 status. Category 1

districts would be allowed exemption

thresholds as high as 240 acres for

qualified recipients and 80 acres for

some limited recipients. The specific

threshold for a district would be

determined and documented in the

partnership agreement with the district,

based on factors such as the resources

management objectives of the

partnership and the achievements of the

district(s) under the partnership.

Landholders in districts which have not

formed formal partnerships with

Reclamation or do not meet the other

two criteria, would remain in Category

2 status. Such districts would be subject

to an 80-acre exemption threshold for

qualified recipients and a 5-acre

threshold for all limited recipients. For

both categories, the exemption

threshold for prior law recipients

remains set at 40 acres.

The following examples illustrate the

application of this section:

Example (1). Landholder A failed to submit

the required certification forms to District X

in 1994 and 1995. District X delivered, and

Landholder A accepted delivery of, irrigation

water in those years. Landholder A submitted

certification forms for 1996; however,

Landholder A’s landholding is not eligible to

receive irrigation water until he submits the

necessary forms for 1994 and 1995.

Example (2). Corporation A, which is

registered in Venezuela, owns 100 percent of

the stock of Corporation B, which is

registered in Iowa. Corporation B, in turn,

owns 100 percent of the stock in

Corporations C and D, each of which are

registered in Arizona and own and irrigate

nonexempt land in two different Arizona

irrigation districts. The landholdings exceed

applicable certification and reporting

exemption thresholds. Corporation A, as a

prior law parent legal entity, must submit

reporting forms to both Arizona districts. The

forms must describe the corporate structure

and Corporation A’s entire landholding,

including those of its subsidiaries.

Furthermore, any stockholders of

Corporation A that exceed applicable

reporting thresholds must submit the

necessary forms in order for the landholding

to be eligible. Corporations B, C, and D are

not required to file.

Example (3). In September 1996, the

management of District A enters into a formal

partnership agreement with Reclamation to

improve resources management in the

district. The district and Reclamation agree to

develop an integrated resources management

plan and develop and implement an

incentive pricing mechanism for the district.

As part of the close working relationship

with the district and the information

generated by the partnership, and the fact

that the other two requirements specified in

§ 426.17(h) have been met, the Regional

Director determines that a 240-acre reporting

threshold would be appropriate for qualified

recipients in the district and an 80-acre

threshold would be appropriate for limited

recipients who first received irrigation water

on or before October 1, 1981. The partnership

agreement establishes these thresholds as

part of Category 1 status for the district.

Example (4). Landholder A is a qualified

recipient who leases 120 acres in District X

and 40 acres in District Y. For 1997, District

X achieves Category 1 status, but District Y

does not. Landholder A is therefore subject

to Category 2 thresholds and must certify in

both districts in 1997 because his total

landholding exceeds the 80-acre qualified

recipient threshold of Category 2.

Example (5). Bank Y is a limited recipient

and has 12,000 acres of involuntarily

acquired excess landholdings, some of which

are located in Category 2 districts. Bank Y

has also designated 500 acres as nonexcess.

Stockholder A, a qualified recipient, owns a

15 percent interest in Bank Y. Thus,

Stockholder A is attributed with 1,800 acres

of involuntarily acquired excess land and 75

acres of nonexcess land. The fact that most

of its landholdings are involuntarily acquired

does not afford Bank Y with any exemption

with respect to certification thresholds;

therefore, Bank Y is subject to Category 2

thresholds and must file certification forms.

Stockholder A need not consider the bank’s

involuntarily acquired excess land in

determining whether she is required to

certify, but she must consider the 75 acres of

attributed nonexcess land. Because she has

not exceeded the 80-acre threshold

applicable to qualified recipients in Category

2 districts, she is not required to file.

However, had Stockholder A exceeded a

certification or reporting threshold, she

would have been required to include all land

attributed to her, including that land

involuntarily acquired, on her RRA form(s).

Example (6). Corporation E leases 640

acres in a Category 1 district which has a

partnership agreement with Reclamation

specifying 80 acre and 200 acre thresholds

for limited and qualified recipient,

respectively. Corporation E is 90 percent

owned by Corporation F, 5 percent owned by

Corporation G, and 5 percent owned by

Farmer B. Corporations E and F are limited

recipients that did not receive irrigation

water on or before October 1, 1981.

Corporation G is a limited recipient that

received irrigation water on or before October

1, 1981, but currently has no landholding

outside of Corporation E. Farmer B is a

qualified recipient who also directly owns

320 nonexempt acres in the same district.

Corporations E and F must both file because

both have exceeded the applicable 5-acre

threshold, and because Corporation E is not

wholly owned by Corporation F. Corporation

G need not file because it is subject to an 80-

acre threshold, as specified in the district’s

partnership agreement with Reclamation.

Farmer B must file because he has exceeded

the applicable 200-acre threshold also

specified in the district’s partnership

agreement with Reclamation.

Example (7). Farmer C owns 440 acres in

a Category 1 district. After the district’s last

delivery in 1996, Farmer C buys another 40-

acre parcel in the same district. Farmer C

need not submit new forms until the start of

the next irrigation season.

Section 426.18 in the existing

regulation, Commingling, would be

renumbered § 426.14. The proposed

new § 426.18, District responsibilities,

would replace, in part, § 426.10 of the

existing regulation. This new section

would be added to clarify the role of

irrigation contracting entities in RRA

administration and enforcement.

Because this issue has caused some

confusion and controversy in the past,

it is considered desirable to explicitly

establish district responsibilities in

these proposed regulations.

The proposed changes to provisions

of this section would be nonsubstantive,

except the number of years districts will

be required to retain expired RRA forms

will be increased from 3 to 6 years.

Some existing Reclamation policy not

contained in the existing regulation,

however, would be included. The

proposed section would be included to

help prevent future misunderstandings

about districts’ roles in RRA

administration.

The application of this rule is

illustrated by the following examples:

Example (1). Landholder A submitted to

District X a certification form in 1988, then

filed verification forms each year through

1993. He then filed a new certification form

in March 1994. District X must retain

Landholder A’s 1988 certification form

through March 2000; thereafter, it may be

destroyed by the district.

Example (2). Same facts as Example 1,

except that in October 1999 a Reclamation

audit team requests that Landholder A’s 1988

certification form be retained until January

2001. The district must retain the form until

that date.

Example (3). Landholder B submitted to

District X a certification form in 1985, and

has submitted verification forms each year

thereafter. District X must retain Landholder

B’s 1985 certification form as long as he

continues to verify each year and, if he

submits a new certification form, for 6 years

thereafter.

Example (4). District Y delivers 2,000 acrefeet of irrigation water to Farmer C in 1996

at the contract rate of $10 per acre-foot. It is

subsequently found that Farmer C used 100

acre-feet of that water to irrigate excess land.

Therefore, the payments made by District Y

to the United States for the water used to

irrigate the excess land ($1,000) must be

deposited into the Reclamation fund and not

credited toward any obligation of District Y

to the United States.

Section 426.19 of the existing

regulation, Water conservation, would

be deleted as water conservation would

be the topic of a new regulation, part

427. The proposed new § 426.19,
Federal Register / Vol. 60, No. 63 / Monday, April 3, 1995 / Proposed Rules 16937

Assessment of administrative costs,

would replace § 426.24 of the existing

regulation.

The only proposed substantive change

from the existing regulation would be to

add irrigation of ineligible excess land

as a violation subject to assessment of

an administrative fee. Reclamation will

base any changes to the assessment

amount on Reclamation’s costs for field

observation; information analysis;

communication with district

representatives and landholders

regarding possible cases of irrigation of

ineligible excess land, or obtaining

missing or corrected forms; assistance to

landholders in completing certification

or reporting forms for the period of time

they were not in compliance with the

form requirements; performance of

onsite visits to determine if irrigation

water deliveries have been terminated to

landholders that failed to submit the

required forms or that irrigated

ineligible excess land; and performance

of other activities necessary to address

form and excess land violations.

The following examples illustrate the

application of this section:

Example (1). ABC Corporation holds

irrigable land in District Y and in District Z

and has three shareholders (Farmers A, B,

and C). In both 1992 and 1993, ABC

Corporation and each shareholder filed

certification forms prior to receiving

irrigation water in these districts. However,

in each year, Reclamation found several

errors on the forms the three shareholders

had submitted in each district. The districts

were given 60-calendar days in which to

have the forms corrected and returned to

Reclamation. All the corrected forms were

returned by the designated due date, except

for Farmer C’s. Districts Y and Z will each

be assessed a fee of $520 ($260 for each of

the 1992 and 1993 water years) because

Farmer C’s forms were not corrected and

returned within the specified time period.

Example (2). Farmer X owns 560 acres and

leases 400 acres in District A. Each year,

Farmer X submitted certification forms to the

district prior to receipt of irrigation water.

However, Reclamation found that in 1992

and 1993, Farmer X had reported all of his

owned land on his form but only 150 of his

400 leased acres. Reclamation determines

that this omission of information is not an

attempt to defraud the Federal Government.

Accordingly, the district will be required to

obtain a corrected form, and if this is not

accomplished in 60-calendar days, it will be

assessed a fee of $520 ($260 for 1992, and

$260 for 1993.)

Example (3). Farmer X and his wife, who

are prior law recipients, own 480 acres in

District A. None of the 160 acres in excess

of the couple’s 320-acre ownership

entitlement was under recordable contract, as

set forth in § 426.11, or otherwise eligible to

receive irrigation water. However,

Reclamation found that irrigation water had

been delivered to the 160 excess acres in both

1992 and 1993. For the irrigation water

delivered in these 2 years, District A will be

assessed the compensation rate as set forth in

§ 426.11(h). An additional fee of $520 will

also be assessed to the district ($260 each for

1992 and 1993)

Section 426.20 of the existing

regulation, Public participation, would

be renumbered § 426.21. The proposed

new § 426.20, Interest on

underpayments, would replace § 426.23

of the existing regulation.

A definition of underpayment is

proposed as paragraph (a), and other

editorial changes from the existing

regulation would be made for clarity

and organization.

Section 426.21 of existing regulation,

Small reclamation projects, would be

renumbered § 426.16. The proposed

new § 426.21, Public participation,

would replace § 426.20 of the existing

regulation.

The only substantive change made

would be in paragraph (8) of the current

rule, which would be replaced by

paragraph (b) of the proposed rule, to

delete the 60-day public comment

period. The existing provision reduces

Reclamation’s flexibility to base the

comment period on specific

circumstances and is not a statutory

requirement.

Section 426.22 of the existing

regulation, Decisions and appeals,

would be renumbered § 426.23. The

proposed new § 426.22, Recovery of

operation and maintenance (O&M)

costs, would replace § 426.8 of the

existing regulation.

This section would be rewritten for

clarity. The proposed language would

contain no substantive changes to

existing policy.

Section 426.23 of the existing

regulation, Severability, would be

renumbered § 426.25. The proposed

new § 426.23, Agency decisions and

appeals, would replace § 426.22 of the

existing regulation.

This section would be rewritten to

streamline the appeals process and to

enhance the protection of parties who

may be adversely affected by RRArelated decisions.

The proposed language would require

the appropriate regional director to

make initial agency decisions. It would

provide flexibility to the regional

director in establishing the effective

date of the initial decision, and would

protect landholders by providing for a

10 calendar day delay before deliveries

of water are terminated. Furthermore,

affected parties would be able to request

reconsideration of the initial decision.

The proposed language would permit

regional directors to notify potentially

affected parties if appropriate, and

would allow any impacted party to use

the appeal process whether or not the

regional director gave notice of the

particular agency decision. Parties who

were not notified would have a longer

period of time to initiate the appeals

process than would parties who were

notified of an initial decision. The

proposed rules would also allow

affected parties to request a stay of the

regional director’s initial decision while

it is being reconsidered.

Following reconsideration by the

regional director, affected parties would

have the opportunity to appeal the final

agency action directly to the Department

of the Interior’s Office of Hearings and

Appeals. This change would streamline

the review process by eliminating the

Commissioner level of review provided

by the existing regulation.

The proposed language would also

provide for retroactive application of

decisions (which is current practice)

and application of the compensation

rate in cases of illegal irrigation water

deliveries.

The proposed language would

validate any decisions made under the

existing appeals process, and provide

that appeals pending as of the effective

date of the new regulation would be

processed under the existing regulation.

Completion of this administrative

appeals process would be required

before parties may file suit in court

regarding final agency determinations

pursuant to part 426.

Section 426.24. The proposed

§ 426.24, Reclamation Audits, would

replace § 426.10(i) of the existing

regulation.

Section 426.25. The proposed

§ 426.25, Severability, would replace

§ 426.24 of the existing regulations.

Description and Analysis of Part 427

Reclamation has a major

responsibility, in partnership with water

users, States, Indian tribes, and other

interested parties, to help improve water

management and the efficiency of water

use in nearly every major river basin in

the Western United States. Water

conservation measures can improve

reliability and reduce costs for water

users, and under some circumstances

yield water for additional agricultural,

urban, or environmental needs.

Opportunities for additional water

conservation and efficiency

improvements vary from system to

system depending on factors such as

delivery and storage facilities,

operational practices, existing

conservation measures, and the use or

destination of ‘‘non-conserved’’ water

(i.e., downstream appropriators, riparian

habitat, groundwater recharge, estuary

inflow, evaporation, etc.). To be most
16938 Federal Register / Vol. 60, No. 63 / Monday, April 3, 1995 / Proposed Rules

effective, water conservation measures

must be evaluated on a site-specific

basis and must be tailored to the

circumstances of each water system and

its local environment.

Preparation and implementation of

water conservation plans by recipients

of Reclamation project water is one

aspect of Reclamation’s overall water

conservation program. Improvements in

water management on Federal projects

can reduce overall operating costs,

improve reliability of existing water

supplies, postpone the need for new or

expanded water supplies, and reduce

the impacts of drought.

The RRA challenges those who

contract for Federal project water

supplies to develop water conservation

plans that examine existing water

management practices, evaluate

alternative water management strategies,

and implement appropriate water

conservation measures. A thoughtfully

developed water conservation plan

represents an opportunity for every

district to identify water management

problems, evaluate opportunities,

highlight accomplishments, and plan for

improvements.

These rules and regulations prescribe

the requirements for preparation and

submittal of water conservation plans

prepared by water districts and other

entities that contract with the United

States for a supply or storage of water

under Federal reclamation law, the

Small Reclamation Projects Act, the

Water Conservation and Utilization Act,

or the Warren Act.

Section 427.1 explains the purpose of

these rules and regulations, § 427.2

describes conservation plan

requirements, and § 427.3 describes

incentives for preparing adequate water

conservation plans.

Section 427.4 references additional

information that will be available from

Reclamation in the form of Technical

Guidelines and Criteria for Water

Conservation Plans (Guidelines and

Criteria). These Guidelines and Criteria

describe the standards and process

which Reclamation will use to evaluate

district water conservation plans,

describe the schedule and process for

submitting plans, provide information

on environmental compliance, suggest

specific plan elements, and identify

water conservation measures for

evaluation and inclusion in district

water conservation plans.

The Guidelines and Criteria are

currently undergoing a public review

that began on January 10, 1995 and will

end on April 10, 1995. Upon completion

of this review period, Reclamation

intends to finalize the Guidelines and

Criteria as guidance in the development

and approval of water conservation

plans.

Although the Guidelines and Criteria

are not part of the proposed rules and

regulations, they were included as part

of the proposed rule alternative in the

draft EIS. This allowed an evaluation of

the proposed rules in combination with

the Guidelines and Criteria. Although

page 2–18 of the draft EIS states that the

Guidelines and Criteria are included as

an appendix to the rules, it was decided

it was not necessary to print the

Guidelines and Criteria with the

proposed rules. A copy of the

Guidelines and Criteria may be obtained

by calling Mr. Craig Phillips at (303)

236–1061 ext. 265 or by contacting any

Bureau of Reclamation Regional Office.

Public Comment

Public comment is solicited on all

aspects of this proposed rulemaking.

Reclamation will consider all comments

received. All those wishing to make

comments are advised that, pursuant to

the Administrative Procedure Act (5

U.S.C. 551, 553), all information

provided to Reclamation will be

available for public inspection.

To assist Reclamation in compiling

and analyzing comments, it is requested

that comments be grouped according to

the two separate parts (i.e, part 426 and

427) of the proposed rule. However, it

is not required that comments be so

organized.

Oral comments on the proposed rules

will be accepted at public hearings

which will be conducted in April 1995

on the proposed rules and regulations

and on the draft EIS which evaluates

these proposed rules and regulations.

Hearings will be announced in a

separate Federal Register notice.

National Environmental Policy Act

In compliance with the NEPA, a draft

EIS has been prepared which analyzes

the impacts of these proposed rules and

regulations and alternatives thereto. The

draft EIS includes a no action

alternative, a preferred alternative

(which is the proposed rule), and three

additional alternatives encompassing a

range of potential rules and regulations.

The draft EIS is being published and

distributed for public review concurrent

with the publication of these proposed

rules and regulations.

Environmental Compliance, Review,

and Consultation Requirements

The EIS and related coordination

activities described below will provide

full compliance for the promulgation of

final rules and regulations. However,

any future actions taken pursuant to

final rules and regulations by the

Federal government or by contracting

entities (e.g., irrigation districts,

drainage districts, municipal and

industrial water districts, etc.) shall be

subject to the requirements of all

applicable Federal environmental laws

including, but not limited to, the NEPA,

the Endangered Species Act, the Fish

and Wildlife Coordination Act, the

Clean Water Act, and the National

Historic Preservation Act, and laws

relating to Indian treaty and trust

reponsibilities.

This EIS has been prepared

concurrently with environmental review

and consultation required by Federal

environmental law other than NEPA, as

required by 40 CFR 1502.25.

Compliance with specific

environmental review and consultation

requirements is described below.

Fish and Wildlife Coordination Act (16

U.S.C. 661, et seq.)

The Fish and Wildlife Coordination

Act (FWCA) requires Federal agencies to

consult with the Fish and Wildlife

Service, National Marine Fisheries

Service (as applicable), and state

wildlife agencies during the planning of

new projects and for modifications to

existing projects (e.g., whenever the

waters of any stream or other body of

water are proposed or authorized to be

impounded, diverted, the channel

deepened, or the stream or other body

of water otherwise controlled or

modified for any purpose whatever) so

that wildlife resources receive equal

consideration along with other project

objectives and features.

Compliance with the FWCA requires:

(1) Consultation, (2) opportunity for the

Fish and Wildlife Service, the National

Marine Fisheries Service, and the State

wildlife agency to report, (3)

consideration of FWCA report

recommendations, (4) incorporation of

justifiable wildlife features into a

recommended plan or action, and (5)

incorporation of the FWCA report as an

integral part of the decision making

package submitted to Congress or to any

agency or person having the authority

by administrative action to authorize

construction of a project or modification

of a previously authorized project.

In meetings and correspondence

between Reclamation and the Fish and

Wildlife Service, the National Marine

Fisheries Service, and State wildlife

agencies, it was agreed that a formal

FWCA report would not be required for

this rulemaking. Rather, coordination

efforts with the Fish and Wildlife

Service, the National Marine Fisheries

Service, and State wildlife agencies

were handled by those agencies

providing technical assistance to
Federal Register / Vol. 60, No. 63 / Monday, April 3, 1995 / Proposed Rules 16939

Reclamation, which assistance has been

appropriately documented. Detailed

FWCA coordination and formal reports

will be accomplished for specific sites

in the future as the need and

opportunity arises (e.g., amendment or

renewal of specific repayment or water

service contracts which are subject to

these regulations).

The EIS that accompanies this

proposed rulemaking contains a

description of the general FWCA

compliance process and makes the

commitment to deal with site-specific

issues as they come up in the future

when a site-specific Federal action is

taken. The EIS does not satisfy the sitespecific need for future compliance with

the FWCA.

Endangered Species Act (16 U.S.C.

1521, et seq.)

The objective of the Endangered

Species Act (ESA) is to provide a means

whereby the ecosystem upon which

endangered species and threatened

species depend may be conserved and

to provide a program for the

conservation of such species. It is

further stated in the ESA that it is the

policy of the Congress ‘‘that all Federal

Departments and agencies shall seek to

conserve endangered species and

threatened species and shall utilize their

authorities in furtherance of the

purposes of the Act.’’ The ESA further

states that ‘‘Federal agencies shall

cooperate with state and local agencies

to resolve water resource issues in

concert with conservation of

endangered species.’’

Section 7 of the ESA establishes the

interagency cooperation program under

which Federal agencies have their

primary compliance responsibilities. In

meetings between Reclamation and the

Fish and Wildlife Service and National

Marine Fisheries Service, it was agreed

that the way to comply with the ESA for

the purposes of this rulemaking would

be to use section 7(a)(1) of the ESA and

describe, in broad terms, the general

effects of actions associated with new or

revised regulations. Thus, Reclamation

initiated informal ESA consultation on

a broad spectrum basis and requested a

list of federally proposed or listed

threatened, endangered, and candidate

species from the Fish and Wildlife

Service and the National Marine

Fisheries Service.

A tiering process will be used down

to a level more appropriate to section

7(a)(2) of the ESA, whereby consultation

will be initiated if and when sitespecific analyses becomes necessary,

such as with the amendment or renewal

of specific repayment or water service

contracts. The EIS indicates that if

Reclamation consults under Section 7 of

the ESA, individual landowners will not

have to go through Section 10

compliance on their own.

National Historic Preservation Act (15

U.S.C. 470, et seq.)

The National Historic Preservation

Act of 1966, (NHPA), as amended, is the

basic Federal law governing

preservation of cultural resources of

national, regional, state, and local

significance. Specifically, section 106 of

the NHPA requires each Federal agency

to consider the effect of its actions on

‘‘any district, site, building, structure or

object that is included in or eligible for

inclusion in the National Register’’.

Furthermore, an agency must afford the

Advisory Council on Historic

Preservation, an independent Federal

agency created by the National Historic

Preservation Act, an opportunity to

comment on any of the agency’s

undertakings that could affect historic

properties. Procedures for meeting

section 106 requirements are defined in

Federal regulations 36 CFR part 800.

Other Federal legislation further

promotes and requires the protection of

historic and archaeological resources by

the Federal government. Among these

laws are the Archaeological Resources

Protection Act and the Native American

Graves Protection and Repatriation Act.

Informal consultation with the

Advisory Council on Historic

Preservation to apprise them that this

rulemaking has been initiated. The draft

EIS will be sent to the Council and the

17 western State Historic Preservation

Offices for official comment. Procedures

prescribed in 36 CFR part 800 will be

followed for future site-specific Federal

actions pursuant to these rules that

trigger compliance under NHPA.

Regulatory Flexibility Act

The Regulatory Flexibility Act

requires that a regulatory flexibility

analysis, describing the impact of

regulations on small entities be

prepared and published if proposed

regulations will have a significant

economic effect on a substantial number

of small entities. It has been determined

that this proposed rule will not have a

significant economic impact on a

substantial number of small entities.

Consequently, a regulatory flexibility

analysis has not been prepared.

Paperwork Reduction Act

Sections 206, 224(c), and 228 of the

RRA (43 U.S.C. 390ff, 390ww(c), and

390zz) require, among other things, that

(1) as a condition to the receipt of

Reclamation irrigation water, each

landholder must certify, in a form

suitable to the Secretary, that they are in

compliance with the provisions of the

Act, and (2) districts must annually

submit to Reclamation, in a form

suitable to the Secretary, records and

information necessary to implement the

RRA. These requirements are presently

promulgated in 43 CFR 426.10. To

comply with these requirements,

Reclamation provides forms for the

landholders’ and districts’ use. The

existing landholder forms have been

approved by the Office of Management

and Budget (OMB) under clearance

number 1006–0005. This clearance

expires on October 31, 1995. The

district summary forms have been

approved under clearance number

1006–0006; that clearance expires on

July 31, 1995.

This proposed rulemaking contains a

change to the existing § 426.10 that

would reduce the reporting burden by

raising the acreage threshold for which

certification and reporting forms are

required. The estimated average annual

paperwork reduction which would

occur if the proposed revisions to

§ 426.10 are made final is about 3100

hours per year westwide. It is estimated

that the proposed rule’s changes to the

definition of what constitutes a lease

will cause a slight increase of burden

hours for farm operators who do not

now have to complete forms. The net

reduction would be approximately 3000

hours per year westwide and will

reduce the paperwork burden by about

20 percent compared to current

requirements, which are approximately

14,400 hours.

Section 427.2 of the proposed water

conservation rules require that water

districts and other entities prepare and

submit water conservation plans.

Reclamation will be requesting OMB

approval for collection of information

contained in water conservation plans

consistent with the requirements of the

Paperwork Reduction Act.

Executive Order 12866

Under Executive Order 12866, (58 FR

51735 Oct. 4, 1993), an agency must

determine whether a regulatory action is

significant and therefore subject to

Office of Management and Budget

(OMB) review and the requirements of

the Executive Order. It has been

determined that this proposed rule is a

significant regulatory action within the

meaning of the Executive Order.

Executive Order 12612, Federalism

This rule has no significant impact on

Federalism under Executive Order

12612. The regulations affect State/

Federal relations in three ways, none of

which are significant. First, while the
16940 Federal Register / Vol. 60, No. 63 / Monday, April 3, 1995 / Proposed Rules

rules involve state water, consistent

with section 8 of the Reclamation Act of

1902, 43 U.S.C. 383, these regulations

do not affect state control of irrigation

water rights. Second, the rules relate

extensively to state organized irrigation

districts. However, these proposed

regulations would serve to clarify the

existing Reclamation-district

relationship and would not affect a

significant change in policy. Finally,

while the regulations address the

commingling of Reclamation and nonreclamation water, the rules do not

change existing policy.

Executive Order 12630, Takings

This proposed rule has been reviewed

under Executive Order 12630 to

determine the takings implications of

the proposed rule. Because districts and

individual water users hold only

contractual rights to services provided

by Reclamation and the proposed rule

would have only a de minimus impact

on the value of any Constitutionallyprotected property right if such right

exists, it has been determined that this

proposed rule does not present a

significant risk of a taking.

Authorship: The primary authors of these

proposed regulations are Gary Anderson, J.

William McDonald, Richard Rizzi, and Rusty

Schuster, Program Analysis Office, Bureau of

Reclamation; however, much of the

substance of the regulations was developed

by RRA and water conservation experts

throughout Reclamation.

List of Subjects in 43 CFR Part 426 and

43 CFR Part 427

Administrative practice and

procedure, Irrigation, Reclamation,

Reporting and record keeping

requirements.

Dated: March 22, 1995.

Elizabeth Ann Rieke,

Assistant Secretary—Water and Science.

For the reasons stated in the

preamble, it is proposed that 43 CFR

part 426 be revised as follows and that

43 CFR part 427 be added as follows:

Part 426 is revised to read as follows:

PART 426—ACREAGE LIMITATION

RULES AND REGULATIONS

Sec.

426.1 Purpose.

426.2 Definitions.

426.3 Conformance to the discretionary

provisions.

426.4 Attribution of land.

426.5 Ownership entitlement.

426.6 Leasing and full-cost pricing.

426.7 Trusts.

426.8 Religious or charitable organizations.

426.9 Public entities.

426.10 Class 1 equivalency.

426.11 Excess land.

426.12 Excess land appraisals.

426.13 Involuntary acquisition of land.

426.14 Commingling.

426.15 Exemptions and exclusions.

426.16 Small reclamation projects.

426.17 Landholder information

requirements.

426.18 District responsibilities.

426.19 Assessment of administrative costs.

426.20 Interest on underpayments.

426.21 Public participation.

426.22 Recovery of operation and

maintenance (O&M) costs.

426.23 Agency decisions and appeals.

426.24 Reclamation audits.

426.25 Severability.

Authority: 5 U.S.C. 301; 5 U.S.C. 553; 16

U.S.C. 590z–11; 31 U.S.C. 9701; and 32 Stat.

388 and all acts amendatory thereof or

supplementary thereto including, but not

limited to, 43 U.S.C. 390aa to 390zz–1, 43

U.S.C. 418, 43 U.S.C. 423 to 425b, 43 U.S.C.

431, 434, 440, 43 U.S.C. 451 to 451k, 43

U.S.C. 462, 43 U.S.C. 485 to 485k, 43 U.S.C.

491 to 505, 43 U.S.C. 511 to 513, and 43

U.S.C. 544.

§ 426.1 Purpose.

These rules and regulations

implement certain provisions of Federal

reclamation law that address the

ownership and leasing of land on

Federal Reclamation irrigation projects,

the pricing of Federal Reclamation

project irrigation water, and establish

terms and conditions for the delivery of

Federal Reclamation project irrigation

water.

§ 426.2 Definitions.

As used in these rules:

Acreage limitation entitlements

means the ownership and nonfull-cost

entitlements.

Acreage limitation provisions means

the ownership limitations and pricing

restrictions specified in Federal

reclamation law, including but not

limited to, sections 203(b), 204, and 205

of the Reclamation Reform Act of 1982

(43 U.S.C. 390aa et seq.).

Acreage limitation status means

whether a landholder is a qualified

recipient, limited recipient, or prior law

recipient.

Commissioner means the

Commissioner of the Bureau of

Reclamation, U.S. Department of the

Interior.

Compensation rate means a water rate

applied, in certain situations, to water

deliveries to ineligible land that are not

discovered until after the delivery has

taken place. The compensation rate is

equal to the established full-cost rate

that would otherwise apply to the

landholder.

Contract means any repayment or

water service contract or agreement

between the United States and a district

providing for the payment to the United

States of construction charges and

normal operation, maintenance, and

replacement costs under Federal

reclamation law, even if the contract

does not specifically identify the

portion of the payment that is to be

attributed to operation and maintenance

and that is to be attributed to

construction. This definition includes

contracts made in accordance with the

Distribution System Loans Act, as

amended (43 U.S.C. 421).

Contract rate means the assessment as

set forth in a contract that is to be paid

by a district to the United States, and

recomputed if necessary on a per acre or

per acre foot basis.

Dependent means any natural person

within the meaning of the term

dependent in the Internal Revenue Code

of 1954 (26 U.S.C. 152) and any

subsequent amendments.

Direct when used in connection with

the terms landholder, landowner, lessee,

lessor, or owner, means that the party is

the owner of record or the lessee of a

land parcel, as appropriate. However,

landholdings of joint tenants and

tenants-in-common will not be

considered direct under these

regulations.

Discretionary provisions refers to

sections 390cc through 390hh, except

for 390cc(b), of the Reclamation Reform

Act of 1982, (43 U.S.C. 390aa et seq.).

District means any individual or any

legal entity established under State law

that has entered into a contract or can

potentially enter into a contract with the

United States for irrigation water service

through federally developed or

improved water storage and/or

distribution facilities.

Eligible, except where otherwise

provided, means permitted to receive an

irrigation water supply from a Bureau of

Reclamation project under applicable

Federal reclamation law.

Entity, see definition of legal entity.

Excess land means nonexempt land

that is in excess of the landowner’s

maximum ownership entitlement under

the applicable provisions of Federal

reclamation law.

Exempt, except where otherwise

provided, means not subject to the

acreage limitation provisions of Federal

reclamation law.

Extended recordable contract means a

recordable contract whose term was

extended due to moratoriums on the

sale of excess land that were established

in 1976 and 1977.

Full cost or full-cost rate means an

annual rate established by the Bureau of

Reclamation that amortizes the

expenditures for construction properly

allocable to irrigation facilities in

service, including all operation and
Federal Register / Vol. 60, No. 63 / Monday, April 3, 1995 / Proposed Rules 16941

maintenance deficits funded, less

payments, over such periods as may be

required under Federal reclamation law,

or applicable contract provisions.

Interest will accrue on both the

construction expenditures and funded

operation and maintenance deficits from

October 12, 1982, on costs outstanding

at that date, or from the date incurred

in the case of costs arising subsequent

to October 12, 1982. The full-cost rate

includes actual operation, maintenance,

and replacement costs required under

Federal reclamation law.

Full-cost charge means the full-cost

rate less the actual operation,

maintenance, and replacement costs

required under Federal reclamation law.

Indirect, when used in connection

with the terms landholder, landowner,

lessee, lessor or owner, means that such

party is not the owner of record or the

lessee of a land parcel, but that such

party has a beneficial interest in the

legal entity that is the owner of record

or the lessee of a land parcel.

Landholdings of joint tenants and

tenants-in-common will be considered

indirect under these regulations.

Individual means any natural person,

including his or her spouse, and

including other dependents; provided

that, under prior law, the term

individual does not include a natural

person’s spouse or dependents.

Ineligible, except where otherwise

provided, means not permitted to

receive an irrigation water supply under

applicable Federal reclamation law

regardless of the rate paid for such

water.

Intermediate entity means an entity

that is a part owner of another entity

and in turn is owned by others, either

another entity or individuals.

Involuntary acquisition means land

that is acquired through an involuntary

foreclosure or similar involuntary

process of law, conveyance in

satisfaction of a debt (including, but not

limited to, a mortgage, real estate

contract or deed of trust), inheritance, or

devise.

Irrevocable election means the legal

instrument that a landholder executes to

become subject to the discretionary

provisions of Federal reclamation law.

Irrevocable elector means a

landholder who makes an irrevocable

election to conform to the discretionary

provisions of Federal reclamation law.

Irrigable land means land so classified

by the Bureau of Reclamation under a

specific project plan for which irrigation

water is, can be, or is planned to be

provided, and for which facilities

necessary for sustained irrigation are

provided or are planned to be provided.

Irrigation land means any land

receiving irrigation water in a given

water year, except for land that has been

specifically exempted by statute or

administrative action from the acreage

limitation provisions of Federal

reclamation law.

Irrigation water means water made

available for agricultural purposes from

the operation of Reclamation project

facilities.

Landholder means a party that

directly or indirectly owns or leases

nonexempt land.

Landholding means the total acreage

of nonexempt land directly or indirectly

owned or leased by a landholder.

Lease means any arrangement

between a landholder (the lessor) and

another party (the lessee) under which

possession of the lessor’s land is

partially or wholly transferred to the

lessee. Possession means the authority

to make, or prevent the lessor from

making, decisions concerning the

farming enterprise on the land; or the

assumption of economic risk with

respect to the farming enterprise on the

land. In situations where possession has

been partially transferred from a

landholder to another party, a lease will

be considered to exist if the majority of

possession is not held by the potential

lessor. In situations where possession

has been transferred from a landholder

to more than one other party, a lease

will be considered to exist between the

lessor and the party holding the greatest

degree of possession.

Legal entity means, but is not limited

to, corporations, partnerships, trusts,

organizations, associations, and any

business or property ownership

arrangements such as joint tenancies

and tenancies-in-common.

Limited recipient means any legal

entity established under State or Federal

law benefiting more than 25 natural

persons. In order to become limited

recipients, individuals and legal entities

must be subject to the discretionary

provisions through either district

contract action or irrevocable election.

Nondiscretionary provisions means

section 390cc(b) and 390hh through

390zz–1 of the Reclamation Reform Act

of 1982 (43 U.S.C. 390aa et seq.).

Nonexempt land means irrigation

land or irrigable land that is subject to

the acreage limitation provisions of

Federal reclamation law. Areas used for

field roads, farm ditches and drains,

tailwater ponds, temporary equipment

storage, and other improvements subject

to change at will by that landowner, are

included in the nonexempt acreage.

Areas occupied by and currently used

for homesites, farmstead buildings, and

corollary permanent structures such as

feedlots, equipment storage yards,

permanent roads, permanent ponds, and

similar facilities, together with roads

open for unrestricted use by the public

are excluded from nonexempt acreage.

Nonfull-cost entitlement means the

maximum acreage a landholder may

irrigate with irrigation water at a

nonfull-cost rate.

Nonfull-cost rate means any water

rate other than the full-cost rate.

Nonfull-cost rates are paid for irrigation

water made available to land in a

landholder’s nonfull-cost entitlement.

Nonresident alien means any natural

person who is neither a citizen nor a

resident alien of the United States.

Operation and maintenance costs or

O&M costs means all direct charges and

overhead costs incurred by the United

States after the date that Reclamation

has declared a project, or a part thereof,

substantially complete to operate,

maintain, provide replacements of,

administer, manage, and oversee project

facilities and lands.

Ownership entitlement means the

maximum acreage a landholder may

directly or indirectly own and irrigate

with irrigation water.

Part owner means an individual or

entity that has a beneficial interest in an

entity, but does not own 100 percent of

that entity.

Prior law means the Reclamation Act

of 1902, and acts amendatory and

supplementary thereto (43 U.S.C. 371 et

seq.) that were in effect prior to the

enactment of the Reclamation Reform

Act of 1982 (43 U.S.C. 390aa et seq.),

and as amended by the Reclamation

Reform Act of 1982.

Prior law recipient means an

individual or legal entity that has not

become subject to the discretionary

provisions. All nonresident aliens and

legal entities not registered under State

or Federal law will be considered prior

law recipients, and shall have

entitlement and eligibility only as prior

law recipients.

Project means any irrigation project

authorized by Federal reclamation law,

or constructed by the United States

pursuant to such law, or in connection

with a repayment or water service

contract executed by the United States

pursuant to such law, or any project

constructed by the United States

through the Bureau of Reclamation for

the reclamation of lands. The term

project includes any incidental features

of an irrigation project.

Public entity means States, political

subdivisions or agencies thereof, and

agencies of the Federal Government.

Qualified recipient means an

individual who is a citizen or a resident

alien of the United States or any legal
16942 Federal Register / Vol. 60, No. 63 / Monday, April 3, 1995 / Proposed Rules

entity established under State or Federal

law that benefits 25 natural persons or

less. A married couple may become a

qualified recipient if either spouse is a

United States citizen or resident alien.

In order to become qualified recipients,

individuals and legal entities must be

subject to the discretionary provisions

through either district contract action or

irrevocable election.

Reclamation means the Bureau of

Reclamation, U.S. Department of the

Interior.

Reclamation fund means a special

fund established by the Congress under

the Reclamation Act of 1902, as

amended, for the receipts from the sale

of public lands and timber, proceeds

from the Mineral Leasing Act, and

certain other revenues.

Recordable contract means a written

contract between Reclamation and a

landowner capable of being recorded

under State law, providing for the

disposition of land held by that

landowner in excess of the ownership

limitations of Federal reclamation law.

Resident alien means any natural

person within the meaning of the term

as defined in the Internal Revenue Act

of 1954 (26 U.S.C. 7701) as it may be

amended.

RRA means the Reclamation Reform

Act of 1982, Public Law 97–293, Title II,

96 Stat. 1263, (43 U.S.C. 390aa et seq.)

as amended.

Secretary means Secretary of the

Interior.

Standard certification or reporting

forms means those forms on which

landholders provide complete

information about the directly and

indirectly owned and leased land in

their landholding.

Westwide means the 17 Western

States where Reclamation projects are

located, namely: Arizona, California,

Colorado, Idaho, Kansas, Montana,

Nebraska, Nevada, New Mexico, North

Dakota, Oklahoma, Oregon, South

Dakota, Texas, Utah, Washington, and

Wyoming.

§ 426.3 Conformance to the discretionary

provisions.

(a) Districts that are subject to the

discretionary provisions. Unless an

exemption in § 426.15 applies, a district

is subject to the discretionary provisions

if:

(1) The district executes a new or

renewed contract with Reclamation after

October 12, 1982. The discretionary

provisions apply as of the execution

date of the new or renewed contract;

(2) The district amends its contract to

conform to the discretionary provisions:

(i) A district may ask Reclamation to

amend its contract solely to conform to

the discretionary provisions;

(ii) The district’s request to

Reclamation must be accompanied by a

duly adopted resolution dated and

signed by the governing board of the

district obligating the district to take, in

a timely manner, actions required by

applicable State law to amend its

contract; and

(iii) If Reclamation amends the

contract, the district becomes subject to

the discretionary provisions from the

date the district’s request was made; or

(3) The district amends its contract

after October 12, 1982, to provide the

district with additional or supplemental

benefits. The amendment must also

include the district’s conformance to the

discretionary provisions:

(i) The discretionary provisions apply

as of the date that the Secretary executes

the contract amendment;

(ii) For purposes of application of the

acreage limitation provisions,

Reclamation considers all contract

amendments as providing additional or

supplemental benefits, except as

specified in paragraphs (a)(3)(iii) or (iv)

of this section. This includes loans

made under the following acts that

require amendment of a district’s

existing contract:

(A) Rehabilitation and Betterment Act

(43 U.S.C. 504);

(B) Small Reclamation Projects Act

(43 U.S.C. 422);

(C) Distribution Systems Loan Act (43

U.S.C. 421); and

(D) Emergency Fund Act (43 U.S.C.

502);

(iii) for purposes of application of the

acreage limitation provisions

Reclamation considers a contract

amendment as not providing additional

or supplemental benefits if that

amendment:

(A) Does not require the United States

to expend significant funds;

(B) Does not require the United States

to commit significant additional water

supplies; or

(C) Does not substantially modify

contract payments due the United

States; and

(iv) For purposes of application of the

acreage limitation provisions

Reclamation does not consider the

following contract actions as providing

additional or supplemental benefits:

(A) The construction of facilities for

conveyance of irrigation water for which

districts contracted on or before October

12, 1982;

(B) Minor drainage and construction

work contracted under an existing

repayment or water service contract;

(C) Operation and maintenance

(O&M) amendments;

(D) The deferral of payments provided

the deferral is for a period of 12 months

or less;

(E) A temporary supply of irrigation

water as set forth in § 426.15(d);

(F) The transfer of water on an annual

basis from one district to another,

provided that;

(1) Both districts have contracts with

the United States;

(2) The rate paid by the district

receiving the transferred water:

(i) Is the higher of the applicable

water rate for either district;

(ii) Does not result in any increased

operating losses to the United States

above those that would have existed in

the absence of the transfer; and

(iii) Does not result in any decrease in

capital repayment to the United States

below what would have existed in the

absence of the transfer; and

(3) The recipients of the transferred

water pay a rate for the water that is at

least equal to the actual operation and

maintenance costs or the full-cost rate in

those cases where, for whatever reason,

the recipients would have been subject

to such costs had the water not been

considered transferred water;

(G) Contract actions pursuant to the

Reclamation Safety of Dams Act of 1978,

as amended (43 U.S.C. 506); or

(H) Other contract actions that

Reclamation determines do not provide

additional or supplemental benefits.

(b) Districts that are subject to prior

law. Any district which had a contract

in force on October 12, 1982, that

required landholders to comply with the

ownership limitations of Federal

reclamation law remain subject to prior

law unless and until the district:

(1) Enters into a new or renewed

contract requiring it to conform to the

discretionary provisions, as provided in

§ 426.3(a)(1);

(2) Makes a contract action requiring

conformance to the discretionary

provisions, as provided in § 426.3(a) (2)

or (3); or

(3) Becomes exempt, as provided in

§ 426.15.

(c) Standard RRA contract article.

(1) New or renewed contracts

executed after October 12, 1982, or

contracts that are amended to conform

to the discretionary provisions through

the effective date of these rules must

include the following clause:

The parties agree that the delivery of

irrigation water or use of Federal facilities

pursuant to this contract are subject to

Federal reclamation law, as amended and

supplemented, including but not limited to

the Reclamation Reform Act of 1982 (43

U.S.C. 390aa et seq.).

(2) New or renewed contracts

executed after the effective date of these

rules, or contracts that are amended to

conform to the discretionary provisions
Federal Register / Vol. 60, No. 63 / Monday, April 3, 1995 / Proposed Rules 16943

after the effective date of these rules

must include the following clause:

The parties agree that the delivery of water

or use of Federal facilities pursuant to this

contract is subject to Federal reclamation

law, including but not limited to the

Reclamation Reform Act of 1982 (43 U.S.C.

390aa et seq.), as amended and

supplemented, and the rules and regulations

promulgated by the Secretary of the Interior

under Federal reclamation law.

The contracting officer shall have the right

to make determinations necessary to

administer this contract that are consistent

with the expressed and implied provisions of

this contract, the laws of the United States

and the State as they now or hereafter exist,

and the rules and regulations promulgated by

the Secretary of the Interior. These

determinations shall be made in consultation

with the contractor.

(d) The effect of a master contractor’s

and subcontractor’s actions to conform

to the discretionary provisions. If a

district provides irrigation water to

other districts through subcontracts and

the master contracting district is subject

to:

(1) The discretionary provisions, then

all subcontracting districts who are

entitled to receive irrigation water must

also conform to the discretionary

provisions; or

(2) Prior law, then the subcontracting

district can amend its subcontract to

conform to the discretionary provisions

without subjecting the master contractor

or any other subcontractor of the master

contractor to the discretionary

provisions. If a subcontract that does not

include the United States as a party is

amended to conform to the

discretionary provisions, or the

subcontract is a new or renewed

contract executed after October 12,

1982, then the amended, new, or

renewed subcontract must include the

United States as a party.

(e) The effect on a landholder’s status

when a district becomes subject to the

discretionary provisions. If a district

conforms to the discretionary provisions

and the landholder is:

(1) Other than a nonresident alien or

a legal entity that is not registered under

State or Federal law, and is:

(i) A direct landholder in that district,

then the landholder becomes subject to

the discretionary provisions and that

acreage limitation status will apply in

any district in which the landholder

holds land; or

(ii) Only an indirect landholder, then

the landholder’s acreage limitation

status is not affected. Such a landholder

can receive irrigation water as a prior

law recipient on indirectly held lands in

districts that conform to the

discretionary provisions.

(2) A nonresident alien, or legal entity

not registered under State or Federal

law, and the landholder is:

(i) A direct landholder, then since

such a landholder cannot become

subject to, and has no eligibility under

the discretionary provisions:

(A) All direct landholdings in districts

that conform to the discretionary

provisions become ineligible; and

(B) Directly held land that becomes

ineligible as a result of the district’s

action to conform to the discretionary

provisions may be placed under

recordable contract as subject to the

conditions specified in § 426.11; or

(ii) An indirect landholder, then such

a landholder, as a prior law recipient,

may receive irrigation water on land

indirectly held in districts conforming

to the discretionary provisions, but such

holdings cannot exceed the landholder’s

prior law entitlements.

(f) Landholder actions to conform to

the discretionary provisions.

(1) In the absence of a district’s action

to conform to the discretionary

provisions, United States citizens,

resident aliens, or legal entities

established under State or Federal law,

can elect to conform to the discretionary

provisions by executing an irrevocable

election. Upon execution of an

irrevocable election:

(i) The elector’s entire landholding in

all districts shall be subject to the

discretionary provisions;

(ii) The election shall be binding on

the elector and his or her landholding,

but will not be binding on subsequent

landholders of that land;

(iii) An irrevocable election by a legal

entity is binding only upon that entity

and not on the members of that entity;

(iv) An irrevocable election by a

member of a legal entity binds only the

member making the election and not the

entity or other members of the entity;

and

(v) An irrevocable election by a lessor

does not affect the status of a lessee, and

vice versa. However, the eligibility and

entitlement of neither a lessor nor a

lessee may be enhanced through leasing.

(2) A landholder makes an irrevocable

election by completing a Reclamation

issued irrevocable election form:

(i) The elector’s original irrevocable

election form must be filed by the

district with Reclamation and must be

accompanied by a completed

certification form, as specified in

§ 426.17;

(ii) The elector must file copies of the

irrevocable election and certification

forms concurrently with each district

where the elector holds nonexempt

land;

(iii) Reclamation will prepare a letter

advising the recipient of the approval or

disapproval of the election. Reclamation

will base approval upon whether the

election form and the accompanying

certification or reporting forms(s)

indicate the elector’s satisfaction of the

various requirements of Federal

reclamation law and these regulations;

(iv) If the election is approved, the

letter of approval, with a copy of the

irrevocable election form and the

original certification form(s), will be

sent by Reclamation to each district

where the elector holds land;

(v) The district(s) shall retain the

forms; and

(vi) If the irrevocable election is

disapproved, the landowner and the

district will be advised by letter along

with the reasons for disapproval.

(3) A landholder that only holds land

indirectly in a district that has

conformed to the discretionary

provisions, other than a nonresident

alien or a legal entity not registered

under state or Federal law, may make an

irrevocable election also by simply

submitting a certification form. An

election made in this manner is binding

in all districts in which such elector

holds land.

(g) District reliance on irrevocable

election form information. The district

is entitled to rely on the information

contained in the irrevocable election

form. The district does not need to make

an independent investigation of the

information.

(h) Time limits for amendments or

elections to conform to the discretionary

provisions. Reclamation will allow at

anytime a landholder to elect or a

district to amend its contract to conform

to the discretionary provisions. An

irrevocable election that was made after

April 12, 1987, but on or before May 13,

1987, shall be considered effective on

April 12, 1987.

§ 426.4 Attribution of land.

(a) Prohibition on increasing acreage

limitation entitlements. Except as

specifically provided in these rules,

landholders cannot increase acreage

limitation entitlements or eligibility by

acquiring or holding a beneficial interest

in a legal entity. Similarly, the acreage

limitation status of an individual or

legal entity that holds or has acquired a

beneficial interest in another legal entity

will not be permitted to enlarge the

latter legal entity’s acreage limitation

entitlements or eligibility.

(b) Attribution of owned land. For

purposes of determining acreage to be

counted against acreage limitation

entitlements, acreage will be attributed

to all:
16944 Federal Register / Vol. 60, No. 63 / Monday, April 3, 1995 / Proposed Rules

(1) Direct landowners in proportion to

the direct beneficial interest the

landowners own in the land; and

(2) Indirect landowners in proportion

to the indirect beneficial interest they

own in the entity that directly owns the

land.

(c) Attribution of leased land. Leased

land will be attributed to the direct and

indirect landowners as well as to the

direct and indirect lessees in the same

manner as described in § 426.4 (b) and

(d).

(d) Attribution of land held through

intermediate entities. If land is held by

a direct landholder and a series of

indirect landholders, Reclamation will

attribute that land to the acreage

limitation entitlements of the direct

landholder and each indirect landholder

in proportion to each landholder’s

beneficial interest in the entity that

directly holds the land.

(e) Leasebacks. Any land a landholder

directly or indirectly owns and that is

directly or indirectly leased back will

only count once against that particular

landholder’s nonfull-cost entitlement.

(f) Effect on an entity of attribution to

part owners. For purposes of

determining eligibility, land will be

attributed in its entirety to all direct and

indirect landholders. If the interests in

a legal entity are:

(1) Undivided, then all of the indirect

part owners must be eligible in order for

the entity to be eligible; or

(2) Divided, in such a manner that

specific parcels are attributable to each

indirect landholder, then the entity may

qualify for eligibility on those portions

of the landholding not attributable to

any part owner who is ineligible.

§ 426.5 Ownership entitlement.

(a) General. Except as provided in

§§ 426.11 and 426.13, all nonexempt

land directly or indirectly owned by a

landholder counts against that

landholder’s ownership entitlement. In

addition, land owned or controlled by a

public entity that is leased to another

party counts against the lessee’s

ownership entitlement, as specified in

§ 426.9.

(b) Qualified recipient ownership

entitlement. A qualified recipient is

entitled to receive irrigation water on a

maximum of 960 acres of owned

nonexempt land, or the class 1

equivalent thereof. This entitlement

applies on a westwide basis.

(c) Limited recipient ownership

entitlement. A limited recipient is

entitled to receive irrigation water on a

maximum of 640 acres of owned

nonexempt land, or the class 1

equivalent thereof. This entitlement

applies on a westwide basis.

(d) Prior law recipient ownership

entitlement.

(1) Ownership entitlements for prior

law recipients are determined by

whether the recipient is one individual

or a married couple, and for entities by

the type of entity as follows:

(i) Individuals subject to prior law are

entitled to receive irrigation water on a

maximum of 160 acres of owned

nonexempt land;

(ii) Married couples who hold equal

interests are entitled to receive irrigation

water on a maximum of 320 acres of

jointly owned nonexempt land;

(iii) Surviving spouses until

remarriage are entitled to receive

irrigation water on that land owned

jointly in marriage up to a maximum of

320 acres. If any of that land should be

sold, the applicable ownership

entitlement would be reduced

accordingly, but not to less than 160

acres;

(iv) Children are each entitled to

receive irrigation water on a maximum

of 160 acres, regardless of whether they

are independent or dependent;

(v) Joint tenancies and tenancies-incommon subject to prior law are entitled

to receive irrigation water on a

maximum of 160 acres of owned

nonexempt land per tenant, provided

each tenant holds an equal interest in

the tenancy;

(vi) Partnerships subject to prior law

are entitled to receive irrigation water

on a maximum of 160 acres of owned

nonexempt land per partner if the

partners have separable and equal

interests in the partnership and the right

to alienate that interest. Partnerships

where each partner does not have a

separable interest and the right to

alienate that interest are entitled to

receive irrigation water on a maximum

of 160 acres of nonexempt land owned

by the partnership; and

(vii) All corporations subject to prior

law are entitled to receive irrigation

water on a maximum of 160 acres of

owned nonexempt land.

(2) Prior law recipient ownership

entitlements, specified in this section,

apply on a westwide basis unless the

land was acquired by the current owner

on or before December 6, 1979. For land

acquired by the current owner on or

before that date, prior law ownership

entitlements apply on a district-bydistrict basis. For any land acquired

after that date, prior law ownership

entitlements apply on a westwide basis.

§ 426.6 Leasing and full-cost pricing.

(a) Conditions that a lease must meet.

Districts can make irrigation water

available to leased land only if the lease

meets the following requirements.

Land that is leased under a lease

instrument that does not meet the

following requirements will be

ineligible to receive irrigation water

until the lease agreement is terminated

or modified to satisfy these

requirements.

(1) The lease must be in writing;

(2) The lease includes the effective

date and term of the lease, the length of

which must be:

(i) 10 years or less, including any

exercisable options; or

(ii) Equal to the average life of the

perennial crop grown on the land, if the

crop has a life longer than 10 years. In

no case may the term of a lease exceed

25 years, including any exercisable

options;

(3) The lease includes a legal

description of the land subject to the

lease;

(4) Signatures with signature dates of

all parties to the lease are included;

(5) The lease includes the date(s) lease

payments are due and the amounts of

the payment required;

(6) The lease must be available for

Reclamation’s inspection and

Reclamation must review and approve

all leases for terms longer than 10 years;

and

(7) if either the lessor or the lessee is

subject to the discretionary provisions,

the lease must provide for agreed upon

payments that reflect the reasonable

value of the irrigation water to the

productivity of the land.

(b) Nonfull-cost entitlements.

(1) The nonfull-cost entitlement for

qualified recipients is 960 acres, or the

class 1 equivalent thereof.

(2) The nonfull-cost entitlement for

limited recipients that received

irrigation water on or before October 1,

1981, is 320 acres or the class 1

equivalent thereof. The nonfull-cost

entitlement for limited recipients that

did not receive irrigation water on or

prior to October 1, 1981, is zero.

(3) The nonfull-cost entitlement for

prior law recipients is equal to the

recipient’s maximum ownership

entitlement as set forth in § 426.5(d).

However, for the purpose of computing

the acreage subject to full cost, all

owned and leased irrigation land

westwide must be considered.

(c) Application of the nonfull-cost and

full-cost rates.

(1) A landholder may irrigate at the

nonfull-cost rate directly and indirectly

held acreage equal to his or her nonfullcost entitlement.

(2) If a landholding exceeds the

landholder’s nonfull-cost entitlement,

the landholder must pay the appropriate

full-cost rate for irrigation water

delivered to acreage that equals the
Federal Register / Vol. 60, No. 63 / Monday, April 3, 1995 / Proposed Rules 16945

amount of leased land that exceeds that

entitlement.

(3) In the case of limited recipients, a

landholder does not have to lease land

to exceed a nonfull-cost entitlement,

since the nonfull-cost entitlement is less

than the ownership entitlement.

Therefore, limited recipients must pay

the appropriate full-cost rate for

irrigation water delivered to any eligible

land that exceeds their nonfull-cost

entitlement.

(d) Types of lands that count against

the nonfull-cost entitlement.

(1) All directly and indirectly owned

irrigation land and irrigation land leased

for any period of time during one water

year counts towards a landholder’s

nonfull-cost entitlement, except:

(i) Involuntarily acquired land, as

provided in §§ 426.11 and 426.13; and

(ii) Land that is leased for incidental

grazing or similar purposes during

periods when the land is not receiving

irrigation water.

(2) Reclamation’s process for

determining if a nonfull-cost

entitlement has been exceeded is as

follows:

(i) All land counted toward a

landholder’s nonfull-cost entitlement

will be counted on a cumulative basis

during any one water year;

(ii) Once a landholder’s nonfull-cost

entitlement is met in a given water year,

any additional land leased by that

landholder in that water year may be

irrigated only at the full-cost rate; and

(iii) Irrigation land will be counted

towards nonfull-cost entitlements on a

westwide basis, even for prior law

recipients, regardless of the date of

acquisition.

(e) Selection of nonfull-cost land.

(1) A landholder that has exceeded

his or her nonfull-cost entitlement may

select in each water year, from his or her

directly held irrigation land, the land

that can be irrigated at a nonfull-cost

rate and the land that can be irrigated

only at the full cost rate. Selections for

full-cost or nonfull-cost land may

include:

(i) Leased land;

(ii) Nonexcess owned land;

(iii) Land under recordable contract,

unless that land is already subject to

application of the full cost rate under an

extended recordable contract; or

(iv) A combination of all three.

(2) Once a landholder has received

irrigation water on a given land parcel

during a water year, the selection of that

parcel as full cost or nonfull-cost is

binding for the remainder of that water

year.

(f) Applicability of a full-cost selection

to an owner or lessee. If a landowner or

lessee should select land as subject to

full-cost pricing, then that land can

receive irrigation water only at the fullcost rate, regardless of eligibility of the

other party to receive the irrigation

water at the nonfull-cost rate.

(g) Subleased land. Land that is

subleased (the lessee transfers

possession of the land to a sublessee)

will be attributed to the landholding of

the sublessee and not to the lessee.

(h) Calculating full-cost rates.

Reclamation will calculate a district’s

full-cost rate using accepted accounting

procedures and under the following

conditions.

(1) The full-cost charge does not

recover interest retroactively before

October 12, 1982, but interest on the

unpaid balance does accrue from

October 12, 1982; where the unpaid

balance equals the irrigation allocated

construction costs for facilities in

service plus cumulative federally

funded O&M deficits, less payments.

(2) The full-cost rate will be

determined:

(i) As of October 12, 1982, for

contracts entered into before that date

regardless of amendments to conform to

the discretionary provisions; and

(ii) At the time of contract execution

for new and renewed contracts entered

into on or after October 12, 1982.

(3) For repayment contracts, the fullcost charge will fix equal annual

payments over the amortization period.

For water service contracts, the full-cost

charge will fix equal payments per acrefoot of projected water deliveries over

the amortization period.

(4) If there are additional construction

expenditures, or if the cost allocated to

irrigation changes, then a new full-cost

charge will be determined.

(5) Reclamation will notify the

respective districts of changes in the

full-cost charge at the time the district

is notified of other payments due the

United States.

(6) In determining full-cost charges,

the following factors will be considered:

(i) Amortization period. The

amortization period for calculating the

full-cost charge will be the remaining

balance of:

(A) The contract repayment period as

of October 12, 1982 for contracts entered

into before October 12, 1982;

(B) The contract repayment period for

contracts entered into on or after

October 12, 1982;

(C) For water service contracts, the

period from October 12, 1982, or the

execution date of the contract,

whichever is later, to the anticipated

date of project repayment; and

(D) In cases where water services rates

are designed to completely repay

applicable Federal expenditures in a

specific time period, that time period

may be used as the amortization period

for full-cost calculations related to these

expenditures; but, in no case will the

amortization period exceed the project

payback period authorized by the

Congress;

(ii) Construction costs. For

determining full cost, construction costs

properly allocable to irrigation are those

Federal project costs for facilities in

service that have been assigned to

irrigation within the overall allocation

of total project construction costs. Total

project construction costs include all

direct expenditures necessary to install

or implement a project, such as:

(A) Planning;

(B) Design;

(C) Land;

(D) Rights-of-way;

(E) Water-rights acquisitions;

(F) Construction expenditures;

(G) Interest during construction; and

(H) When appropriate, transfer costs

associated with services provided from

other projects;

(iii) Facilities in service. Facilities in

service are those facilities that are in

operation and providing irrigation

services;

(iv) Operation and maintenance

deficits funded. Operation and

maintenance (O&M) deficits funded are

the annual O&M costs including projectuse pumping power allocated to

irrigation that have been federally

funded and that have not been paid by

the district;

(v) Payments received. In calculating

the payments that have been received,

all receipts and credits applied to repay

or reduce allocated irrigation

construction costs in accordance with

Federal reclamation law, policy, and

applicable contract provisions will be

considered. These may include:

(A) Direct repayment contract

revenues;

(B) Net water service contract income;

(C) Contributions;

(D) Ad valorem taxes; and

(E) Other miscellaneous revenues and

credits excluding power and municipal

and industrial (M&I) revenues;

(vi) Interest rates. Interest rates to be

used in calculating full cost charges will

be determined by the Secretary of the

Treasury as follows:

(A) For irrigation water delivered to

qualified recipients, limited recipients

receiving water on or before October 1,

1981, and extended recordable contract

land owned by prior law recipients, the

interest rate for expenditures made on

or before October 12, 1982, will be the

greater of 7.5 percent per annum or the

weighted average yield of all interestbearing marketable issues sold by the
16946 Federal Register / Vol. 60, No. 63 / Monday, April 3, 1995 / Proposed Rules

Treasury during the fiscal year the

expenditures were made by the United

States. The interest rate for expenditures

made after October 12, 1982, will be the

arithmetic average of:

(1) The computed average interest rate

payable by the Treasury upon its

outstanding marketable public

obligations that are neither due nor

callable for redemption for 15 years

from the date of issuance at the

beginning of the fiscal year the

expenditures are made; and

(2) The weighted average yield on all

interest-bearing marketable issues sold

by the Treasury during the fiscal year

preceding the fiscal year the

expenditures are made;

(B) For irrigation water delivered to

limited recipients not receiving

irrigation water on or before October 1,

1981, and prior law recipients, except

for land owned subject to extended

recordable contract, the interest rate will

be determined on the arithmetic average

as follows, based on the average interest

rates and yields during the fiscal year

preceding the fiscal year the

expenditures are made, except that the

interest rate for expenditures made

before October 12, 1982, will be

determined as of October 12, 1982:

(1) The computed average interest rate

payable by the Treasury upon its

outstanding marketable public

obligations that are neither due nor

callable for redemption for 15 years

from the date of issuance; and

(2) The weighted average yield on all

interest-bearing marketable issues sold

by the Treasury.

(C) Landholders who were prior law

recipients and become subject to the

discretionary provisions after April 12,

1987, are eligible for the full-cost

interest rate specified in paragraph

(h)(6)(vi)(A) of this section, unless they

are limited recipients that did not

receive irrigation water on or before

October 1, 1981, in that case they

remain subject to the full-cost interest

rate specified in paragraph (h)(6)(vi)(B)

of this section.

(i) Direct and proportional charges for

full-cost water. In situations where

water delivery charges are contractually

or customarily levied on a per-acre

basis, full-cost assessments will be made

on a per-acre basis. In situations where

water delivery charges are contractually

or customarily levied on a per acre-foot

basis, one of the following methods

must be used to make full-cost

assessments:

(1) Assessments will be based on the

actual amounts of water used in

situations where measuring devices are

in use, to the satisfaction of

Reclamation, to reasonably determine

the amounts of irrigation water being

delivered to full-cost and nonfull-cost

land; or

(2) In situations where, as determined

by Reclamation, measuring devices are

not a reliable method for determining

the amounts of water being delivered to

full-cost and nonfull-cost land, then

water charges must be based on the

assumption that equal amounts of water

per acre are being delivered to both

types of land during periods when both

types of land are actually being

irrigated.

(j) Disposition of revenues obtained

through full-cost water pricing.

(1) Legal deliveries. If irrigation water

has been delivered in compliance with

Federal reclamation law and these

regulations, then:

(i) That portion of the full-cost rate

that would have been collected if the

land had not been subject to full cost

will be credited to the annual payments

due under the district’s contractual

obligation;

(ii) Any O&M revenues collected over

and above those required under the

district’s contract will be credited to the

project O&M account; and

(iii) The remaining full-cost revenues

will be credited to the Reclamation fund

unless otherwise provided by law.

(2) Illegal deliveries. Revenues

resulting from the assessment of

compensation charges for illegal

deliveries of irrigation water will be

deposited into the Reclamation fund in

their entirety, and will not be credited

toward any contractual obligation or

O&M account of the district or project.

§ 426.7 Trusts.

(a) Definitions for purposes of this

section:

Irrevocable trust means a nonrevocable trust that holds irrigable land

or irrigation land.

Grantor revocable trust means a trust

which holds irrigable land or irrigation

land that may be revoked at the

discretion of the grantor(s), or

terminated at a specified point in time,

in such a manner that revocation results

in reversion of the land to the grantor(s),

either directly or indirectly.

Otherwise revocable trust means a

trust that holds irrigable land or

irrigation land and that is revokable or

terminable by the terms prescribed by

the trust, and the revocation or

termination results in the title to the

land held in trust reverting either

directly or indirectly to a person or

entity other than the grantor.

(b) Attribution of land held by a trust.

The acreage limitation entitlements of a

trust are only limited by the acreage

limitation entitlements of the trustees,

grantors, or beneficiaries to whom land

held by the trust must be attributed as

provided for in § 426.4. The

entitlements of the parties to whom

trusted land is attributed is determined

according to §§ 426.5 and 426.6, and

any other applicable provisions of

Federal reclamation law and these

regulations. Reclamation attributes

nonexempt land held by a trust as

follows:

(1) For land held in an irrevocable

trust, the land is attributed to the

beneficiaries in proportion to their

beneficial interest in the trust. However,

this attribution is only made if the

following criteria are met. If the trust

fails to meet any portion of the criteria

listed in paragraph (b)(1) (i) or (ii) of this

section then Reclamation attributes the

land held in the trust to the trustee.

(i) The trust is in written form and

approved by Reclamation; and

(ii) The beneficiaries of the trust and

the beneficiaries’ respective interests are

identified within the trust document.

(2) For land held in a grantor

revocable trust, the land is attributed to

the grantor according to the grantor’s

acreage limitation status and the land’s

eligibility immediately prior to its

transfer to the trust. However, this

attribution is only made if the following

criteria are met. If the trust fails to meet

any portion of the criteria listed in

paragraph (b)(2) (i), (ii), (iii), or (iv) of

this section, then the land held in trust

will be ineligible to receive irrigation

water until all of the criteria are met.

The only exception is if the trust’s and

grantor’s certification or reporting forms

indicate that the land held by the trust

has been attributed to the trust’s

grantor(s).

(i) The trust meets the criteria

specified in § 426.7(b)(1);

(ii) The grantor(s) of all land held by

the trust is identified within the trust

document;

(iii) The conditions under which the

trust may be revoked or terminated are

identified within the trust document;

and

(iv) The recipient(s) of the trust land

upon revocation or termination is

identified within the trust document.

(3) For land held in an otherwise

revocable trust, the land is attributed to

the beneficiaries in proportion to their

beneficial interests in the trust.

However, this attribution is only made

if the trust meets the criteria specified

in § 426.7(b)(1) and the trust meets the

additional criteria specified in

§ 426.7(b)(2).

(i) If the trust fails to meet the criteria

listed in § 426.7(b)(1), but does meet the

additional criteria listed in § 426.7(b)(2),

then the land is attributed to the trustee.
Federal Register / Vol. 60, No. 63 / Monday, April 3, 1995 / Proposed Rules 16947

If the trust fails to meet the additional

criteria listed in § 426.7(b)(2), then

irrigation water will not be made

available to the land held in trust until

the trust satisfies the additional criteria

listed in § 426.7(b)(2).

(c) Application of full-cost rate to

land held by grantor revocable trusts. If

a grantor revised his or her grantor

revocable trust that meets the criteria

specified in § 426.7(b)(2), in a manner

that precludes attribution of the land

held in trust to the grantor:

(1) Before April 20, 1988, Reclamation

will not assess full-cost rates for the

land held by the revised trust for the

period before it was revised; or

(2) On or after April 20, 1988,

Reclamation will charge the full-cost

rate for irrigation water delivered to any

land held by the trust that exceeds the

grantor’s nonfull-cost entitlement,

commencing December 23, 1987, until

the trust agreement is revised to make

it an irrevocable trust or an otherwise

revocable trust.

§ 426.8 Religious or charitable

organizations.

(a) Definition for purposes of this

section:

Religious or charitable organization

means an organization or each

congregation, chapter, parish, school,

ward, or similar subdivision of a

religious or charitable organization that

is exempt from paying Federal taxation

under section 501 of the Internal

Revenue Code of 1954, as amended.

(b) Acreage limitation status of

religious or charitable organizations

which are subject to the discretionary

provisions.

(1) Religious or charitable

organizations or their subdivisions that

are subject to the discretionary

provisions have qualified recipient

status, if:

(i) The organization’s or subdivision’s

agricultural produce and proceeds from

the sales of such produce are used only

for charitable purposes;

(ii) The organization or subdivision,

itself, operates the land; and

(iii) No part of the net earnings of the

organization or subdivision accrue to

the benefit of any private shareholder or

individual.

(2) If Reclamation determines that a

religious or charitable organization or

any of its subdivisions does not meet

the criteria listed in paragraph (b)(1) of

this section, then:

(i) If the central organization has not

met the criteria, then Reclamation will

treat the entire organization, including

all subdivisions, as a single entity; or

(ii) If a subdivision has not met the

criteria, only that subdivision and any

subdivisions of it will be treated as a

single entity and not the central

organization or other subdivisions of the

central organization; and

(iii) In order to ascertain the acreage

limitation status, Reclamation

determines the total number of members

in both the organization that has not met

the criteria and in any subdivisions that

are under that organization. If

Reclamation determines that total

number equals:

(A) More than 25 members, then

Reclamation treats that organization and

every subdivision under that

organization as a single legal entity with

a limited recipient status; or

(B) Less than 25 members, then

Reclamation treats that organization and

every subdivision under that

organization as a single legal entity with

a qualified recipient status.

(c) Acreage limitation status of prior

law religious or charitable organizations

or subdivisions.

(1) Reclamation treats each

congregation, chapter, parish, school,

ward, or other subdivision of a religious

or charitable organization as an

individual, prior law corporation, if

neither the district nor that religious or

charitable organization or its

subdivisions elect to conform to the

discretionary provisions.

(2) Reclamation must treat the entire

organization, including all subdivisions,

as a single prior law corporation if the

central organization or any associated

subdivisions do not meet the criteria

specified in § 426.8(b)(1).

(d) Affiliated farm management

between a religious or charitable

organization and a more central

organization of the same affiliation.

Reclamation permits a subdivision of a

religious or charitable organization to

retain its status as an individual entity

while cooperating with a more central

organization of the same affiliation in

farm operation and management.

Reclamation permits affiliated farm

management regardless of whether the

subdivision is the owner of record of the

land being operated.

§ 426.9 Public entities.

(a) Definition of public entities. For

purposes of this section public entities

means States, political subdivisions or

agencies thereof, and agencies of the

Federal government.

(b) Application of the acreage

limitation provisions to public entities.

Reclamation does not subject public

entities to the acreage limitation

provisions of Federal reclamation law

with respect to land that Reclamation

determines public entities farm

primarily for nonrevenue producing

functions. However, public entities are

required to meet certification and

reporting requirements as specified in

§ 426.17.

(c) Sale of public land. Reclamation

does not require public entities to seek

price approval before they sell irrigable

lands. Once sold, Reclamation can make

irrigation water available to such land if

the purchaser meets RRA eligibility

requirements.

(d) Leasing of public land. Public

entities can lease irrigation land that

they own or control to eligible

landholders. Land leased from a public

entity counts towards the lessee’s

ownership entitlement.

§ 426.10 Class 1 equivalency.

(a) General application. Class 1

equivalency determinations will

establish, on a district-wide basis the

acreage of land with lower productive

potential (classes 2, 3, and 4) that would

be equivalent in productive potential to

the most suitable land (class 1) in the

local agricultural economic setting.

(1) Reclamation establishes

equivalency factors by comparing the

weighted average farm size required to

produce a given level of income on each

of the lower classes of land with the

farm size required to produce that

income level on class 1 land.

(2) For equivalency purposes,

Reclamation will classify all irrigable

land as class 1, 2, or 3; no other

classifications are permissible for

irrigable land. Class 4 and special-use

land classes will be allocated to one of

these three classes on a case-by-case

basis.

(3) Once the class 1 equivalency

determinations have been made,

individual landowners with classes 2, 3,

and 4 land will have the right to adjust,

for acreage limitation entitlement

purposes, their actual landholding

acreage to its class 1 equivalent acreage.

(4) In a district subject to prior law,

class 1 equivalency can be applied only

to landholders who are subject to the

discretionary provisions.

(b) Who may request a class 1

equivalency determination? Only

districts may request class 1

equivalency determinations. Upon the

request of any district subject to the

acreage limitation provisions,

Reclamation will make a class 1

equivalency determination for that

district. Equivalency determinations can

be made only on a district-wide basis.

(c) Definition of class 1 land.

(1) Class 1 land is defined and will be

classified as that irrigable land within a

particular agricultural economic setting

that:
16948 Federal Register / Vol. 60, No. 63 / Monday, April 3, 1995 / Proposed Rules

(i) Most completely meets the various

parameters and specifications

established by Reclamation for irrigable

land classes;

(ii) Has the relatively highest level of

suitability for continuous, successful

irrigation farming; and

(iii) Is estimated to have the highest

relative productive potential measured

in terms of net income per acre

(reflecting both productivity and costs

of production). The equivalency

analysis will establish the acreage of

each of the lower classes of land which

is equal in productive potential

(measured in terms of net farm income)

to 1 acre of class 1 land.

(2) All land that Reclamation has not

classified, or for which Reclamation has

not yet performed the necessary

economic studies, will be considered

class 1 land for the purposes of

determining entitlements under these

rules until such time as the necessary

classifications or studies have been

completed.

(d) Determination of land classes .

The extent and location of class 1 land

and land in lower land classes in a

district have been, or will be,

determined by Reclamation.

(1) Reclamation will take into account

the influence of economic and physical

factors upon the productive potential of

the land lying within the district. These

factors will include, but are not limited

to the following and their effect on

agricultural practices:

(i) The physical and chemical

characteristics of the soil;

(ii) Topography;

(iii) Drainage status;

(iv) Costs of production;

(v) Land development costs;

(vi) Water quality and adequacy;

(vii) Elevation;

(viii) Crop adaptability; and

(ix) Length of growing season.

(2) Acceptable levels of detail for land

classification studies to be utilized in

making class 1 equivalency

determinations will be evaluated on the

basis of the physical and agricultural

economic characteristics of the area. For

districts where the sole purpose of the

land classification study is for a class 1

equivalency determination, the level of

detail of the land classification to be

made will never be greater than that

required to make a class 1 equivalency

determination.

(3) Reclamation will pay for at least a

portion of the costs associated with the

land classification study. The amount to

be paid by Reclamation will be

determined as follows:

(i) Reclamation has provided basic

land classification data as part of the

project development process since 1924.

Accordingly, if the Commissioner

determines that acceptable land

classification data are not available for

making requested class 1 equivalency

determinations and if the project was

authorized for construction since 1924,

such data will be made available at

Reclamation’s expense; or

(ii) For each district located in

projects authorized for construction

prior to 1924, Reclamation will pay 50

percent of the costs and the district

must pay 50 percent of the costs of new

land classification studies required to

make accurate class 1 equivalency

determinations.

(4) When basic land classification

data are available for a district, but the

district does not agree with the accuracy

or asserts that the data have become

outdated, the district may request, and

Reclamation may perform, a

reclassification under the authority

contained in the Reclamation Project

Act of 1939 (43 U.S.C. 485), with the

following conditions:

(i) The requesting district will pay 50

percent of the costs of performing such

reclassifications and 100 percent of the

cost of all other studies inherent in the

equivalency process; and

(ii) The results of such

reclassifications will be binding upon

the requesting district and Reclamation.

(e) Additional studies required for

class 1 equivalency determinations.

Economic studies related to class 1

equivalency determinations will

measure net farm income by land

classes within the district.

(1) Net farm income will be

determined by considering the

disposable income accruing to the farm

operator’s labor, management, and

equity from the sale of farm crops and

livestock produced on irrigated land,

after all fixed and variable costs of

production, including costs of irrigation

service, are accounted for.

(2) Net farm income will be the

measure of productivity to establish

equivalency factors reflecting the

acreage of each of the lower classes of

land which is equal in productive

potential to 1 acre of class 1 land.

(3) The cost of performing new or

additional economic studies and

computations inherent in the

equivalency process will be the

responsibility of the requesting district.

(4) District requests for equivalency

determinations will be scheduled by

region, with the regional director of

each Reclamation region having

responsibility for such scheduling.

Generally, requests will be honored on

a first-come-first-served basis. However,

if requests exceed the region’s ability to

fulfill them expeditiously, priority will

be given on the basis of greatest

immediate need.

(f) Use of class 1 equivalency with the

acreage limitation provisions. Class 1

land and land in lower classes will be

identified on a district basis by

Reclamation using a standard approach

in which the land classification for the

entire district is considered.

Equivalency factors will then be

computed for the district and applied to

specific tracts within individual

landholdings. If adequate land

classification data are not available, they

will be developed as specified in

§ 426.10(d) using standard procedures

established by Reclamation.

(1) For purposes of ownership

entitlement, class 1 equivalency will not

be applied until a final determination

has been made by Reclamation on the

district’s request for equivalency.

(i) Reclamation will protect the excess

landowner’s property interests by

ensuring that equivalency

determinations are completed in

advance of maturity dates on recordable

contracts, provided the district’s request

for an equivalency determination was

made at least 6 months prior to the

maturity of the recordable contract and

the district fulfills its obligations under

this section and notifies Reclamation 6

months in advance of the maturity dates

for the need for an expedited review.

(ii) Once the determination has been

made, owners of land subject to

recordable contracts may withdraw land

from such recordable contracts in order

to reach their ownership entitlement in

class 1 equivalent acreage.

(iii) The requirement that land under

recordable contract be sold at a price

approved by Reclamation does not

apply to land which is withdrawn from

a recordable contract and included as

part of a landowner’s nonexcess

landholding as a result of an

equivalency determination.

(iv) In cases of equivalency

determination disputes, Reclamation

will not undertake the sale of the

reasonable increment of the excess land

under matured recordable contract

which could be affected by a

reclassification, provided the dispute is

determined by Reclamation not to be an

attempt to thwart the sale of excess

land.

(2) For purposes of nonfull-cost

entitlement, class 1 equivalency will not

be applied until a final determination

has been made by Reclamation on a

district’s request for equivalency.

(i) During the time when such

determinations are pending, the fullcost rate will be assessed based on a

landholder’s nonfull-cost entitlement as
Federal Register / Vol. 60, No. 63 / Monday, April 3, 1995 / Proposed Rules 16949

determined in the absence of class 1

equivalency.

(ii) Following Reclamation’s final

determination, Reclamation will

reimburse the district for any full-cost

charges that would not have been

assessed had class 1 equivalency been

in place from the date of the district’s

request. Districts will return such

reimbursements to the appropriate

landholders.

(3) A landholder with holdings in

more than one district is entitled to

equivalency only in those districts

which have requested equivalency (or

are already subject to equivalency). That

part of the landholding in a district or

districts not requesting equivalency will

be counted as class 1 land for purposes

of overall entitlement.

(g) Exception to use of class 1

equivalency factors. Prior to the

application of class 1 equivalency to any

land not subject to class 1 equivalency

on the effective date of these rules,

Reclamation will perform an analysis to

determine whether the irrigation of such

land could contribute to hazardous or

toxic irrigation return flows. In addition,

when any land subject to class 1

equivalency on the effective date of

these rules is reclassified for any reason,

Reclamation will perform an analysis to

determine whether the irrigation of such

land could contribute to hazardous or

toxic irrigation return flows.

(1) Reclamation will make reasonable

efforts to specifically identify any land

that could contribute to hazardous or

toxic return flows.

(2) Increased acreage entitlements as a

result of class 1 equivalency will not be

permitted on land whose irrigation

Reclamation finds could contribute to

hazardous or toxic irrigation return

flows.

(3) On land for which application of

class 1 equivalency will be revoked as

a result of this paragraph (g), such

revocation will take place at the

beginning of the irrigation season

following Reclamation’s determination.

(4) The cost of performing the

analyses required by this paragraph (g)

will be the responsibility of the

requesting district.

(h) Existing equivalency

determinations. In districts where

equivalency was a provision of project

authorization, those equivalency factor

determinations will be honored as

originally calculated unless the district

requests a reclassification.

§ 426.11 Excess land.

(a) The process of designating excess

and nonexcess land. If a landowner

owns more land than the landowner’s

ownership entitlement, all of the

landowner’s nonexempt land must be

designated as excess and nonexcess as

follows:

(1) The landowner designates which

land is excess and which is nonexcess

in accordance with the instructions on

the appropriate certification or reporting

forms; or

(2) If a landowner fails to designate

his or her land as excess and nonexcess

on the appropriate certification or

reporting forms:

(i) And all of the landowner’s

nonexempt land is in only one district:

(A) If the district’s contract with

Reclamation includes designation

procedures, then the land is designated

according to those procedures; or

(B) If the district’s contract with

Reclamation does not include

designation procedures, then:

(1) Reclamation will notify the

landowner and the district that the

landowner must designate the land as

excess and nonexcess on the

appropriate certification or reporting

forms within 30 calendar days of the

notification;

(2) If the landowner fails to make the

designation within 30 calendar days of

notification, the district will make the

designation within 30 calendar days

thereafter; or

(3) If the district does not make the

designation within its 30 calendar days,

Reclamation will make the designation;

or

(ii) If the landowner owns nonexempt

irrigable land or irrigation land in more

than one district, then Reclamation will

notify the landowner and the districts

that the landowner has 60 calendar days

from the date of notification to make the

designation. If the landowner does not

make the designation in the 60 calendar

days, Reclamation will make the

designation.

(b) Changing excess and nonexcess

land designations.

(1) The designation of excess and

nonexcess land must be filed with the

district(s) in which the land is located

and with Reclamation and is binding on

the land. However, the landowner may

change the designation under the

following circumstances without

Reclamation’s approval:

(i) The excess land becomes eligible to

receive irrigation water because the

landowner becomes subject to the

discretionary provisions as provided in

§ 426.3;

(ii) A recordable contract is amended

to remove excess land when the

landowner’s entitlement increases

because the landowner becomes subject

to the discretionary provisions as

provided in § 426.11(j)(5); or

(iii) The excess land becomes eligible

to receive irrigation water as a result of

equivalency determinations, as

provided in § 426.10.

(2) No other redesignation of excess

land is allowable without the approval

of Reclamation in accordance with

established Reclamation procedures.

Reclamation will not approve a

redesignation request if:

(i) The purpose of the redesignation is

for achieving, through repeated

redesignation, an effective farm size in

excess of that permitted by Federal

reclamation law; or

(ii) The landowner sells some or all of

his or her land that is currently

classified as nonexcess.

(3) When a redesignation involves an

exchange of nonexcess land for excess

land, a landowner must make an equal

exchange of acreage (or class 1

equivalent acreage) through the

redesignation.

(c) Land that becomes excess when a

district first contracts with Reclamation.

(1) If a landowner owned irrigable

land on the execution date of the

district’s first water service or

repayment contract, and the execution

date was on or before October 12, 1982,

the landowner’s excess land is ineligible

until the landowner:

(i) Becomes subject to the

discretionary provisions and the

landowner designates the excess land,

up to his or her ownership entitlement,

as nonexcess as provided for in

§ 426.11(b)(1)(i);

(ii) Places such excess land under a

recordable contract, provided the period

for executing recordable contracts under

the district’s contract has not expired;

(iii) Sells such excess land to an

eligible buyer at a price and on terms

approved by Reclamation; or

(iv) Redesignates the land as

nonexcess with Reclamation’s approval

as provided for in § 426.11(b)(2).

(2) If the landowner owned irrigable

land on the execution date of the

district’s first water service or

repayment contract and the execution

date is after October 12, 1982, the

landowner’s excess land is ineligible

until the landowner:

(i) Places such excess land under a

recordable contract, provided the period

for executing recordable contracts under

the district’s contract has not expired;

(ii) Sells such excess land to an

eligible buyer in a sale or transfer at a

price and on terms approved by

Reclamation; or

(iii) Redesignates the land as

nonexcess with Reclamation’s approval

as provided for in § 426.11(b)(2).
16950 Federal Register / Vol. 60, No. 63 / Monday, April 3, 1995 / Proposed Rules

(d) Land acquired into excess after the

district has already contracted with

Reclamation.

(1) If a landowner acquires land after

the date the district first entered into a

repayment or water service contract that

was nonexcess to the previous owner

and is excess to the acquiring

landowner, the first repayment or water

service contract was executed on or

before October 12, 1982, and:

(i) Irrigation water was physically

available when the landowner acquires

such land, then the land is ineligible to

receive such water until:

(A) The landowner becomes subject to

the discretionary provisions and the

landowner designates the excess land,

up to his or her ownership entitlement,

as nonexcess as provided for in

§ 426.11(b)(1)(i);

(B) The landowner sells such land to

an eligible buyer at a price and on terms

approved by Reclamation;

(C) The sale from the previous

landowner is cancelled; or

(D) The landowner redesignates the

land as nonexcess with Reclamation’s

approval as provided for in

§ 426.11(b)(2); or

(ii) Irrigation water was physically not

available when the landowner acquired

the land, then the land is ineligible to

receive water until:

(A) The landowner becomes subject to

the discretionary provisions and the

landowner designates the excess land,

up to his or her ownership entitlement,

as nonexcess as provided for in

§ 426.11(b)(1)(i);

(B) The landowner sells the land to an

eligible buyer at a price and on terms

approved by Reclamation;

(C) The sale from the previous

landowner is cancelled;

(D) The landowner places the land

under recordable contract when water

becomes available; or

(E) The landowner redesignates the

land as nonexcess with Reclamation’s

approval as provided for in

§ 426.11(b)(2).

(2) If the landowner acquires land

after the date the district first entered

into a repayment or water service

contract that was nonexcess to the

previous owner and is excess to the

acquiring landowner, the first

repayment or water service contract was

executed after October 12, 1982, and:

(i) Irrigation water was physically

available when the landowner acquired

such land, then the land is ineligible

until:

(A) The landowner sells the land to an

eligible buyer at a price and on terms

approved by Reclamation;

(B) The sale from the previous

landowner is cancelled; or

(C) The landowner redesignates the

land as nonexcess with Reclamation’s

approval as provided for in

§ 426.11(b)(2); or

(ii) Irrigation water was not physically

available when the landowner acquired

such land, then the land is ineligible to

receive water until:

(A) The landowner sells the land to an

eligible buyer at a price and on terms

approved by Reclamation;

(B) The sale from the previous

landowner is cancelled;

(C) The landowner redesignates the

land as nonexcess with Reclamation’s

approval as provided for in

§ 426.11(b)(2); or

(D) The landowner places the land

under recordable contract when water

becomes available.

(e) If the status of land is changed by

law and regulations.

(1) If the district had a contract with

Reclamation on or before October 12,

1982, and eligible land became excess

because the landowner’s entitlement

changed from being based on a districtby-district basis to a westwide basis,

then such formerly eligible land is

ineligible until:

(i) The landowner places such land

under recordable contract. The

recordable contract does not need to

include the sales price approval clause

and application of the deed covenant

provision will not be required; or

(ii) The landowner sells such land to

an eligible buyer. The sales price does

not need Reclamation’s approval.

(2) If the district had a contract with

Reclamation on or before October 12,

1982, and the landowner was a

nonresident alien or a legal entity not

established under State or Federal law,

who directly held eligible land and such

land is no longer eligible to receive

water, then such formerly eligible land

is ineligible until:

(i) The landowner places such land

under recordable contract. The

recordable contract does not need to

include the sales price approval clause

and application of the deed covenant

provision will not be required; or

(ii) The landowner sells such land to

an eligible buyer. The sales price does

not need Reclamation’s approval.

(3) If the district first entered a

contract with Reclamation after October

12, 1982, and land would have been

eligible before October 12, 1982, but is

now ineligible because the landowner is

a nonresident alien or a legal entity not

established under State or Federal law,

then such land that would have been

eligible remains ineligible until:

(i) If the landowner acquired such

land before the date of the district’s

contract:

(A) The landowner places such land

under a recordable contract requiring

Reclamation sales price approval; or

(B) Sells the land to an eligible buyer

subject to Reclamation sales price

approval; or

(ii) If the landowner acquired such

land after the date of the district’s

contract, the landowner sells such land

to an eligible buyer subject to

Reclamation sales price approval.

(4) Eligible nonexcess land that is

indirectly owned on or before July 1,

1995, by a nonresident alien or a legal

entity not established under State or

Federal law, and that becomes ineligible

because of these rules is ineligible until:

(i) The landowner places such land

under recordable contract. The

recordable contract does not need to

include the sales price approval clause

and application of the deed covenant

provision will not be required; or

(ii) The landowner sells such land to

an eligible buyer. The sales price does

not need Reclamation’s approval.

(f) Excess land that is transferred

without approval or in violation of other

requirements.

(1) If a landowner purchases land that

is subject to Reclamation price approval,

without obtaining such approval, the

land is ineligible to receive water until:

(i) The sales price is reformed to

conform to the price approved by

Reclamation and is eligible to receive

irrigation water in the landowner’s

ownership entitlement; or

(ii) Such landowner sells the land to

an eligible buyer at a price approved by

Reclamation.

(2) If a landowner acquires land for

which irrigation water is available and

by that acquisition places himself or

herself in an excess status, the land so

acquired cannot be placed under

recordable contract. The landowner

must sell the land to an eligible buyer

at a price approved by Reclamation, in

order for such land to again be eligible.

(g) Excess land that is disposed of and

subsequently reacquired. Districts may

not under any circumstances make

available irrigation water to excess land

of which a landholder disposes, if the

landholder subsequently becomes a

direct or indirect landholder of that

land, unless:

(1) The landholder became or

contracted to become a direct or indirect

landholder of that land prior to July 1,

1995; or

(2) Such land becomes exempt from

the acreage limitations of Federal

reclamation law.

(h) Application of the compensation

rate for irrigating ineligible excess land

with irrigation water. Reclamation will

charge the following for irrigation water
Federal Register / Vol. 60, No. 63 / Monday, April 3, 1995 / Proposed Rules 16951

delivered to ineligible excess land in

violation of Federal reclamation law and

these regulations:

(1) The appropriate compensation rate

for irrigation water delivered; and

(2) Any other applicable fees.

(i) Deed covenants.

(1) All land that is acquired from

excess status after October 12, 1982,

must have the following covenant (that

runs with the land) placed in the deed

transferring the land to the purchaser in

order for the land to be eligible to

receive irrigation water except as

otherwise specified in these regulations.

The covenant must be in the deed

regardless of whether or not the land

was under recordable contract.

This covenant is to satisfy the requirements

in 209(f)(2) of Pub. L. 97–293 (43 U.S.C. 390,

et seq.). This covenant expires on (date).

Until the expiration date specified herein,

sale price approval is required on this land.

Sale by the landowner and his or her assigns

of these lands for any value that exceeds the

sum of the value of newly added

improvements plus the value of the land as

increased by the market appreciation

unrelated to the delivery of irrigation water

will result in the ineligibility of this land to

receive Federal project water, provided

however:

(i) The terms of this covenant requiring

price approval shall not apply to this land if

it is acquired into excess status pursuant to

a bona fide involuntary foreclosure or similar

involuntary process of law, conveyance in

satisfaction of a debt (including, but not

limited to, a mortgage, real estate contract, or

deed of trust), inheritance, or devise

(hereinafter Involuntary Conveyance).

Thereafter, this land may be sold to a

landholder at its fair market value without

regard to any other provision of the

Reclamation Reform Act of 1982 enacted on

October 12, 1982, (43 U.S.C. 390aa et seq.),

or to section 46 of the Act entitled ‘‘an Act

to adjust water rights charges, to grant certain

relief on the Federal irrigation projects, and

for other purposes,’’ enacted May 25, 1926

(43 U.S.C. 423e);

(ii) If the status of this land changes from

nonexcess into excess after a mortgage or

deed of trust in favor of a lender is recorded

and the land is subsequently acquired by a

bona fide Involuntary Conveyance by reason

of a default under that loan, this land may

thereupon or thereafter be sold to a

landholder at its fair market value;

(iii) The terms of this covenant requiring

price approval shall not apply to the sales

price obtained at the time of the Involuntary

Conveyances described in subparagraphs (i)

and (ii), nor to any subsequent voluntary

sales by a landholder of this land after the

Involuntary Conveyances or any subsequent

Involuntary Conveyance;

(iv) Upon the completion of an Involuntary

Conveyance, Reclamation shall reconvey or

otherwise terminate this covenant of record;

and

(v) Paragraphs (i) through (iv) above shall

not apply if the acquiring party specified

therein is the party whose excess ownership

originally required the placement of this

covenant. Furthermore, the party whose

excess ownership originally required the

placement of this covenant may not under

any circumstances receive Federal

reclamation project irrigation water on the

land subject to this covenant as a direct or

indirect landowner or lessee.

Note: 1. Clause (v) of this covenant shall

only be required on those covenants placed

in deeds transferring land after the effective

date of these regulations.

2. The date that the covenant expires shall

be 10 years from the date the land was first

transferred from excess to nonexcess status.

(2) A landholder may purchase or

otherwise voluntarily acquire into

nonexcess status, land subject to a deed

covenant, at a price approved by

Reclamation if the land is within the

landholder’s ownership entitlement.

(3) Upon expiration of the terms of the

deed covenant, a landowner may resell

such land at fair market value. A

landowner may not sell more of such

land in his or her lifetime than an

amount equal to his or her ownership

entitlement. Once the landowner

reaches this limit, any additional excess

land or land subject to a deed covenant

the landowner acquires is ineligible to

receive irrigation water, until such land

is sold to an eligible buyer at a price

approved by Reclamation.

(4) If a landholder acquires land

burdened by such a deed covenant

through involuntary foreclosure or

similar involuntary process of law,

conveyance in satisfaction of a debt,

including, but not limited to, a

mortgage, real estate contract, or deed of

trust, inheritance, or devise, and is not

the party whose excess ownership

originally required placement of the

deed covenant, then the deed covenant

must be terminated by Reclamation

upon the landholder’s request.

(j) Recordable Contracts.

(1) Qualifications for recordable

contracts. A landowner can make excess

land eligible by entering into a

recordable contract with the United

States if the landowner qualifies under

applicable provisions of:

(i) The landowner’s water district’s

contract with Reclamation;

(ii) Federal reclamation law; and

(iii) These regulations.

(2) Clauses to be included in

recordable contracts. A recordable

contract must include:

(i) A clause whereby the landowner

agrees to dispose of the excess land,

excluding mineral rights and easements,

under terms and conditions of the sale,

in accordance with § 426.12; and within

the period allowed for the disposition of

excess land, that must be within 5 years

from the date that the recordable

contract is executed by Reclamation

(except for the Central Arizona Project

wherein the time period is 10 years from

the date water becomes available to the

land); and

(ii) A clause granting power of

attorney to Reclamation to sell the land

held under the recordable contract, if

the landholder has not already sold the

land by the recordable contract’s

maturation.

(3) Date Reclamation can make

irrigation water available. Reclamation

can make available irrigation water to

land that the landowner plans to place

under a recordable contract on the day

that Reclamation receives the

landowner’s written request to execute

a recordable contract. The landowner

has 20-working days in which to

execute the recordable contract from the

date Reclamation sends the recordable

contract to the landowner. Reclamation,

in its discretion, may extend this period

upon the landowner’s request.

(4) Water rate. The rate for irrigation

water delivered to land placed under

recordable contract will be determined

as follows:

(i) If both the landowner and any

lessee are prior law recipients, land

placed under a recordable contract can

receive irrigation water at a contract rate

that does not cover full operation and

maintenance costs;

(ii) If either landowner or any lessee

is subject to the discretionary

provisions, the water rate applicable to

the recordable contract must cover, at a

minimum, the annual operation and

maintenance costs; or

(iii) If a lessee holds land under a

recordable contract and is in excess of

his or her nonfull-cost entitlement, the

lessee may select such land as the land

on which full-cost will be charged for

the delivery of irrigation water.

(5) Amending a recordable contract to

include less acreage. Reclamation

permits a landowner to amend a

recordable contract to transfer land out

of a recordable contract to nonexcess

status, if:

(i) The landowner has an increased

ownership entitlement because of

becoming subject to the discretionary

provisions; or

(ii) Land becomes eligible by

implementation of class 1 equivalency,

if the landowner amends the recordable

contract prior to performance of

appraisal.

(6) Sale of land by Reclamation. If the

landowner does not dispose of the

excess land held under recordable

contract within the period specified in

the contract, Reclamation will sell that

land. Reclamation will not sell the land

if the landowner complies with all

requirements for sale of excess land
16952 Federal Register / Vol. 60, No. 63 / Monday, April 3, 1995 / Proposed Rules

under these rules within the period

specified, whether Reclamation gives

any needed final approval of the sale

within that period or after.

(7) Delivery of water when a

recordable contract has matured.

Reclamation can make available

irrigation water at the current applicable

rate, pursuant to § 426.11(j)(4), to excess

land held under a matured recordable

contract until Reclamation sells the

land.

(8) Procedures Reclamation follows in

selling excess land. If Reclamation must

sell excess land, the following

procedures will be used:

(i) a qualified surveyor must make a

land survey, as determined necessary by

Reclamation. The United States will pay

for the survey initially, but such costs

will be added to the approved sale price

for the land. The United States will

reimburse itself for these costs from the

sale of the land;

(ii) Reclamation will appraise the

value of the excess land, in the manner

prescribed by § 426.12 of these

regulations, to determine the

appropriate sale price. The United

States will pay for the appraisal

initially, but such costs will be added to

the approved sale price for the land. The

United States will reimburse itself for

these costs from the sale of the land; and

(iii) Reclamation will advertise the

sale of the property in farm journals and

in newspapers within the county in

which the land lies, and by other public

notices as deemed advisable. The

United States will pay for the

advertisements and notices initially, but

such costs will be added to the

approved sale price for the land. The

United States will reimburse itself for

these costs from the sale of the land.

The notices must state:

(A) the minimum acceptable sale

price for the property (which equals the

appraised value plus the cost of the

appraisal, survey, and advertising);

(B) that Reclamation will sell the land

by auction for cash, or on terms

acceptable to the landowner, to the

highest eligible bidder whose bid equals

or exceeds the minimum acceptable sale

price; and

(C) the date of the sale (which must

not exceed 90 calendar days from the

date of the advertisement and notices);

(iv) The proceeds from the sale of the

land will be paid:

(A) First, to the landowner in the

amount of the appraised value;

(B) Second, to the United States for

costs of the survey, appraisal,

advertising, etc.; and

(C) Third, any remaining proceeds

will be credited to the Reclamation fund

or other funds as prescribed by law; and

(v) Reclamation will close the sale of

the excess land when parties complete

all sale arrangements. Reclamation will

execute a deed conveying the land to

the purchaser. Reclamation will not

require the purchaser to include a

covenant in the deed restricting any

further resale of the land, as specified in

§ 426.11(i).

§ 426.12 Excess land appraisals.

(a) When does Reclamation appraise

the value of a landowner’s land?

Reclamation appraises excess land or

land burdened by a deed covenant upon

a landowner’s request or when required

by Reclamation. If a landowner does not

request an appraisal within 6 months of

the maturity date of a recordable

contract, Reclamation, in its discretion,

can initiate the appraisal.

(b) Procedures Reclamation uses to

determine the sale price of excess land

or land burdened by a deed covenant.

Reclamation complies with the

following procedures to determine the

sale price of excess land and land

burdened by a deed covenant, except if

a landholder owns land subject to a

recordable contract that was in force on

October 12, 1982, or other pertinent

contract that was in force on that date,

and these regulations would be

inconsistent with provisions in such a

contract:

(1) Appraisals of land. Reclamation

will base all appraisals of land on the

fair market value of the land at the time

of appraisal without reference to the

construction of the irrigation works.

Reclamation must use standard

appraisal procedures including: the

income, comparable sales, and cost

methods, as applicable. Reclamation

will consider nonproject water supply

factors as provided in § 426.12(c)(1) as

appropriate; and

(2) Appraisal of improvements to

land. Reclamation will assess the

contributory fair market value of

improvements to land, as of the date of

appraisal, using standard appraisal

procedures.

(c) Appraisals of nonproject water

supplies.

(1) The appraiser will consider

nonproject water supply factors, where

appropriate, including:

(i) Ground water pumping lift;

(ii) Surface water supply;

(iii) Water quality; and

(iv) Trends associated with

paragraphs (c)(1) (i) through (iii) of this

section, where appropriate.

(2) Reclamation may develop the

nonproject water supply and trend

information with the assistance of:

(i) The district in which the land is

located, if the district desires to

participate;

(ii) Landowners of excess land or land

burdened by a deed covenant and

prospective buyers who submit

information either to the district or

Reclamation; and

(iii) Public meetings and forums, at

the discretion of Reclamation.

(3) Data submitted may include:

(i) Historic geologic data;

(ii) Changing crops and cropping

patterns; and

(iii) Other factors associated with the

nonproject water supply.

(4) If Reclamation and the district

cannot reach agreement on the

nonproject water supply information

within 60 calendar days, Reclamation

will review and update the trend

information as it deems necessary and

make all final determinations

considering the data provided by

Reclamation and the district.

Reclamation will provide these data to

the appraisers who must consider the

data in the appraisal process, and

clearly explain how they used the data

in the valuation of the land.

(d) The date of the appraisal. The date

of the appraisal will be the date of last

inspection by the appraiser(s) unless

there is an existing signed instrument,

such as an option, contract for sale,

agreement for sale, etc., affecting the

property. In those cases, the date of

appraisal will be the date of such

instrument.

(e) Cost of appraisal. If the appraisal

is:

(1) The excess land’s first appraisal,

the United States will initially pay the

costs of appraising the excess land’s

value, but such costs will be added to

the approved sale price for the land. The

United States will reimburse itself for

these costs from the sale of the land; or

(2) Not the excess land’s first

appraisal, the landowner must pay any

costs associated with the reappraisal,

unless the value set by the reappraisal

differs by more than 10 percent, in

which case the United States will pay

for the reappraisal.

(f) Appraiser selection. Reclamation

will select a qualified appraiser to

appraise the excess land or land

burdened by a deed covenant, except as

specified within § 426.12(g).

(g) Appraisal dispute resolution. The

landowner who requested the appraisal

may request that the United States

conduct a second appraisal of the excess

land or land burdened by a deed

covenant if the landowner disagrees

with the first appraisal. The second

appraisal will be prepared by a panel of

three qualified appraisers, one
Federal Register / Vol. 60, No. 63 / Monday, April 3, 1995 / Proposed Rules 16953

designated by the United States, one

designated by the district, and the third

designated jointly by the first two. The

appraisal made by the panel will fix the

maximum value of the excess land and

will be binding on both parties after

review and approval as provided in

§ 426.12(h).

(h) Review of appraisals of excess

land or land burdened by a deed

covenant. Reclamation will review all

appraisals of excess land or land

burdened by a deed covenant for:

(1) Technical accuracy and

compliance with these rules and

regulations;

(2) Applicable portions of the

‘‘Uniform Appraisal Standards for

Federal Land Acquisition-Interagency

Land Acquisition Conference 1973,’’ as

revised in 1992;

(3) Reclamation policy; and

(4) Any detailed instructions provided

by Reclamation setting conditions

applicable to an individual appraisal.

§ 426.13 Involuntary acquisition of land.

(a) Definitions.

For purposes of this section

involuntarily acquired land is land that

is acquired through an involuntary

foreclosure or similar involuntary

process of law, conveyance in

satisfaction of a debt (including, but not

limited to, a mortgage, real estate

contract or deed of trust), inheritance, or

devise.

(b) Ineligible excess land that is

involuntarily acquired. Reclamation

cannot make available irrigation water

to land that was ineligible excess land

before the new landowner involuntarily

acquired it, unless:

(1) The land becomes nonexcess in

the new landowner’s ownership; and

(2) The deed to the land contains the

10-year covenant requiring Reclamation

sale price approval, commencing when

the land becomes eligible to receive

irrigation water.

(3) If either of these conditions is not

met, the land remains ineligible excess

until sold to an eligible buyer at an

approved price, and the seller places the

10-year covenant requiring Reclamation

price approval, as specified in

§ 426.11(i), in the deed transferring title

to the land to the buyer.

(c) Land that was held under a

recordable contract and is acquired

involuntarily. Reclamation can make

available irrigation water to land held

under a recordable contract that is

involuntarily acquired under the terms

of the recordable contract, if the

landowner, to the extent the land

continues to be excess in his or her

landholding:

(1) Assumes the recordable contract;

and

(2) Executes an assumption agreement

provided by Reclamation.

(3) This land will remain eligible to

receive irrigation water for the longer of

5 years from the date that the land was

involuntarily acquired, or for the

remainder of the recordable contract

period. The sale of this land shall be

under terms and conditions set forth in

the recordable contract and must be

satisfactory to and at a price approved

by Reclamation.

(d) Mortgaged land. Reclamation

treats mortgaged land that changed from

nonexcess status to excess status after

the mortgage was recorded, and which

is subsequently acquired by a new

landowner through an involuntary

foreclosure or similar process of law, or

by a bona fide conveyance in

satisfaction of a mortgage, in the

following manner:

(1) If the new landowner designates

the land as excess in his or her holding,

then:

(i) The land is eligible to receive

irrigation water for a period of 5 years

or until transferred to an eligible

landowner, whichever occurs first;

(ii) During the 5-year period

Reclamation will charge a rate for

irrigation water equal to the rate paid by

the former owner, unless the land

becomes subject to full-cost pricing

through leasing; and

(iii) The land is eligible for sale at its

fair market value without a deed

covenant restricting its future sale price;

or

(2) If the new landowner is eligible to

designate the land as nonexcess and he

or she designates the land as nonexcess,

the land will be treated in the same

manner as any other nonexcess land and

will be eligible for sale at its fair market

value without a deed covenant

restricting its future sale price.

(e) Nonexcess land that becomes

excess when acquired involuntarily.

(1) Reclamation can make irrigation

water available to a landowner for a

period of 5 years if the landowner

acquires land involuntarily and that

land becomes excess in the

involuntarily acquiring landowner’s

holding provided:

(i) The land was nonexcess to the

previous owner; and

(ii) The acquiring landowner never

previously held such land as ineligible

excess land or under a recordable

contract, except as provided for in

§ 426.11(g).

(2) The following will be applicable in

situations that meet the criteria

specified under paragraph (e)(1) of this

section:

(i) Reclamation will charge a rate for

irrigation water delivered to such land

equal to the rate paid by the former

owner, unless the land becomes subject

to full-cost pricing through leasing;

(ii) The new landowner may not place

such land under a recordable contract;

(iii) The new landowner may remove

a deed covenant as provided in

§ 426.11(i)(4), and may sell such land at

any time without price approval and

without the deed covenant;

(iv) Reclamation will not allow the

involuntary acquiring landowner to

redesignate the land as nonexcess after

he or she designates the land as excess;

and

(v) Such land will become ineligible

to receive irrigation water 5 years after

it was acquired and will remain

ineligible until sold to an eligible buyer.

(f) Effect of involuntarily acquiring

land subject to the discretionary

provisions. A landowner does not

automatically become subject to the

discretionary provisions if the

landowner acquires irrigation land

involuntarily which was formerly

subject to the discretionary provisions.

(g) Land acquired by inheritance or

devise. If the landowner receives

irrigation land through inheritance or

devise, the 5-year eligibility period for

receiving irrigation water on the newly

acquired land per § 426.13(e) begins on

the date of the previous landowner’s

death.

§ 426.14 Commingling.

(a) Definitions for purposes of this

section:

Commingled water means irrigation

water and nonproject water that uses the

same facilities.

Nonproject water means water from

other sources as defined in the contract.

(b) Application of Federal reclamation

law and these regulations to existing

commingling provisions in contracts. If

a district entered into its present

contract with Reclamation prior to

October 1, 1981, or renewed such a

contract, and that contract has

provisions addressing commingled

water situations, those provisions stay

in effect.

(c) Establishment of new commingling

provision in contracts. New, amended,

or renewed contracts may provide that

irrigation water can be commingled

with nonproject water as follows:

(1) If the facilities used for the

commingling of irrigation water and

nonproject water are constructed

without funds made available pursuant

to Federal reclamation law, the

provisions of Federal reclamation law

and these regulations will apply only to

the landholders who receive irrigation

water, provided:

(i) That the water requirements for

eligible lands can be established; and
16954 Federal Register / Vol. 60, No. 63 / Monday, April 3, 1995 / Proposed Rules

(ii) The quantity of irrigation water to

be used is less than or equal to the

quantity necessary to irrigate eligible

lands.

(2) If the facilities used for

commingling irrigation water and

nonproject water are constructed with

funds made available pursuant to

Federal reclamation law, nonproject

water will be subject to Federal

reclamation law and these regulations

unless:

(i) The district collects and pays to the

United States an incremental fee which

reasonably reflects an appropriate share

of the cost to the Federal Government,

including interest, of storing or

delivering the nonproject water; and

(ii) The fee will be established by

Reclamation and will be in addition to

the district’s obligation to pay for

capital, operation, maintenance, and

replacement costs associated with the

facilities required to provide the service.

(3) If paragraphs (c)(2) (i) and (ii) of

this section are met, the provisions of

Federal reclamation law and these

regulations will be applicable to only

those landholders who receive irrigation

water. Accordingly, the provisions of

Federal reclamation law and these

regulations will not be applicable to

landholders who receive nonproject

water delivered through Reclamation

program-funded facilities if those

paragraphs are met.

(d) Federal reclamation law and these

regulations do not apply to irrigation

water from federally financed facilities

that is acquired by an exchange and that

results in no material benefit to the

recipient of the water.

§ 426.15 Exemptions and exclusions.

(a) Army Corps of Engineers projects.

(1) If Reclamation determines that

land receives its agricultural water from

an Army Corps of Engineers (Corps)

project Reclamation will exempt that

land from specific provisions of Federal

reclamation law, including the RRA,

unless:

(i) Federal law explicitly designates,

integrates, or incorporates that land into

a Federal Reclamation project; or

(ii) Reclamation provides project

works for the control or conveyance of

the agricultural water supply from the

Corps project to that land.

(2) Upon such determination,

Reclamation will:

(i) Notify the district of its exemption

status;

(ii) Require the district’s agricultural

water users to continue, under contracts

made with Reclamation, to repay their

share of construction, operation and

maintenance, and contract

administration costs of the Corps project

allocated to conservation or irrigation

storage; and

(iii) At the request of the district

delete provisions of the district’s

repayment or water service contract that

imposes acreage limitation for those

lands served by Corps projects.

(b) Repayment of construction

obligations. The acreage limitation

provisions do not apply to districts that

have repaid, in accordance with the

district’s contract with Reclamation, all

obligated construction costs for

Reclamation facilities.

(1) Payments by periodic installments

over the contract repayment term, as

well as lump-sum and accelerated

payments, if allowed by the district’s

contract with Reclamation, will qualify

the district to become exempt.

(2) If a district has a contract with the

United States providing for individual

repayment of construction charges

allocated to land, and the individual

landowner has repaid all obligated

construction costs allocated for that

landowner’s land, that landowner may

become exempt from the acreage

limitation provisions.

(3) Upon exemption Reclamation will:

(i) Notify the district or individual

landowner of the exemption from the

acreage limitation provisions;

(ii) Notify the district or individual

landowner that the exemption does not

relieve the district or individual

landowner of the obligation to continue

to pay, on an annual basis, O&M costs;

(iii) Allow the owner of land for

which repayment has occurred, to

request a certificate from Reclamation

acknowledging that the land is free of

the acreage limitation provisions of

Federal reclamation law;

(iv) No longer apply the certification

and reporting requirements to the

district, if the entire district is exempt,

or to exempt landowners as specified in

§ 426.15(b)(2); and

(v) Consider on a case-by-case basis

continuation of the exemption if

additional construction funds for the

project are requested.

(c) Rehabilitation and Betterment

loans. If Reclamation makes a

Rehabilitation and Betterment loan

(pursuant to the R&B Act of October 7,

1949, as amended, 43 U.S.C. 504) to a

project that was authorized under

Federal reclamation law prior to the

submittal of the loan request, by or for

the district, Reclamation:

(1) Considers the loan as a loan for

maintenance, including replacements

that cannot be financed currently;

(2) Does not consider the loan in

determining whether the district has

discharged its obligation to repay the

construction cost of project facilities

used to make project water available for

delivery to such land; and

(3) Will not allow such a loan to serve

as the basis for reinstating acreage

limitations in a district that has

completed payment of its construction

obligation, nor serve as the basis for

increasing the construction obligation of

the district and thereby extending the

period during which acreage limitations

will apply.

(d) Temporary supplies of water. If

Reclamation announces availability of

temporary supplies of water resulting

from an unusually large water supply,

not otherwise storable for project

purposes, or from infrequent and

otherwise unmanaged floodflows of

short durations a district may request

that Reclamation make such supplies

available to excess land. If Reclamation

determines that such water deliveries

would not have an adverse effect on

other authorized project purposes, upon

approval of the district’s request,

Reclamation will notify the requesting

district of the availability of the

temporary supply of water under the

following conditions:

(1) The contract for the temporary

supply of water will be for 1 year or

less;

(2) The acreage limitation provisions

of Federal reclamation law will not be

applicable to the temporary supply of

water;

(3) An applicable price for the water,

if any, will be established; and

(4) Such other conditions as

Reclamation may include.

(e) Isolated tracts. If a landowner

requests that Reclamation determine

that portions of his or her owned land

can be farmed economically only if

included in a farming operation that

already exceeds an acreage limitation

entitlement, and Reclamation makes

such a determination, then Reclamation:

(1) Will exempt such land from the

ownership limitations of Federal

reclamation law;

(2) Will count such land against the

landowner’s or any lessee’s nonfull-cost

entitlements; and

(3) Will assess the full-cost rate for

any irrigation water delivered if the

landowner or any lessee of the isolated

tract exceeds applicable nonfull-cost

entitlements.

(f) Indian trust or restricted lands.

Indian trust or restricted lands are

excluded from application of the RRA.

§ 426.16 Small Reclamation projects.

(a) Affect of the RRA on loan

contracts made under the Small

Reclamation Project Act.

(1) If a district entered into a loan

contract under the Small Reclamation
Federal Register / Vol. 60, No. 63 / Monday, April 3, 1995 / Proposed Rules 16955

Projects Act of 1956 (43 U.S.C. 422)

(SRPA) on or after October 12, 1982, the

contract is subject to the provisions of

the SRPA, as amended by section 223 of

the RRA and as amended by Title III of

Public Law 99–546.

(2) If a district entered into a SRPA

loan contract prior to October 12, 1982,

and the district:

(i) Did not amend the loan contract to

conform to the SRPA, as amended by

section 223 of the RRA, prior to October

27, 1986, then the provisions of the

contract continue in effect.

(ii) Amended the loan contract to

conform to the SRPA, as amended by

section 223 of the RRA, prior to October

27, 1986, the contract is subject to the

increased acreage provisions provided

in section 223 of the RRA. Reclamation

cannot alter, modify or amend any other

provision of the SRPA loan contract

without the consent of the non-Federal

party.

(b) Other sections of these regulations

that apply to SRPA loans. No other

sections of these regulations apply to

SRPA loans, except as specified in

§ 426.16(d).

(c) Affect of SRPA loans in

determining whether a district has

repaid its construction obligations on a

water service or repayment contract. If

a district has a water service or

repayment contract in addition to an

SRPA contract, Reclamation does not

consider the SRPA loan:

(1) In determining whether the district

has discharged its construction cost

obligation for the project facilities;

(2) As a basis for reinstating acreage

limitation in a district that has

completed payment of its construction

cost obligation(s); or

(3) As a basis for increasing the

construction obligation of the district

and extending the period during which

acreage limitation will apply to that

district.

(d) Districts that have a SRPA loan

contract and a contract as defined in

§ 426.2. If a district has a SRPA loan

contract and a contract as defined in

§ 426.2, the SRPA contract does not

supersede the RRA requirements

applicable to such contracts.

§ 426.17 Landholder information

requirements.

(a) Definitions for purposes of this

section:

Irrigation season means the period of

time between the district’s first and last

water delivery in any water year.

Standard certification or reporting

forms means those forms on which

landholders provide complete

information about the directly and

indirectly owned and leased land in

their landholding.

(b) Who must provide information to

Reclamation? All landholders and other

parties involved in the ownership or

operation of nonexempt land must

provide Reclamation, as required by

these regulations or upon request, any

records or information, in a form

suitable to Reclamation, deemed

reasonably necessary to implement the

RRA or other provisions of reclamation

law.

(c) Required form submissions.

(1) Landholders who are subject to the

discretionary provisions must submit

certification forms.

(2) Landholders who make an

irrevocable election must submit the

appropriate certification forms with

their irrevocable election in the year

that they make the election.

(3) Landholders who are subject to

prior law must submit reporting forms.

(4) Landholders who qualify under an

exemption listed under paragraph (g) of

this section need not submit any forms.

(d) Required information.

Landholders must declare on the

appropriate certification or reporting

forms all irrigable and irrigation land

that they hold directly or indirectly

westwide and other information

pertinent to their compliance with

Federal reclamation law.

(e) District receipt of forms and

information. Landholders must submit

the appropriate, completed form(s) to

each district in which they directly or

indirectly hold irrigation land.

(f) Certification or reporting forms for

wholly owned subsidiaries. The ultimate

parent legal entity of a wholly owned

subsidiary or of a series of wholly

owned subsidiaries must file the

required certification or reporting forms.

The ultimate parent legal entity must

disclose all direct and indirect

landholdings of its subsidiaries as

required on such forms.

(g) Exemptions from submitting

certification and reporting forms.

(1) A landholder is exempt from

submitting the certification and

reporting forms only if:

(i) The landholder’s district has

Category 1 status, as specified in

§ 426.17(h), and the landholder is a:

(A) Qualified recipient whose total

landholding westwide is 240 acres or

less as provided for in § 426.17(i);

(B) Limited recipient who first

received any irrigation water:

(1) On or before October 1, 1981, and

whose total direct and indirect

landholding westwide is 80 acres or less

as provided for in section 426.17(i); or

(2) After October 1, 1981, and whose

total direct and indirect landholding

westwide is 5 acres or less; or

(C) Prior law recipient whose total

direct and indirect landholding

westwide is 40 acres or less.

(ii) The landholder’s district has

Category 2 status, as specified in

§ 426.17(h), and the landholder is a:

(A) Qualified recipient whose total

direct and indirect landholding

westwide is 80 acres or less;

(B) Limited recipient whose total

direct and indirect landholding

westwide is 5 acres or less; or

(C) Prior law recipient whose total

direct and indirect landholding

westwide is 40 acres or less.

(2) Wholly owned subsidiaries need

not submit certification or reporting

forms provided the ultimate parent legal

entity has properly filed and has

disclosed all direct and indirect

landholdings of its subsidiaries as

required on such forms.

(3) In determining whether

certification or reporting is required

under paragraph (g):

(i) Class 1 equivalency factors as

determined in § 426.10 shall not be

used; and

(ii) Landholders need not count

involuntarily acquired excess acreage

that they hold indirectly.

(h) District categorization. For

purposes of this section each district has

Category 2 status, unless the district

applied for and the regional director

granted the district Category 1 status.

Category 1 districts must meet the

following criteria:

(1) District conformance by contract

with the discretionary provisions;

(2) The district must have entered into

a partnership agreement with

Reclamation which can include but is

not limited to the development of

integrated resources management plans,

the development and implementation of

specific water conservation standards

for the district, or the development of

specific measurable efficiencies for the

district; and

(3) The district’s financial obligations

to the United States are not delinquent.

(i) Application of Category 1 status.

The specific forms thresholds, up to the

levels allowed in § 426.17(g)(1)(i), will

be specified within the partnership

agreement made between the district

and Reclamation. The agreement will

include a provision for periodic review

of the achievements of the district under

the partnership. The regional director

may withdraw the Category 1 status at

any time if the district fails to

accomplish the specific actions stated

within the partnership agreement.

(j) Submissions by landholders

holding land in both a Category 1

district and a Category 2 district. If a

landholder’s entire landholding,
16956 Federal Register / Vol. 60, No. 63 / Monday, April 3, 1995 / Proposed Rules

westwide, is not located in Category 1

districts, then the landholder must

submit forms under the Category 2

certification or reporting requirements

in all districts.

(k) Notification requirements for

landholders whose ownership or leasing

arrangements change after submitting

forms. If a landholder’s ownership or

leasing arrangements change in any

way:

(1) During the irrigation season, the

landholder must:

(i) Notify the district office, either

verbally or in writing within 15

calendar days of the change; and

(ii) Submit new forms to all districts

in which the landholder holds

nonexempt land, within 30 calendar

days of the change.

(2) Outside of the irrigation season,

then, the landholder must submit new

certification or reporting forms to all

districts in which nonexempt land is

held prior to any irrigation water

delivery following such changes.

(l) Notification requirements for

landholders whose ownership or leasing

arrangements have not changed. If a

landholder’s ownership or leasing

arrangements have not changed since

last submitting a standard certification

or reporting form, the landholder can

satisfy the annual certification or

reporting requirements by submitting a

verification form instead of the standard

form. On that form the landholder must

verify that the information contained on

the last submitted standard certification

or reporting form remains accurate and

complete.

(m) Actions that Reclamation takes if

required submission(s) are not made.

(1) If a landholder does not submit

required certification or reporting

form(s), then:

(i) The landholder is not eligible to

receive and must not accept delivery of

irrigation water in any water year prior

to submission of the required

certification or reporting form(s) for that

water year; and

(ii) Eligibility will be regained only

after all required certification or

reporting forms are submitted to the

district.

(2) If one or more part owners of a

legal entity do not submit certification

or reporting forms as required:

(i) The entire entity will be ineligible

to receive irrigation water until such

forms are submitted; or

(ii) If the documents forming the

entity provide for the part owners’

interest to be separable and alienable,

then only that portion of the land

attributable to the noncomplying part

owners will be ineligible to receive

irrigation water.

(n) Actions taken by Reclamation if a

landholder makes false statements on

the appropriate certification or reporting

forms. If a landholder makes a false

statement on the appropriate

certification or reporting form(s)

Reclamation can prosecute the

landholder pursuant to the following

statement which is included in all

certification and reporting forms:

Under the provisions of 18 U.S.C. 1001, it

is a crime punishable by 5 years

imprisonment or a fine of up to $10,000, or

both, for any person knowingly and willfully

to submit or cause to be submitted to any

agency of the United States any false or

fraudulent statement(s) as to any matter

within the agency’s jurisdiction. False

statements by the landowner or lessee will

also result in loss of eligibility. Eligibility can

only be regained upon the approval of the

Commissioner.

(o) Information requirements and

Office of Management and Budget

approval. The information collection

requirements contained in this section

have been approved by the Office of

Management and Budget under 44

U.S.C. 3501 et seq. and assigned

clearance Nos. 1006–0005 and 1006–

0006. The information is being collected

to comply with sections 206, 224(c) and

228 of the RRA. These sections require

that, as a condition to the receipt of

irrigation water each landholder in a

district which is subject to the acreage

limitation provisions of Federal

reclamation law, as amended and

supplemented by the RRA, will furnish

to his or her district annually a

certificate/report which indicates that

he or she is in compliance with the

provisions of Federal reclamation law.

The information collected on each

landholding will be summarized by the

district and submitted to Reclamation in

a form prescribed by Reclamation.

Completion of these forms is required to

obtain the benefit of irrigation water.

(p) Protection of forms pursuant to the

Privacy Act of 1974. The Privacy Act of

1974 (5 U.S.C. 552) protects the

information submitted in accordance

with certification and reporting

requirements. As a condition to

execution of a contract, Reclamation

requires the inclusion of a standard

contract article which provides for

district compliance with the Privacy Act

of 1974 and 43 CFR Part 2, Subpart D,

in maintaining the landholder

certification and reporting forms.

§ 426.18 District responsibilities.

A district that delivers irrigation

water to nonexempt land under a

contract with the United States must:

(a) Provide information to landholders

concerning the requirements of Federal

reclamation law and these regulations;

(b) Provide Reclamation, as required

by these regulations or upon request,

and in a form suitable to Reclamation,

records and information as Reclamation

may deem reasonably necessary to

implement the RRA and other

provisions of Federal reclamation law;

(c) Be responsible for payments to

Reclamation of all appropriate charges

specified in these regulations. Districts

must collect the appropriate charges

from each landholder based on the

landholder’s status, landholdings, and

entitlements, and must not average the

costs over the entire district, unless the

charges prove uncollectible from the

responsible landholders;

(d) Distribute, collect, and review

landholder certification and reporting

forms;

(e) File and retain landholder

certification and reporting forms.

Districts must retain superseded

landholder certification and reporting

forms for 6 years; thereafter, districts

may destroy such superseded forms,

except:

(1) Districts must keep on file the last

fully completed standard certification or

reporting form, in addition to the

current verification form; or

(2) If Reclamation specifically

requests a district to retain superseded

forms beyond 6 years.

(f) Comply with the requirements of

the Privacy Act of 1974, with respect to

landholder certification and reporting

forms;

(g) Annually summarize information

provided on landholder certification

and reporting forms on separate

summary forms provided by

Reclamation and submit these forms to

Reclamation on or before the date

established by the appropriate regional

director;

(h) Withhold deliveries of irrigation

water to any landholder not eligible to

receive irrigation water under the

certification or reporting requirements

or any other provision of Federal

reclamation law and these regulations;

and

(i) Return to Reclamation, for deposit

as a general credit to the Reclamation

fund, all revenues received from the

delivery of water to ineligible land.

§ 426.19 Assessment of administrative

costs.

(a) Assessment of administrative costs

for delivery of water to ineligible land.

Reclamation will assess a district

administrative costs as described in

§ 426.19(e) if the district delivers

irrigation water to land that was
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ineligible because the landholders did

not submit certification or reporting

forms prior to the receipt of irrigation

water in accordance with § 426.17; or to

ineligible excess land as provided in

§ 426.11.

(1) Reclamation will apply the

assessment on a yearly basis in each

district for each landholder that

received irrigation water in violation of

§ 426.17, or for each landholder that

received irrigation water on ineligible

land as specified above.

(2) In applying the assessment to legal

entities, compliance by an entity will be

treated independently from compliance

by its part owners or beneficiaries.

(3) The assessment in § 426.19(a) will

be applied independently of the

assessment specified in § 426.19(b).

(b) Assessment of administrative costs

when form corrections are not made.

Reclamation will assess a district for the

administrative costs described in

§ 426.19(e), unless the district provides

Reclamation with requested reporting or

certification form corrections within 60-

calendar days of the date of

Reclamation’s written request. If

Reclamation receives the corrections

within 60-calendar days, Reclamation

will consider the requirements of

§ 426.17(b) satisfied.

(1) Reclamation will apply the

assessment on a yearly basis in each

district for each landholder that

received irrigation water and for whom

the district does not provide corrected

forms within the applicable 60-calendar

day time period.

(2) In applying the assessment to legal

entities, compliance by an entity will be

treated independently from compliance

by its part owners or beneficiaries.

(3) The assessment in § 426.19(b) will

be applied independently of the

assessment specified in § 426.19(a).

(c) Party responsible for paying

assessments. Districts are responsible

for payment of Reclamation assessments

described under § 426.19(a) and (b).

(d) Disposition of assessments.

Reclamation will deposit to the general

fund of the United States Treasury, as

miscellaneous receipts, administrative

costs assessed and collected under

§ 426.19(a) and (b).

(e) Amount of the assessment. The

administrative costs assessment

required under § 426.19(a) and (b) is set

at $260. Reclamation will review the

associated costs at least once every 5

years, and will adjust the assessment

amount, if needed, to reflect new cost

data. Notice of the revised assessment

for administrative costs will be

published in the Federal Register in

December of the year the data are

reviewed.

§ 426.20 Interest on underpayments.

(a) Definition of underpayment. For

the purposes of this section

underpayment means the difference

between what a landholder owed under

Federal reclamation law and what that

landholder paid.

(b) Collection of interest on

underpayments. If a landholder has

incurred an underpayment, Reclamation

will collect from the appropriate district

such underpayment with interest.

Interest accrues from the original

payment due date until the district pays

the amount due. The original payment

due date is the date the district should

have paid the United States for water

delivered to the landholder.

(c) Underpayment interest rate. The

Secretary of the Treasury determines the

interest rate charged the district based

on the weighted average yield of all

interest-bearing marketable issues sold

by the Department of the Treasury

during the period of underpayment.

§ 426.21 Public participation.

(a) Notification of contract actions.

Except for proposed contracts having a

duration of 1 year or less for the sale of

surplus water or interim irrigation

water, Reclamation will:

(1) Provide notice of proposed

irrigation or amendatory irrigation

contract actions 60-calendar days prior

to contract execution by publishing

announcements in general circulation

newspapers in the affected area;

(2) Issue announcements in the form

of news releases, legal notices, official

letters, memoranda, or other forms of

written material; and

(3) Directly notify individuals and

entities who made a timely written

request for such notice to the

appropriate Reclamation regional or

local office.

(b) Notification if parties to contract

negotiations modify a proposed

contract. In the event that modifications

are made to a proposed contract the

regional director must:

(1) Provide copies of revised proposed

contracts to all parties who requested

copies of the proposed contract in

response to the initial notice; and

(2) Determine whether or not to

republish the notice or to extend the

comment period. The regional director

must consider, among other factors:

(i) The significance of the impact(s) of

the modification to possible affected

parties; and

(ii) The interest expressed by the

public over the course of contract

negotiations.

(c) Information that Reclamation will

include in published announcements.

Each published announcement will

include, as appropriate:

(1) A brief description of the proposed

contract terms and conditions being

negotiated;

(2) Date, time, and place of meetings,

workshops, or hearings;

(3) The address and telephone

number to which inquiries and

comments may be addressed to

Reclamation; and

(4) The period of time during which

Reclamation will accept comments.

(d) Public availability of proposed

contracts. Anyone can get copies of a

proposed contract from the appropriate

regional director or his or her

designated public contact when the

proposed contracts become available for

review and comment, as specified in the

published announcement.

(e) Opportunities for public

participation.

(1) Reclamation can provide, as

appropriate: Meetings, workshops, or

hearings to provide local information.

Advance notice of meetings, workshops,

or hearings will be provided to those

parties who make timely written request

for such notice. Request for notice of

meetings, workshops, or hearings

should be sent to the appropriate

Reclamation regional or local office.

(2) Reclamation or the district can

invite the public to observe any contract

proceedings.

(3) All public participation

procedures will be coordinated with

those involved with National

Environmental Policy Act compliance,

if Reclamation determines that the

contract action may or will have

‘‘significant’’ environmental effects.

(f) Individuals authorized to negotiate

the terms of contract proposals. Only

persons authorized to act on behalf of

the district may negotiate the terms and

conditions of a specific contract

proposal.

(g) Agency use of comments

submitted during the period provided

for comment or made at hearings.

(1) Reclamation will review and

summarize for use by the contract

approving authority testimony

presented at any public hearing or any

written comments submitted to the

appropriate Reclamation officials at

locations and within the comment

period, as specified in the advance

published announcement.

(2) Reclamation will make available to

the public all written correspondence

regarding proposed contracts under the

terms and procedures of the Freedom of

Information Act (5 U.S.C. 552), as

amended.
16958 Federal Register / Vol. 60, No. 63 / Monday, April 3, 1995 / Proposed Rules

§ 426.22 Recovery of operation and

maintenance (O&M) costs.

(a) General. All new, amended, and

renewed contracts shall provide for

payment of O&M costs as specified in

this section.

(b) Amount of O&M costs a district

must pay if it executes a new or renewed

contract. If a district executes a new or

renewed contract after October 12, 1982,

then that district must pay all of the

O&M costs that Reclamation allocates to

irrigation.

(c) Amount of O&M costs a district

must pay if it amends its contract to

conform to the discretionary provisions.

If a district has a contract executed prior

to October 12, 1982, and the district

amends the contract after October 12,

1982, as provided for in § 426.3(a)(2) to

conform to the discretionary provisions,

then the following must be complied

with:

(1) The district must pay all of the

O&M costs that Reclamation allocates to

irrigation;

(2) If in the year the amendment is

executed, the district’s contract rate was

more than the O&M costs allocated to

the district in that year then that

positive difference at the time of the

contract amendment must continue to

be factored into the contract rate and

annually paid to the United States. This

would be in addition to any adjusted

O&M cost that results from paragraph

(c)(1) of this section. The positive

difference would be factored into the

contract rate for the remainder of the

term of the contract; and

(3) The district will not be required to

pay an increased amount toward the

construction costs of a project as a

condition of the district’s agreeing to a

contract amendment pursuant to

paragraph (c) of this section.

(d) Amount of O&M cost a district

must pay if it amends its contract to

provide supplemental or additional

benefits. If a district amends its contract

after October 12, 1982, to provide

supplemental or additional benefits, as

provided for in § 426.3(a)(3), then each

year the district must pay:

(1) All of the O&M costs that

Reclamation allocates to irrigation;

(2) If in the year the amendment is

executed, the district’s contract rate was

more than the O&M costs allocated to

the district in that year then that

positive difference at the time of the

contract amendment must continue to

be factored into the contract rate and

annually paid to the United States. This

would be in addition to any adjusted

O&M cost that results from paragraph

(d)(1) of this section. The positive

difference would be factored into the

contract rate for the remainder of the

term of the contract; and

(3) Any increases in the amount paid

annually toward the construction costs

of a project that the United States

requires the district to pay as a

condition of agreeing to provide the

district with supplemental and

additional benefits.

(e) Amount of O&M a district pays

under an existing contract. For a district

whose existing contract was executed

prior to October 12, 1982, the district

must pay all of the O&M costs allocated

by Reclamation to irrigation unless

specifically provided to the contrary by

the terms of the contract.

(f) Amount of O&M that Reclamation

charges an irrevocable elector.

(1) Regardless of any terms to the

contrary within an existing contract

with a district, a landholder who makes

an irrevocable election, as provided for

in § 426.3(f) must pay, annually, his or

her proportionate share of all O&M costs

allocated by Reclamation to irrigation.

The irrevocable elector’s proportionate

share is based upon the ratio of:

(i) The amount of land in the district

held by the irrevocable elector that

received irrigation water to the total

amount of land in the district that

received irrigation water; or

(ii) The amount of irrigation water in

the district received by the irrevocable

elector to the total amount of irrigation

water that the district delivered.

(2) The district or districts in which

the irrevocable elector’s landholding is

located must collect from the

irrevocable elector an amount equal to

the irrevocable elector’s proportionate

share of all O&M costs allocated by

Reclamation to irrigation and meet the

following requirements:

(i) If in the year the amendment is

executed, the district’s contract rate was

more than the O&M costs allocated to

the district in that year, then that

positive difference at the time of the

contract amendment must continue to

be factored into the contract rate and

annually paid to the United States. This

would be in addition to any adjusted

O&M cost that results from paragraph

(f)(1) of this section. The positive

difference would be factored into the

contract rate for the remainder of the

term of the contract; and

(ii) Such collections must be

forwarded to the United States.

(g) Amount of O&M that Reclamation

charges if a landholder is subject to fullcost pricing. In those districts subject to

prior law if a landholder is subject to

full-cost pricing the district must ensure

that all O&M costs are included in any

full-cost assessment, regardless of

whether the landholder is subject to the

discretionary provisions. The revenues

from such full-cost assessments must be

collected and submitted to the United

States.

§ 426.23 Agency decisions and appeals.

(a) Initial agency decisions.

(1) Decisionmaker for initial agency

decisions:

(i) The appropriate regional director

makes any initial agency decision that

these regulations require or authorize; or

(ii) If the initial agency decision is

likely to involve districts, or

landholders with landholdings located

in more than one region, the

Commissioner designates one regional

director to make that decision.

(2) Notice to affected parties. A

regional director will notify parties, that

are potentially affected by his or her

initial decision, in writing.

(3) Effective date for initial agency

decisions. A regional director’s initial

decision takes effect immediately,

unless the regional director otherwise

specifies, or the decision involves the

termination of water deliveries. A

decision to terminate water delivery can

take effect no sooner than 10 calendar

days after the regional director makes

his or her initial decision.

(b) Reconsideration of initial agency

decision.

(1) Requests for reconsideration. Any

district or landholder whose rights and

interests are directly affected by a

regional director’s initial decision can

submit a written request for

reconsideration of the regional director’s

decision. The regional director must

receive requests for reconsideration of

an initial decision from districts and

landholders, who:

(i) Received notification of a regional

director’s decision by mail, within 30

calendar days from the date of the initial

decision; or

(ii) Did not receive notification of the

initial decision by mail, within 90

calendar days from the date of the initial

decision.

(2) Requests for stay of the initial

agency decision pending

reconsideration.

(i) The regional director will stay his

or her initial decision if the requesting

party:

(A) Submits a request for stay in

writing to the regional director, with, or

in advance of, the request for

reconsideration, and states the grounds

upon which the party requests the stay;

and

(B) Demonstrates that the harm which

a district or landholder would suffer if

the regional director does not grant the

stay outweighs the interest of the United

States in having the initial decision take

effect pending reconsideration.
Federal Register / Vol. 60, No. 63 / Monday, April 3, 1995 / Proposed Rules 16959

(ii) The initial decision will be

automatically stayed pending the

regional director’s review of the initial

agency decision, unless the regional

director:

(A) Acts upon the request for a stay

within 15 calendar days of the request;

and

(B) Informs, by certified mail, the

requesting party or parties of his or her

decision within 1 business day after he

or she rules on the request for a stay.

(iii) A regional director’s decision on

a request for a stay is not appealable.

(c) Reclamation’s final action.

(1) If no party requested a

reconsideration of the initial decision. If

the regional director does not receive a

request for reconsideration within the

time frames specified in § 426.23(b)(1),

the initial decision becomes

Reclamation’s final action on the 91st

day after the date of the initial decision.

(2) If a party requested

reconsideration of the initial decision. If

the regional director receives a timely

request for reconsideration, the regional

director will make a ruling on a request

for reconsideration of an initial agency

decision within 30 calendar days of

receipt of the request, and will inform

the requesting parties of his or her

ruling by certified mail. This ruling will

constitute Reclamation’s final action.

(i) The date of Reclamation’s final

action will be the date of mailing the

regional director’s ruling to the

requesting party or parties.

(ii) The regional director will

establish the effective date of

Reclamation’s final action.

(d) Appeal of Reclamation’s final

actions.

(1) Reclamation’s final actions that

cannot be appealed. An initial agency

decision that becomes Reclamation’s

final action as a result of a failure by an

affected party to request reconsideration

as provided in § 426.23(b)(1) cannot be

further appealed.

(2) Reclamation’s final actions that

can be appealed. A party that timely

requested reconsideration of the

agency’s initial decision may appeal

Reclamation’s final action to the

Secretary of the Interior by writing to

the Director, Office of Hearings and

Appeals (OHA), U.S. Department of the

Interior. For an appeal to be timely,

OHA must receive the appeal within 30-

calendar days from the date of

Reclamation’s final action.

(3) Rules that govern the appeal

process. Except for the authority of

regional directors to grant stays of their

determinations under § 426.23(d)(4), 43

CFR part 4, subpart G, and other

provisions of 43 CFR part 4, where

applicable, govern the appeal process.

(4) Requests for stay of Reclamation’s

final action pending appeal. An

appellant can request that the regional

director who was responsible for

Reclamation’s final action stay that

action pending an appeal as specified in

§ 426.23(d)(2). The procedures and time

frames set forth in § 426.23(b)(2) for

requests for stays of initial agency

decisions apply to requests for stays of

final Reclamation actions. If the regional

director fails to act on the appellant’s

stay within 15 calendar days of its

receipt, then Reclamation’s final action

will automatically be stayed pending

final action by OHA. A regional

director’s decision on a request for a

stay cannot be appealed.

(e) Effective date of an appealed

decision. Reclamation can apply

decisions made by a regional director or

by OHA under § 426.23 (c) and (d) as of

the date of the initial agency decision.

If, during the appeal process, irrigation

water has been delivered to land

subsequently found to be ineligible, for

other than RRA forms submittal

violations, the compensation rate may

be applied to such deliveries

retroactively.

(f) Accrual of interest on

underpayments during reconsideration

or appeal. Interest on any

underpayments, as provided in § 426.20,

continues to accrue during the

reconsideration of an initial agency

decision or an appeal of Reclamation’s

final action or judicial review of final

agency action. Underpayment interest

accrual will continue even during a stay

under § 426.23 (b)(2) or (d)(4).

(g) Status of appeals made prior to the

effective date of these regulations. (1)

Appeals to the Commissioner of a

regional director’s determination which

were decided by the Commissioner or

his or her delegate prior to the effective

date of these regulations are hereby

validated.

(2) Appeals to the Commissioner of

determinations made by a regional

director and appeals to OHA, which are

pending on appeal as of the effective

date of these regulations will be

processed and decided in accordance

with the regulations in effect

immediately prior to the effective date

of these regulations.

(h) Addresses. All requests for

reconsideration, stays, appeals, or other

communications to the United States

under this section must be addressed as

follows:

(1) Regional directors, at their current

mailing addresses, which may be

obtained by writing or calling the Office

of the Commissioner, Bureau of

Reclamation, 1849 C Street NW., MS–

7060–MIB, Washington, DC 20240,

telephone (202) 208–4157; or by writing

or calling the Program Analysis Office,

Bureau of Reclamation, P.O. Box 25007,

Denver, CO 80225, telephone (303) 236–

3292.

(2) Director, Office of Hearings and

Appeals, Department of the Interior,

4015 Wilson Boulevard, Room 1103,

Ballston Tower No. 3, Arlington, VA

22203.

§ 426.24 Reclamation audits.

Reclamation has the authority to

conduct reviews of a district’s

administration and enforcement of and

landholder compliance with Federal

reclamation law and these regulations.

These reviews may include, but are not

limited to:

(a) Water district reviews;

(b) In-depth reviews; and

(c) Audits.

§ 426.25 Severability.

If any provision of these regulations

or the application of these rules to any

person or circumstance is held invalid,

then the sections of these rules or their

applications which are not held invalid

will not be affected.

Part 427 is added as follows:

PART 427—WATER CONSERVATION

RULES AND REGULATIONS

Sec.

427.1 Purpose.

427.2 Conservation Plan Requirements.

427.3 Incentives.

427.4 Technical Guidelines and Criteria.

Authority: 5 U.S.C. 301; 5 U.S.C. 553; 16

U.S.C. 590y et seq.; 31 U.S.C. 9701; and 32

Stat. 388 and all acts amendatory thereof or

supplementary thereto including, but not

limited to, 43 U.S.C. 390b, 43 U.S.C. 390jj,

390ww, 43 U.S.C. 422a et seq., and 43 U.S.C.

440.

§ 427.1 Purpose.

These rules and regulations prescribe

the requirements for preparation and

submittal of water conservation plans

prepared by water districts and other

entities that contract with the United

States for a supply or storage of water

under Federal reclamation law, the

Small Reclamation Projects Act, the

Water Conservation and Utilization Act,

or the Warren Act.

§ 427.2 Conservation Plan Requirements.

(a) Submission requirements. All

water districts and other entities that

contract with the United States for a

supply or storage of water under Federal

reclamation law, the Small Reclamation

Projects Act, the Water Conservation

and Utilization Act, or the Warren Act

must submit water conservation plans

for approval by the appropriate Regional
16960 Federal Register / Vol. 60, No. 63 / Monday, April 3, 1995 / Proposed Rules

director at least once every 5 years,

except:

(1) Districts that receive only

irrigation water and deliver the water to

less than 2000 acres of land,

(2) Districts that receive only

municipal and industrial water and

deliver the water to fewer than 3,300

people,

(3) Districts that receive any

combination of irrigation water,

municipal and industrial water, or water

for other uses and receive an average

annual water supply of less than 2,000

acre-feet from all Federal reclamation

projects combined,

(4) Districts whose only contract is a

temporary contract of 1 year or less,

(5) The Central Utah Water

Conservancy District, Utah, and each

petitioner of Central Utah Project water,

which must comply only with the

requirements of section 207 of the

Central Utah Project Completion Act

(Titles II through III of Pub. L. 102–575,

106 Stat. 4605, 4616), provided the

district and petitioners have met the

requirements of section 207 of the Act.

If the district or a petitioner of Central

Utah Project water also receives water

from any other Federal reclamation

project, that entity is subject to the

requirements of § 427.2 with respect to

the non-Central Utah Project water,

(6) Districts receiving water from the

Central Valley Project, California, so

long as criteria for evaluating water

conservation plans have been

developed, published, and are in effect

under section 3405(e) of the Central

Valley Project Improvement Act (Title

XXXIV of Pub. L. 102–575, 106 Stat.

4706, 4713), or

(7) Districts that have met the

requirements of these regulations by

meeting the alternative standards or

performance requirements of a State or

Federal water conservation program as

approved and notified in writing by the

regional director.

(b) Required Elements of a Water

Conservation Plan. A water

conservation plan must set forth definite

goals for improvements in the

management and efficient use of water.

The plan must also identify those

actions that are necessary and

appropriate for achieving the plan’s

stated goals. The plan must establish a

reasonable time schedule for

implementing the identified actions and

for meeting the plan’s goals. The plan

must also establish appropriate criteria

for measuring progress toward meeting

the plan’s goals and include an

assessment of progress achieved to date.

At a minimum the plan must include

the following actions:

(1) A water measurement and

accounting system designed to measure

and account for all water conveyed

through the district’s distribution

system to water users. The system must

include metering or measuring devices

at each agricultural water delivery

turnout and each municipal and

industrial water delivery service

connection;

(2) A water pricing structure for

district water users designed to

encourage increased efficiency of water

use;

(3) An information/education program

for water users designed to promote

increased efficiency of water use; and

(4) Designation of a district water

conservation coordinator.

§ 427.3 Incentives.

(a) Reclamation will provide technical

and financial assistance to districts and

entities developing and implementing

water conservation plans, as funding

and staff availability permits.

Reclamation will also establish

voluntary partnerships with districts

and entities in a collaborative effort to

improve the management of water and

associated resources in the Western

United States, and to assist districts and

entities in achieving their water

conservation goals. However, if

Reclamation does not provide technical

or financial assistance, for whatever

reason, the district is not relieved of its

responsibility for the development and

implementation of an adequate water

conservation plan.

(b) Reclamation will consider a

district’s progress in development and

implementation of water conservation

plans when prioritizing the allocation of

future discretionary Reclamation

program benefits. Except in unusual

circumstances, future discretionary

benefits will be unavailable to a district

or entity that does not have an approved

plan or is not adequately implementing

an approved plan. These discretionary

benefits may include:

(1) Discretionary funds including, but

not limited to, drought relief funds,

drought assistance, loans and/or grants

under various statutory authorities,

construction funding, and technical

planning assistance;

(2) Discretionary programs or benefits

including, but not limited to, temporary

supplies of water under 43 U.S.C.

390oo, temporary or short-term

contracts, and Warren Act contracts;

and

(3) Facilitating water transfers to or by

a district, accommodating changes in

the place or type of use of water, or

assisting in the identification of

beneficiaries that may be willing to fund

conservation activities.

§ 427.4 Technical Guidelines and Criteria.

(a) Reclamation has developed

Technical Guidelines and Criteria for

Water Conservation Plans (Guidelines

and Criteria). These Guidelines and

Criteria describe the standards and

process which Reclamation will use to

evaluate district water conservation

plans, describe the schedule and

process for submitting plans, provide

information on environmental

compliance, suggest specific plan

elements, and identify water

conservation measures for evaluation

and inclusion in district water

conservation plans.

(b) The Guidelines and Criteria may

be obtained from any Bureau of

Reclamation regional office. The

addresses of the regional offices may be

obtained by writing or calling the Office

of the Commissioner, Bureau of

Reclamation, 1849 C Street N.W., MS–

7060–MIB, Washington, D.C. 20240,

telephone (202) 208–4157; or by writing

or calling the Program Analysis Office,

Bureau of Reclamation, P.O. Box 25007,

Denver, CO 80225, telephone (303) 236–

3292.

[FR Doc. 95–7524 Filed 3–31–95; 8:45 am]

BILLING CODE 4310–94–P