`[Federal Register Volume 61, Number 125 (Thursday, June 27, 1996)]
[Rules and Regulations]
[Pages 33622-33638]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-16321]



[[Page 33621]]


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Part III





Department of Agriculture





_______________________________________________________________________



Rural Utilities Service



_______________________________________________________________________



7 CFR Part 1703



Distance Learning and Telemedicine Grant Program; Final Rule and Notice

  Federal Register / Vol. 61, No. 125 / Thursday, June 27, 1996 / Rules 
and Regulations  

[[Page 33622]]



DEPARTMENT OF AGRICULTURE

Rural Utilities Service

7 CFR Part 1703

RIN 0572-AB22


Distance Learning and Telemedicine Grant Program

AGENCY: Rural Utilities Service, USDA.

ACTION: Final rule.

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SUMMARY: The Rural Utilities Service hereby amends its regulations on 
the distance learning and telemedicine grant program that provides 
grants for distance learning and telemedicine projects benefiting rural 
areas. The regulation revises RUS's method in which applications will 
be reviewed by RUS and scored. This final rule will make it easier for 
rural community facilities to apply for a grant.

DATES: This regulation is effective on June 27, 1996.

FOR FURTHER INFORMATION CONTACT: Barbara L. Eddy, Deputy Assistant 
Administrator, Telecommunications Program, Rural Utilities Service, 
room 4056-S, AG Box 1590, U.S. Department of Agriculture, Washington, 
DC 20250, telephone number (202) 720-9549.

SUPPLEMENTARY INFORMATION:

Executive Order 12866

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

Executive Order 12778

    This final rule has been reviewed under Executive Order 12778, 
Civil Justice Reform. This final rule will not: (1) Preempt any State 
or local laws, regulations, or policies, unless they present an 
irreconcilable conflict with this rule; (2) Have any retroactive 
effect; and (3) Require administrative proceedings before parties may 
file suit challenging the provisions of this rule.

Regulatory Flexibility Act Certification

    RUS has determined that this final rule will not have a significant 
economic impact on a substantial number of small entities, as defined 
in the Regulatory Flexibility Act (5 U.S.C. 601 et seq.).

Information Collection and Recordkeeping Requirements

    The reporting and recordkeeping requirements contained in the final 
rule have been approved by the Office of Management and Budget (OMB) 
pursuant to the Paperwork Reduction Act of 1995 (44 U.S.C. Chapter 35, 
as amended) under OMB control number 0572-0096. Send questions or 
comments regarding this burden or any other aspect of these collections 
of information, including suggestions for reducing the burden, to: F. 
Lamont Heppe, Jr., Director, Program Support and Regulatory Analysis, 
Rural Utilities Service, U.S. Department of Agriculture, AG Box 1522, 
Washington, DC 20250.

National Environmental Policy Act Certification

    The Administrator of RUS has determined that this final rule will 
not significantly affect the quality of the human environment as 
defined by the National Environmental Policy Act of 1969 (42 U.S.C. 
4321 et seq.). Therefore, this action does not require an environmental 
impact statement or assessment.

Catalog of Federal Domestic Assistance

    The program described by this final rule is listed in the Catalog 
of Federal Domestic Assistance programs under number 10.855, Distance 
Learning and Medical Link Grants. This catalog is available on a 
subscription basis from the Superintendent of Documents, the United 
States Government Printing Office, Washington, DC 20402.

Executive Order 12372

    This program is subject to the provisions of Executive Order 12372 
that requires intergovernmental consultation with State and local 
officials.

Unfunded Mandate

    This rule contains no Federal mandates (under the regulatory 
provisions of Title II of the Unfunded Mandate Reform Act of 1995) for 
State, local, and tribal governments or the private sector. Thus, this 
rule is not subject to the requirements of sections 202 and 205 of the 
Unfunded Mandate Reform Act of 1995.

Background

    This final regulation is being published in whole rather than just 
noting where changes were made. Nearly all the changes concern 
obtaining a grant, rather than in requirements that apply after a grant 
is awarded.
    The major change is the method in which applicants will be reviewed 
by RUS and scored. Additionally, several sections of the regulation 
were moved or restructed to make it more understandable.
    RUS has incorporated into this final rule changes in the Distance 
Learning and Telemedicine grant program as a result of the Federal 
Agriculture Improvement and Reform Act of 1996; however, this 
regulation does not address the new loan program inasmuch as funding is 
not available for a Distance Learning and Telemedicine loan program for 
fiscal year 1996. In addition, the appeal procedures outlined in 
Section 1703.118 are for the purposes of fiscal year 1996 funding.
    On April 16, 1996, RUS published proposed rule 7 CFR 1703, Distance 
Learning and Telemedicine Grant Program in the Federal Register and 
requested comment from interested parties regarding the proposed rule 
by May 16, 1996. The comments received were considered in this final 
rule. A list of the comenters and comment summaries and responses 
follows.

1. Alamo Navajo School Board, Inc., Magdalena, NM
2. Joint Comments Submitted by:
    Mississippi Band of Choctaw Indians, Philadelphia, MS
    Rock Point Community School, Rock Point, AZ
    Black Mesa School, Chinle, AZ
    Northwest Portland Indian Health Board, Portland, OR
    Three Affiliated Tribes, New Town, ND
    Skokomish Indian Tribe, Shelton, WA
    United Tribes Technical College, Bismark, ND
3. Deubrook Area Schools District No. 5-6, White, SD
4. Gershowitz Grant & Evaluation Services, Des Moines IA
5. Rural Economic Development Initiative, Tallahassee, FL
6. Florida State Rural Development Council, Tallahassee, FL
7. Republic County Unified School District No. 427, Belleville, KS
8. Winnebago Cooperative Telephone Association, Lake Mills, IA
9. Brookings School District No. 5-1, Brookings, SD
10. Congressman Pat Roberts, Kansas
11. North Central Kansas Educational Service Center, Concordia, KS
12. Lancaster and Associates, Washington, DC
13. Randy Baines, NHPF, Washington, DC
14. Office of the Inspector General, Washington, DC

    Comment Summary (Sec. 1703.101(b)(Policy). One commenter stated 
that the second sentence of Sec. 1703.101(b), which discusses 
leveraging, seems a little out of place following after a discussion of 
rural areas and greatest need. It was suggested that this idea be moved 
to the scoring criteria discussion Sec. 1703.117, which awards points 
for non-federal supplemental funds and local involvement in the 
project.
    Response. RUS believes this is an important statement of policy and 
should remain in the policy section. The

[[Page 33623]]

methods and mechanisms for evaluating the leveraging of grant funds are 
discussed in detail in Sec. 1703.117.
    Comment Summary (Sec. 1703.101(c) Policy.). The rules provide for 
the use of technology that would incidentally allow other providers of 
developers to purchase the elemental functions or access to those 
functions so other users, in addition to educational and medical users, 
many benefit from any transmission facilities receiving funding under 
this subpart. The regulations should define who the other users are and 
the criteria for determining their eligibility for accessing the 
technology.
    Response. The primary focus of this paragraph was to indicate that 
RUS policy is technology neutral. The statement relating to using 
technology that would allow others to utilize some of the excess 
capacity of the transmission facilities reflects the current practices 
in the telecommunications industry. For example, a fiber optic cable 
may have the capacity to serve hundreds of users without affecting 
service to any one individual or group of individuals. This allows each 
subscriber to share in the costs of the facilities.
    Comment Summary (Sec. 1703.101(d) Policy.). One commenter suggested 
that paragraph (d) of Sec. 1703.101 be deleted and that the regulation 
consistently reference the six major criteria in Sec. 1703.117 rather 
than add other factors throughout the regulation. The commenter 
believes that including paragraph (d) causes confusion as to what RUS 
will use to select the application and that applicants may not know the 
basis for RUS' selection: whether the scoring criteria are the key or 
other factors mentioned throughout are the key to a successful 
application. It was therefore suggested that RUS be clear in adhering 
only to its existing six scoring criteria in Sec. 1703.117 and not have 
other factors mentioned elsewhere in the regulation. Additionally, 
since there is an appeal process, clarification may remove any issues 
for contention.
    Response. The requirements in Sec. 1703.101(d) state the what, 
where, how, and why of the application and must be supplied for the 
application to be complete. Section 1703.117 lists the scoring criteria 
used to rank applications. All of the scoring criteria need not be 
addressed, however, the more points earned, the more likely an 
applicant will be successful in obtaining a grant.
    Comment Summary (Sec. 1703.101(g) Policy.). The rule states that 
applicants must consult with the Rural Development State Director, 
USDA, before submitting the application to the RUS in order to explore 
any funding sources that may be available at the State or local level. 
The regulations should explicitly describe what the State Director is 
suppose to do and how it should be documented.
    Response. Instructions for State Directors are internal operating 
procedures that do not affect the application process and could confuse 
applicants if included in this rule. The instructions will be prepared 
in the form of a USDA Staff Instruction to the State Directors.
    Comment Summary (Sec. 1703.103(a)(1) Applicant eligibility.). The 
Indian Nations and Indian organizations requested that the organization 
requirement for meeting applicant eligibility in Sec. 1703.101 be 
modified to include Indian tribes and tribal organizations as defined 
in 25 U.S.C. 450b (b) and (c).
    Response. RUS intended to extend applicant eligibility to Indian 
organizations. This section has been revised to clarify that Indian 
Nations and Tribal Organizations are eligible to apply.
    Comment Summary (Sec. 1703.103(a)(1) Applicant eligibility). One 
commenter stated that the rule, in defining a state government to be an 
eligible applicant, should be clarified to specify which state 
government-operated rural facilities are eligible to participate in the 
program.
    Response. Section 1703.103(a)(1) states a state government, other 
than a state government entity that operates a rural community 
facility, is not considered an eligible applicant. Rural community 
facility is defined in Sec. 1703.102. Therefore, any state government 
that does operate a rural community facility, as defined in 
Sec. 1703.102, may be eligible.
    Comment Summary (Sec. 1703.104(a) Allowable grant funding 
percentage, grant purposes, and in-kind matching provisions). One 
commenter recommended deleting the use of 42.85 percent to discuss the 
match funding required, stating that this wording may be confusing to 
applicants.
    Response. As stated in the rule, 42.85 percent is 30 percent of the 
maximum funding percentage provided by RUS, or the minimum amount the 
applicant must match. RUS believes the use of 42.85 percent is 
appropriate and that the parenthetical reference in paragraph (a) 
further clarifies the minimum match funding required.
    Comment Summary (Sec. 1703.104(f) Allowable grant funding 
percentage, grant purposes, and in-kind matching provisions). One 
commenter, stating that the rule provides that in kind contributions 
shall not consist of eligible equipment which has been subject to 
depreciation, suggested that this wording be changed to clarify that 
the equipment must be new, as described in paragraph (c).
    Response. This paragraph has been revised to clarify that the 
eligible equipment must not be used and must have market value.
    Comment Summary (Sec. 1703.106 Maximum and minimum sizes of a 
grant). One commenter stated that the regulation establishes the 
maximum grant amount as a percentage of the total grant funds instead 
of a maximum set at a specific dollar limit. To assist the applicant in 
planning, the regulations should explain how an applicant can obtain 
the maximum amount for its grant request.
    Response. Annual maximum grant amounts will be published in the 
Federal Register Notice indicating deadlines for application 
submissions and the amount of grant funds available, as stated in 
Sec. 1703.113.
    Comment Summary (Sec. 1703.107 The grant application). One 
commenter believed that in this section, Sec. 1703.107, there appears 
to be many selection factors mentioned that an applicant should 
consider rather than simply asking the applicant to address the factors 
that are listed as the scoring criteria. These appear primarily in the 
``Executive summary'' section. Placing additional factors in the form 
of areas the applicant must address or detail does not clarify the 
process. Rather than use new factors or a different method of phrasing 
an idea, RUS should refer to the language used in discussing the 
scoring criteria. The commenter suggested that the regulation would be 
both clearer and simpler if Sec. 1703.107(c)(2) (i) through (iv) were 
removed, and perhaps even paragraph (c)(6), and instead use the 
``Executive summary'' for addressing the criteria in Sec. 1703.117. 
Additionally, for the executive summary, paragraph (c)(3) should only 
address the economic and demographic description and types of services 
offered, information not requested elsewhere, because the benefits will 
be addressed under criterion Sec. 1703.117(d), the ``need for 
services.'' As proposed, the applicant has to discuss very similar 
issues described in different phraseology, once in the executive 
summary and then later under Sec. 1703.107(d). It would seem preferable 
to require a discussion of these issues in an executive summary by a 
simple and straightforward reference that he applicant must summarize 
each criterion in the scoring criteria Sec. 1703.117.

[[Page 33624]]

    Response. Section 1703.107 describes for the applicant all of the 
information needed in support of their application. This section sets 
forth the items which comprise the required material that must be 
submitted to RUS for a grant request. It does not, as does 
Sec. 1703.117 (Criteria for scoring applications), describe the methods 
used by RUS in evaluating grant applications. RUS does not believe 
these two sections are redundant, nor ambiguous, and therefore has not 
made the recommended change.
    Comment Summary (Sec. 1703.107(e)(2) Financial information). One 
commenter suggested this section could be made more specific and more 
precise by combining two sentences as follows: ``A pro-forma income and 
expense statement for each participating hub and end user site for the 
project covered by the application. The pro-forma statements must cover 
a minimum of 5 years after completion of the project and provide that 
the income and expense statements reflect sufficient income to pay cash 
operating expenses including telecommunications access and/or toll 
charges, system maintenance, salaries, training, and any other general 
operating expenses; . . .''.
    Response. RUS has reworded this paragraph for clarity.
    Comment Summary (Sec. 1703.107(e) (1), (2), (3), and (4) Financial 
information). Several respondents commented that the proposed rule 
includes a new requirement that applicant submit (1) a current balance 
sheet for each member of the consortium; (2) a pro forma income and 
expense statement for each participating hub and end user site covering 
a minimum of five years after completion of the project; (3) evidence 
of sources of revenue for each hub and end-user site; and (4) an 
explanation of the economic analysis justifying the rate structure. The 
commenters objected to the change in the financial reporting 
regulations stating it would be difficult and expensive to fulfill. 
Commenters understood the legitimacy of RUS' concern that grant 
recipients be financially stable and that projects be sustainable, but 
they also did not believe that the proposed financial information 
requirements are the best way to determine this, especially for 
educational applicants. The health care field has been in a state of 
flux as the result of the trend toward managed care. Therefore, 
requiring detailed financial information from these applicants is 
prudent. However, local education is far more stable and does not 
present the same concern. Moreover, the costs of assembling the 
required information may deter some needy applicants from proceeding 
with their grant proposals. It was suggested that school districts be 
allowed to submit an audit statement as in the past (or State approved 
audit report) or at least provide an exclusion for public school 
districts so that they are not required to comply with financial 
accounting procedures which are not otherwise appropriate for those 
school districts. It was also suggested that educational applicants be 
permitted to substantiate claims of sustainability in the main 
narrative using evidence of their own selection.
    One commenter also recommended that, if the reporting requirements 
are not reduced, RUS should extend the application deadline to at least 
October 15, 1996; this would allow schools a few weeks during a period 
when they are fully staffed to respond.
    Response. RUS agrees that the financial reporting requirements, 
particularly for educational institutions, may prove burdensome as it 
was stated in the proposed rule. RUS has therefore made audited 
financial statements optional instead of compulsory. With regard to 
delaying awards, RUS has committed to its customers that it will award 
the FY 1996 grants in FY 1996 and will not delay its FY 1996 
obligations.
    Comment Summary (Sec. 1703.107(e)(1) Financial information). One 
commenter stated that the regulations should require applicants to 
provide audited or certified financial information to support requests 
for grant funds to provide added assurance that the information is 
accurate.
    Response. RUS believes that requiring audited or certified 
financial statements during the application phase would be 
unnecessarily burdensome on the applicants. RUS is confident that the 
financial information obtained after grant selections are made is 
sufficient assurance of financial stability.
    Comment summary (Sec. 1703.107(o) Supplemental information). One 
commenter believed that paragraph (o) of this section was unclear as to 
whether the applicant has to prepare the Technical Questionnaire (RUS 
Form 479-A) and to what extent it was considered in determining the 
selection. The proposed rule indicates that it is desired, will be 
used, and implies that it may increase an applicant's chance of 
selection. It was therefore suggested that the Technical Questionnaire 
should be made a part of the application requirement.
    Response. RUS Form 479-A will only be required from recipients of 
grant funding. This section has been amended and the requirement to 
submit RUS Form 479-A has been addressed in Sec. 1703.122, Further 
processing of selected applications.
    Comment Summary (Sec. 1703.109 Determining what is rural). Two 
commenters expressed concern with the use of counties as a determining 
factor for rural. They noted that rural areas that contain high levels 
of unemployment and extreme levels of people on public assistance are 
sometimes located in urban counties. These rural areas would benefit 
greatly from the availability of telemedicine and distance learning 
technology. Yet, because of a rurality score of the county, which is a 
two or urban, these areas of need are effectively prevented from 
competing for these programs. The commenters suggested RUS use the same 
definition utilized by the USDA's infrastructure and business programs. 
These programs define rural to include unincorporated areas, open 
county, and cities and towns with populations up to 10,000 or 50,000 
depending on the particular program.
    Response. RUS believes that Sec. 1703.109 fairly accomplishes a 
rural test and meets the intent of providing assistance in 
predominately rural areas. In addition, paragraph (d) of this section 
allows an applicant to appeal a ruling made under this section which 
results in a denial of an application.
    Comment Summary (Sec. 1703.117(d)(1) Financial consideration of a 
project). Commenters believe that awarding increasing numbers of bonus 
points for matches up to 300% defeats RUS' intention to direct funding 
toward the least affluent communities. It was suggested that the rules 
regarding matching funds remain the same, or consider truncating the 
bonus points at a dollar for dollar match, rather than a 300% match, or 
that the bonus point schedule have an upper limit of 100% rather than 
300%.
    Response. The intent of paragraph (d)(1) is to maximize the 
benefits of a limited source of grant finding by encouraging applicants 
to seek additional sources (whether local or not) of funding to 
leverage their proposed projects. Paragraph (d)(2) further rewards 
applicants with a limited number of bonus points for local community 
funding. And in paragraph (c), the financial needs of a community are 
assessed on a per capita income basis, awarding more points for poorer 
communities. RUS believes that all communities, including least 
affluent, are represented fairly when being scored based on financial 
consideration of a project and that awarding higher points for non-
Federal matching up to 300 percent does not disadvantage one community 
over another.

[[Page 33625]]

    Comment Summary (Sec. 1703.117(d)(2) Criteria for scoring 
applications). One commenter stated that RUS should reconsider extra 
priority given to local funding sources because the Farm Bill revision 
mentions the portion of total funds provided by applicants and non-
federal sources, with no mention of local financing.
    Response. Paragraph (d)(2) awards bonus points applicants for a 
given level of local community involvement. While the maximum number of 
bonus points possible is relatively small, RUS believes that local 
community involvement in the funding process is an important indicator 
of community strength and may increase the overall benefits of the 
project to the community's residents.
    Comment Summary (Sec. 1703.117(e) The Comparative Rurality of the 
Proposed Project Service Area). Several commenters stated that under 
the previous rule, rurality was calculated according to the number of 
end user sites and that the proposed rule substitutes the number of end 
users rather than the number of sites. The commenters believe that this 
approach defeats the objective of giving greater priority to the most 
rural areas, and also lends itself to manipulation of data. Enrollments 
in the most rural communities are likely to be smaller than elsewhere, 
therefore the proposed method of calculation penalizes them for their 
low enrollments. In addition, using individuals rather than sites as 
the basis of calculations may encourage applicants to manipulate data 
in self-serving ways. The commenters suggested this section be changed 
or returned to the prior method of calculating.
    Response. RUS agrees that there may be room for some manipulation 
under the calculation for rurality as contained in the proposed rule. 
This section has been amended by reinstating the rurality calculation 
as it was described in the original rule and Appendix B has been 
removed.
    Comment Summary (Sec. 1703.117(f)(2) Criteria for scoring 
applications). One commenter suggested this section be revised 
slightly. Paragraph (f)(2)(ii), which discusses the ``desires'' of 
rural residents is not only different from the language of the law but 
appears to express the same thought as (f)(2)(i) in different terms. 
Needs and desires seem to be the same idea within the context of this 
program. ``Needs'' that are not ``desired'' by the beneficiaries cannot 
be considered needs. In addition, ``willingness to pay'' discussed in 
(f)(2)(ii) extends beyond the language and overall ideas expressed in 
the language of the revised law. Paragraph (iii) should be retained 
because it is consistent with the language of the revised law. 
Paragraph (iv) should be deleted because outcomes are really benefits 
and these are already discussed under (f)(2)(i). Paragraph (f)(2)(v) 
should be retained since it is obviously a priority factor in the 
revised law.
    Response. RUS does not agree. Paragraph (ii) describes, from the 
community standpoint, the willingness of its residents to participate 
and use the proposed services if they were available. In paragraph (i), 
the applicant is providing justification for specific types of services 
to be provided, without regard, necessarily, to usership, but rather 
based on the needs of the community as a whole. With regard to 
paragraph (iv), RUS believes that obtaining information regarding a 
projects expected outcomes, or end results, is necessary in order to 
complete the picture of the project under evaluation.
    Comment Summary (Sec. 1703.117 Criteria for scoring applications). 
One commenter stated that where only a portion of the scoring criteria 
is satisfied, the regulations should establish a minimum cutoff score 
for funding applications.
    Response. At this time, RUS does not believe a minimum scoring 
level is needed or desirable.
    Comment Summary (Sec. 1703.118 Other application selection and 
appeals provisions). One commenter suggested that applicants be able to 
appeal denial of their application for any reason rather than just an 
appeal of the numerical scoring. Further, the regulation should provide 
for appeals to be made to a party outside of RUS, since RUS would be 
reviewing its own decision. The commenter suggested that the applicant 
be allowed to review RUS' comments made in support of the score of the 
application received or the determination for denial for other reasons. 
In addition, the commenter suggests that time frames set forth for the 
appeals process is too short, particularly if funding authorization for 
FY 1996 does not expire at the end of FY 1996.
    Response. All applications, submitted in accordance with the 
application and eligibility provisions of the rule, will be scored by 
RUS. Denial of an eligible application will be based on the 
applications score, hence appeal of the score is appropriate. With 
regard to appeals made to persons outside of RUS, appeals are made to 
the Secretary of Agriculture, not RUS agency personnel. And because the 
RUS has committed to award FY 1996 grants in FY 1996, RUS is unable to 
lengthen the appeals time frames past the end of the fiscal year and 
individual responses to applicants which appeal in FY 1996 would not be 
feasible given the time frame that RUS must work with for approving 
grants this fiscal year.
    Comment Summary (Sec. 1703.118(b) Other application selection and 
appeal provisions). One commenter suggested that paragraph (b) be 
revised and condensed for clarity. In particular, by adapting language 
found later in Sec. 1703.118(c) and replacing (b) (1) through (3) with 
the following: ``The Administrator will not approve a grant application 
if he/she determines that the applicant's proposal does not show 
financial feasibility in accordance with Sec. 1703.107(e) or cannot 
meet the program purposes in Sec. 1703.100.''
    Response. RUS believes that the length and detail of this section 
is necessary to adequately inform the public of the rights reserved by 
the Administrator for application selection and the rights reserved for 
the applicants to appeal the selection process.
    Comment Summary (Sec. 1703.118(a) Other application selection and 
appeal provisions). One commenter noted that the regulations permit the 
Administrator to defer funding an eligible higher scoring application 
in favor of funding for a lower scoring application. When this occurs, 
the regulations should describe the procedure for processing these 
higher scoring applications.
    Response. This provision allows the Administrator to approve a 
lesser scoring application over a higher scoring application of a 
greater dollar amount when there are insufficient funds to provide full 
funding for the higher scoring application and the higher scoring 
applicant does not desire a lesser grant amount, or the project is not 
feasible with the lesser amount. In this event, the higher scoring 
applicant would need to wait until additional funding becomes available 
and resubmit its application for consideration at that time.
    Comment Summary (Sec. 1703.140 Expedited telecommunications 
loans.). One commenter noted that, in the background section, it is 
stated that these proposed rules do not address the new DLT loan 
program for FY 1996 because no funding is available. However, this 
section appears to contradict that statement by describing procedures 
for obtaining expedited telecommunications loans.
    Response. Expedited telecommunications loans and the DLT loan 
program are not the same. The reference to expedited loans refers to

[[Page 33626]]

loans made by the RUS' telecommunications loan program, not loans to be 
made under the new DLT loan program. Section 1703.140 covers the 
process for expedition of RUS telecommunications loans.
    Comment Summary (General). One commenter, noting that the 
requirements for preparation of the application and supporting 
documentation are extensive and will entail a considerable amount of 
time, technical expertise, and financial resources, suggested that a 
preapplication approval or preproposal process may be needed to screen 
applications with the greatest potential for funding before the entire 
application process is completed. Because of this significant initial 
investment, the procedures may favor more affluent areas or neglect 
areas where the need is the greatest but resources are not available to 
compile the information required by the regulations.
    Response. RUS believes that a ``double'' filing on behalf of 
interested applicants would be overly burdensome, cost prohibitive for 
some, and inefficient.
    RUS has determined that unless this rule is effective upon 
publication in the Federal Register, it is unlikely that much if any of 
the Fiscal Year 1996 authorization for the Distance Learning and 
Telemedicine Grant Program will be available for use by grantees before 
the authorization lapses.

List of Subjects in 7 CFR Part 1703

    Community development, Grant programs-education, grant programs-
health care, Grant programs-housing and community development, 
Reporting and recordkeeping requirements, Rural areas.

    For the reasons set forth in the preamble, chapter XVII of title 7 
of the Code of Federal Regulations is amended as follows:

PART 1703--RURAL DEVELOPMENT

    1. The authority citation for part 1703 continues to read as 
follows:

    Authority: 7 U.S.C. 901 et seq. and 950aaa et seq., Pub. L. 103-
354, 108 Stat 3178 (7 U.S.C. 6941 et seq.).

    2. Subpart D of part 1703 is revised to read as follows:

Subpart D--Distance Learning and Telemedicine Grant Program

Sec.
1703.100  Purpose.
1703.101  Policy.
1703.102  Definitions.
1703.103  Applicant eligibility.
1703.104  Allowable grant funding percentage, grant purposes, and 
in-kind matching provisions.
1703.105  Ineligible grant purposes.
1703.106  Maximum and minimum sizes of a grant.
1703.107  The grant application.
1703.108  Conflict of interest.
1708.109  Determining what is rural.
1703.110-1703.112  [Reserved]
1703.113  Application filing dates, location, processing, and public 
notification.
1703.114-1703.116  [Reserved]
1703.117  Criteria for scoring applications.
1703.118  Other application selection and appeal provisions.
1703.119-121  [Reserved]
1703.122  Further processing of selected applications.
1703.123-1703.125  [Reserved]
1703.126  Disbursement of grant funds.
1703.127  Reporting and oversight requirements.
1703.128  Audit requirements.
1703.129-1703.134  [Reserved]
1703.135  Grant administration.
1703.136  Changes in project objectives or scope.
1703.137  Grant termination provisions.
1703.138-139  [Reserved]
1703.140  Expedited telecommunications loans.
Apprendix A to Subpart D of Part 1703--ERS Rural--Urban Continuum 
Scale.
Appendix B to Subpart D of Part 1703--Environmental Questionnaire.

Subpart D--Distance Learning and Telemedicine Grant Program


Sec. 1703.100  Purpose.

    The grants provided under this subpart D are to encourage, improve, 
and make affordable the use of advanced telecommunications, computer 
networks, and related advanced technologies to provide educational and 
medical benefits through distance learning and telemedicine projects to 
people living in rural areas and to improve rural opportunities.


Sec. 1703.101   Policy.

    (a) RUS recognizes that the transmission of communications and 
information is a vital component of the infrastructure of rural areas 
and is necessary to promote rural development. Enhancing communication 
and information transmission by making affordable advanced 
telecommunications, computer networks, and related advanced 
technologies more widely available in rural areas will improve rural 
opportunities, promote rural economic growth, and enhance the quality 
of life of rural residents. To further this objective, RUS will award 
grants under this subpart to distance learning and telemedicine 
projects that will improve the access of people residing in rural areas 
to improved educational, training, and medical services, and to 
opportunities that rely on advanced communication and information 
technologies to provide such services.
    (b) In providing assistance under this subpart, RUS will give 
priority to rural areas that it believes have the greatest need of 
enhanced communications. RUS believes that generally the need is 
greatest: in the most sparsely populated rural areas; and in rural 
areas that are experiencing economic hardship. RUS will take into 
consideration the community's involvement in the project and the 
applicant's ability to leverage grant funds based on its access to 
capital.
    (c) RUS believes that the residents of rural areas and their local 
institutions which service them can best determine what are the most 
appropriate communications or information systems for use in their 
respective communities. Therefore, in administering this subpart, RUS 
will not favor or mandate the use of one particular technology over 
another. RUS does believe that it is generally desirable to use 
technology that would incidentally allow other providers or developers 
to purchase the elemental functions or access so other users, in 
addition to educational and medical users, may benefit from any 
transmission facilities receiving funding under this subpart. In 
addition, RUS believes it is generally desirable for the project to use 
products and technologies that are considered open systems. Further, 
RUS believes that it is desirable to use products and technologies that 
employ or adhere to nationally recognized standards that will permit 
equipment from various companies to be connected to the system, and 
permit the system to be connected to other systems or networks.
    (d) Applicants, if they are to be successful in obtaining grant 
funds must:
    (1) Explain the problem that the applicant is intending to solve 
using grant funds;
    (2) Explain how the applicant will use the grant as well as other 
funds to solve the problem and why this is the best solution;
    (3) Explain why RUS grant funds are needed for the project to be 
successful;
    (4) Explain how the grant will be leveraged using funds from the 
applicant, and local and non-Federal sources;
    (5) Show that rural areas are the primary beneficiaries; and,
    (6) Show that the project will be sustainable without additional 
grant funds.

[[Page 33627]]

    (e) RUS electric and telecommunications borrowers are encouraged to 
cooperate with each other and with applicants and end users in 
promoting the program being implemented under this subpart.
    (f) RUS staff will make diligent efforts to inform potential 
applicants in rural areas of the program being implemented under this 
subpart.
    (g) The applicant must check with the Rural Development State 
Director, U.S. Department of Agriculture, before submitting the 
application to RUS in order to explore any funding sources that may be 
available at the state or local level. Evidence of this consultation is 
a requirement of the grant application.


Sec. 1703.102   Definitions.

    Act means Title XXIII, subtitle D, chapter 1, of the Rural Economic 
Development Act of 1990 (7 U.S.C. 950aaa through 950aaa-4).
    Administrator means the Administrator of the Rural Utilities 
Service or his or her designee.
    Applicant means an eligible organization which applies for a grant 
under this subpart.
    Approved purpose means a purpose that RUS has specifically approved 
in the letter of agreement and scope of work covering the use of RUS 
grant funds provided to the grantee.
    Borrower means any organization which has an outstanding loan made 
by RUS or RTB, or guaranteed by RUS, or which is seeking such 
financing.
    Communication satellite ground station complex means transmitters, 
receivers, and communications antennas at the earth station site 
together with the interconnecting terrestrial transmission facilities 
(cables, line, or microwave facilities) and modulating and demodulating 
equipment necessary for processing traffic received from the 
terrestrial distribution system prior to transmission via satellite and 
the traffic received from the satellite prior to transfer to 
terrestrial distribution systems.
    Comprehensive rural telecommunications plan means the plan 
submitted by an applicant in accordance with Sec. 1703.107(a).
    Computer networks means computer hardware and software, terminals, 
signal conversion equipment including both modulators and demodulators, 
or related devices, used to communicate with other computers to process 
and exchange data through a telecommunication network in which signals 
are generated, modified, or prepared for transmission, or received, via 
telecommunications terminal equipment and telecommunications 
transmission facilities.
    Consortium means a combination or group of eligible entities formed 
to undertake the purpose of which the distance learning and 
telemedicine grant is provided. Each consortium shall be composed of 
the following:
    (1) A tertiary care facility, rural referral center, medical 
teaching institution, or educational institution accredited by the 
State;
    (2) Any number of institutions that provide health care services or 
educational services; and,
    (3) Not less than three rural hospitals, clinics, community health 
centers, migrant health centers, local health departments, or similar 
facilities, or not less than three educational institutions accredited 
by the State.
    Construct means to construct, acquire, install, improve, or extend 
a facility or system.
    Data terminal equipment means equipment that converts user 
information into data signals for transmission, or reconverts the 
received data signals into user information, and is normally found on 
the terminal of a circuit and on the premises of the end user.
    Distance learning means a telecommunications link to an end user 
through the use of eligible equipment to:
    (1) Provide educational programs, instruction, or information 
originating in nonrural areas to students and teachers who are located 
in rural areas; or
    (2) Connect teachers and/or students, located in one rural area 
with teachers and/or students that are located in a different rural 
area.
    Eligible equipment means a communication satellite ground station 
complex, computer networks, data terminal equipment, fiber-optic cable, 
interactive video equipment, microwave transmission equipment, 
telecommunications transmission facilities, and telecommunications 
terminal equipment.
    Eligible organization means an incorporated entity that meets the 
requirements of Sec. 1703.103.
    End user means either or both of the following:
    (1) Rural elementary or secondary schools or other educational 
institutions, such as institutions of higher education, county 
extension services, vocational and adult training and education 
centers, and teacher training centers, and students, teachers and 
instructors using such rural educational facilities, that participate 
in a rural distance learning telecommunications program through a 
project funded under this subpart;
    (2) Rural hospitals, primary care centers or facilities, such as 
medical centers and clinics, and physicians and staff using such rural 
medical facilities, that participate in a telemedicine 
telecommunications program through a project funded under this subpart.
    End user site means a facility located in a rural area that is part 
of a network or telecommunications system that is utilized by end 
users.
    ERS means the Economic Research Service, an agency of the United 
States Department of Agriculture.
    Grantee means a recipient of a grant from RUS to carry out the 
purposes of this subpart.
    Hub means originating source of a network or telecommunications 
system.
    Instructional programming means educational programming, including 
computer software, which would be used for tutorial purposes in 
connection with eligible equipment.
    Interactive video equipment means equipment used to produce and 
prepare for transmission audio and visual signals from at least two 
distant locations such that individuals at such locations can verbally 
and visually communicate with each other. Such equipment includes 
monitors, other display devices, cameras or other recording devices, 
audio pickup devices, and other related equipment.
    Letter of agreement means a legal document executed by RUS and the 
grantee that contains specific terms, conditions, requirements, and 
understandings applicable to a particular grant.
    Local exchange carrier means a commercial, cooperative or mutual-
type association, or public body that provides telecommunications 
service, through a local central switching office, to the subscribers 
within its designated service area, and between the local subscribers 
and the toll network.
    Project means an undertaking to provide or improve distance 
learning or telemedicine by using financial assistance from RUS under 
this subpart.
    Project service area means the area in which at least 90 percent of 
the persons to be served by the project are likely to reside.
    RE Act means the Rural Electrification Act of 1936, as amended (7 
U.S.C. 901 et seq.).
    REA means the Rural Electrification Administration, formerly an 
agency of the United States Department of Agriculture, and predecessor 
agency to RUS with respect to administering certain electric and 
telecommunications loan programs.

[[Page 33628]]

    Rural means any area of the country that meets the determining 
criteria in Sec. 1703.109.
    Rural community facilities means facilities such as schools, 
libraries, hospitals, medical centers, or similar facilities, located 
in rural areas, or primarily used by residents of rural areas, that 
will use a telecommunications, computer network, or related advanced 
technology system to provide educational and/or medical benefits 
primarily to residents of rural areas.
    RUS means the Rural Utilities Service, an agency of the United 
States Department of Agriculture established pursuant to Section 232 of 
the Federal Crop Insurance Reform and Department of Agriculture 
Reorganization Act of 1994 (Public Law 103-354, 108 Stat. 3178), 
successor to REA with respect to administering certain electric and 
telecommunications programs. See 7 CFR 1700.1.
    Scope of work means a detailed plan of work that has been approved 
by the Administrator and that will be performed by the applicant using 
funds provided under the grant.
    Secretary means the Secretary of Agriculture.
    Technical assistance means
    (1) Assistance in learning to operate equipment or systems; and
    (2) Studies, analyses, designs, reports, manuals, guides, 
literature, or other forms of creating, acquiring, and/or disseminating 
information.
    Telecommunications terminal equipment means the assembly of 
telecommunications equipment at the end of a circuit or path of a 
signal, including but not limited to over the air broadcast, satellite, 
and microwave, normally located on the premises of the end user, that 
interfaces with telecommunications transmission facilities, and that is 
used to modify, convert, encode, or otherwise prepare signals to be 
transmitted via such telecommunications facilities, or that is used to 
modify, reconvert, or carry signals received from such facilities, the 
purpose of which is to accomplish the goal for which the circuit or 
signal was established.
    Telecommunications transmission facilities means facilities that 
transmit, receive, or carry data between the telecommunications 
terminal equipment at each end of the telecommunications circuit or 
path. Such facilities include microwave antennae, relay stations and 
towers, other telecommunications antennae, fiber-optic cables and 
repeaters, coaxial cables, communication satellite ground station 
complexes, copper cable electronic equipment associated with 
telecommunications transmissions, and similar items.
    Telemedicine means a telecommunications link to an end user through 
the use of eligible equipment which electronically links medical 
professionals at separate sites in order to exchange medical 
information in audio, video, graphic, or other format for the purpose 
of providing improved health care services primarily to residents of 
rural areas.


Sec. 1703.103  Applicant eligibility.

    (a) To be eligible to receive a grant under this subpart, the 
applicant must be organized in one of the following corporate 
structures:
    (1) An incorporated organization, partnership, Indian tribes and 
tribal organizations as defined in 25 U.S.C. 450b (b) and (c), or other 
legal entity which operates, or will operate, a school, college, 
vocational training facility, or other educational institution, 
including a regional educational laboratory, library, hospital, medical 
center, medical clinic or other rural community facility. A state 
government, other than a state government entity that operates a rural 
community facility, is not considered an eligible applicant. The 
applicant may be a private or municipal corporation organized on a for-
profit or not-for-profit basis, or
    (2) A consortium, as defined in Sec. 1703.102. A consortium which 
includes a state government entity is only eligible if the state 
government entity operates a rural community facility.
    (3) An incorporated organization, partnership, or other legal 
entity which is providing or proposes to provide telemedicine service 
or distance learning service to other legal entities or consortia at 
rates calculated to ensure that the economic value and other benefits 
of the distance learning or telemedicine grant is passed through to 
such other legal entities or consortia.
    (b) At least one of the entities of a partnership or consortium 
must be eligible individually, and the partnership or consortium must 
provide written evidence of its legal capacity to contract with RUS. If 
a partnership or consortium lacks the capacity to contract, each 
individual entity must contract with RUS on its own behalf.


Sec. 1703.104  Allowable grant funding percentage, grant purposes, and 
in-kind matching provisions.

    (a) Grants may be used by eligible organizations for distance 
learning and telemedicine projects to finance up to 70 percent of the 
cost of allowable grant purposes outlined in paragraph (b) of this 
section. The applicant will, therefore, provide matching funding in an 
amount no less than 42.85 percent of the RUS grant. (If the grant 
covers 70 percent of total project costs, the applicant provides the 
other 30 percent of the project costs. Thirty percent of the project 
costs is 42.85 percent of the 70 percent, i.e., the minimum amount of 
the match.)
    (b) Grants for purposes outlined in paragraphs (b)(2) through 
(b)(6) of this section shall be limited to costs associated with 
initial capital expenses for establishing the project. The following 
are allowable grant purposes:
    (1) Acquiring, by lease or purchase, eligible equipment as defined 
in Sec. 1703.102;
    (2) Acquiring, by lease or purchase, software to operate eligible 
equipment, including any related software;
    (3) Acquiring or developing instructional programming;
    (4) Providing technical assistance and instruction for using 
eligible equipment, including any related software;
    (5) Engineering or environmental studies relating to the 
establishment or expansion of the phase of the project that is being 
financed with the RUS grant; and
    (6) Facilities, equipment, or activities and non-recurring service 
charges that are described in a comprehensive rural telecommunications 
plan which has been approved by the Administrator.
    (c) In kind matching--the applicant's minimum 30 percent funding 
contribution for allowable grant purposes, i.e., 42.85 percent matching 
of the RUS grant, generally is required in the form of cash. However, 
certain in-kind contributions may be substituted for cash as follows:
    (1) Equipment, activities and facilities as set forth in 
Sec. 1703.104(b);
    (2) Improvements made to real property necessary to accommodate 
eligible equipment;
    (3) Facilities constructed to accommodate eligible equipment, such 
as buildings in which terminal equipment and/or transmission facilities 
would be located;
    (4) Real property purchased or acquired for the sole purpose of 
accommodating distance learning and telemedicine facilities; or
    (5) The present value of long term leases of eligible equipment, 
with duration according to recognized industry standards and compatible 
with the type of equipment leased.
    (d) In kind items furnished in paragraph (c)(1) of this section 
must be non-depreciated or new assets with established monetary value 
by industry

[[Page 33629]]

standards. The value of improvements of construction paragraphs (c)(2) 
and (c)(3) of this section must be established by a qualified 
independent real property appraiser based on the actual cost of those 
improvements. The value of land in paragraph (c)(4) of this section 
must be established by a qualified independent real property appraiser 
based on a market value appraisal.
    (e) In kind contributions can be an integral component of an 
approved comprehensive rural telecommunications plan as set forth in 
Sec. 1703.107(a).
    (f) In kind contributions shall not consist of eligible equipment 
which has been subject to depreciation (used equipment), or for 
equipment, services and labor not eligible for grant funding as set 
forth in Sec. 1703.105.
    (g) Funding may be provided for end user sites. Funding may also be 
provided for hubs located in rural an non-rural areas, if they are 
necessary to provide distance learning and/or telemedicine services to 
rural residents at end user sites. However, funding will not be 
provided for sites proposed as hubs if it is not demonstrated that they 
are an integral part of the proposed network and are necessary to 
transmit distance learning and/or telemedicine services to end users.


Sec. 1703.105  Ineligible grant purposes.

    (a) Grants must not be used;
    (1) To fund more than 70 percent of the eligible costs of a project 
under this subpart;
    (2) To cover the costs of installing or constructing 
telecommunications transmission facilities, except as provided in 
paragraph (c) of this section;
    (3) To pay for medical equipment except medical equipment primarily 
used for encoding and decoding data, such as images, for transmission 
over a telecommunications or computer network;
    (4) To pay salaries, wages, or employee benefits to medical or 
educational personnel;
    (5) To pay for the salaries or administrative expenses of the 
applicant;
    (6) To purchase equipment that will be owned by the local exchange 
carrier or another telecommunications service provider;
    (7) To duplicate services in place on the date the completed 
application is received by RUS, or to reimburse the applicant or others 
for costs incurred prior to RUS's receipt of the completed application;
    (8) To pay costs of preparing the application package for funding 
under this program;
    (9) To refinance indebtedness incurred prior to receipt of the 
completed application by RUS;
    (10) For projects whose sole objective is to provide links between 
teachers and students or medical professionals who are located at the 
same facility;
    (11) For site development, the destruction of alteration of 
building, or other activities that might adversely affect the 
environment or limit the choice of reasonable alternatives unless and 
until the requirements of Sec. 1703.107(j) have been satisfied;
    (12) For projects located in areas covered by the Coastal Barrier 
Resources Act (16 U.S.C. 3501 et seq.); or
    (13) For any purpose that the Administrator has not specifically 
approved.
    (b) Except as otherwise provided in Sec. 1703.140, funds shall not 
be used to finance a project in part when success of the project is 
dependent upon the receipt of additional funding under this subpart D 
or is dependent upon the receipt of other funding that is not assured.
    (c) Grants must not be used to cover the costs of 
telecommunications transmission facilities if the local exchange 
carrier for the project area will install such facilities through the 
use of the expedited telecommunications loans made under the RE Act or 
through other financing procedures within a reasonable time period and 
at a cost that does not destroy the feasibility of the project, as 
determined by the Administrator.
    (d) Except for leases provided in Sec. 1703.104(b) (1) and (2), 
grants must not be used to pay the cost of recurring or operating 
expenses for the project.


Sec. 1703.106   Maximum and minimum sizes of a grant.

    Applications for grants to be considered under this subpart will be 
subject to limitations on the proposed amount of funding. The maximum 
grant amount that will be awarded for any one project in any given 
fiscal year will not exceed 10 percent of the appropriated funds 
available for all grants during the fiscal year in which the 
application for such project is selected. The Administrator may publish 
notice of the annual maximum grant amount in the Federal Register. An 
applicant submitting an application which exceeds the maximum will be 
notified to that effect by RUS and given the opportunity to revise the 
application. The minimum size of a grant is $50,000.


Sec. 1703.107   The grant application.

    The following items comprise the required material that must be 
submitted to RUS in support of the grant request:
    (a) Comprehensive Rural Telecommunications Plan. A Comprehensive 
Rural Telecommunications Plan, consisting of the following is required 
only when the applicant is requesting grant funds for 
telecommunications transmission facilities:
    (1) A detailed explanation of the proposed rural telecommunications 
system, how such system is to be funded, and a description of the 
intended uses for a grant received under this subpart.
    (2) The capabilities of the telecommunications transmission 
facilities, including bandwidth, networking topology, switching, 
multiplexing, standards and protocols for intra-networking and open 
systems architecture (the ability to effectively communicate with other 
networks). In addition, the applicant must explain the manner in which 
the transmission facilities will deliver the proposed services. For 
example, for medical diagnostics, the applicant might indicate whether 
or not a guest or other diagnosticians can join the network from 
locations off the network. For educational services, indicate whether 
or not all hub and end-user sites are able to simultaneously hear in 
real-time and see each other or the instructional material in real-
time. The applicant must include detailed cost estimates for operating 
and maintaining the network, and include evidence that alternative 
delivery methods and systems were evaluated.

    Note: if a local exchange carrier is providing the transmission 
facilities, the requirements of this paragraph may be omitted form 
the Comprehensive Rural Telecommunications Plan.

    (3) The capabilities of the telecommunications terminal equipment, 
including a description of the specific equipment which will be used to 
deliver the proposed service. The applicant must document discussions 
with various technical sources which could include consultants, 
engineers, product vendors, or internal technical experts, provide 
detailed cost estimates for operating and maintaining the end user 
equipment and provide evidence that alternative equipment and 
technologies were evaluated.
    (4) A listing of the proposed purchases or leases of 
telecommunications terminal

[[Page 33630]]

equipment, telecommunications transmission facilities, data terminal 
equipment, interactive video equipment, computer hardware and software 
systems, and components that process data for transmission via 
telecommunications, computer network components, communication 
satellite ground station equipment, or any other elements of the 
telecommunications system designed to further the purposes of this 
subpart, that the applicant intends to build or fund using the grant 
funds.
    (5) An explanation of the special financial or other needs of the 
affected rural communities and of the applicant for such grant 
assistance.
    (6) An analysis of the relative costs and benefits of proposals for 
leasing or purchasing of facilities, equipment, components, hardware 
and software, or other items.
    (7) A description of the consultations with the appropriate local 
exchange carrier or carriers and with a wide variety of additional 
telecommunications service providers (including other interexchange 
carriers, cable television operators, enhanced service providers, 
providers of satellite services and telecommunications equipment 
manufacturers and distributors) and the anticipated role of such 
providers in the proposed telecommunications system.
    (b) Proposed scope of work of the project. The proposed scope of 
work of the project which includes, at a minimum:
    (1) The specific activities to be performed under the project;
    (2) Who will carry out the activities;
    (3) The time-frames for accomplishing the project objectives and 
activities;
    (4) A budget for capital expenditures reflecting the line item 
costs for both the grant funds and other sources of funds for the 
project;
    (5) Information indicating the ability of the applicant to reduce 
the size or scope of the project in the event RUS funding, or other 
projected sources of funding, were reduced or delayed. The applicant 
must indicate the respective components of the project that would 
receive the highest priority of funding; and
    (6) Information about the potential of the proposed network to 
expand its size or scope if additional funding was available.
    (c) Executive summary for the project. The applicant must provide 
RUS a general project overview, verification of compliance with the 
general requirements of this subpart, and documentation of eligibility. 
The executive summary should not exceed eight one-sided double spaced 
pages, size 8.5'' x 11'', with a minimum font size of 12 points. The 
executive summary shall contain the following 10 categories:
    (1) A description of the applicant, documenting eligibility with 
Sec. 1703.103.
    (2) An explanation of:
    (i) The problem the applicant is intending to solve;
    (ii) How the applicant will use the grant funds to solve the 
problem;
    (iii) The amount of RUS grant funds required and why such grant 
funds are needed; and
    (iv) How the RUS grant funds will be leveraged, including both 
amount and source of these additional funds.
    (3) A brief economic and demographic description of the proposed 
service area, the types of educational and/or medical services to be 
offered by the project, and the benefits to the rural residents.
    (4) A physical description of the project service area. The 
applicant should include information regarding topography and available 
transportation and telecommunications infrastructure.
    (5) A description of the project as distance learning or 
telemedicine facility as defined in Sec. 1703.102. If the project 
provides both distance learning and telemedicine services, the 
applicant must identify the predominant use of the system.
    (6) A list of expected outcomes, benefits or services to be 
provided by the project. Some examples include, but are not limited to:
    (i) Improved education opportunities for a specified number of 
students;
    (ii) Travel time and money saved by telemedicine diagnosis;
    (iii) Number of doctors retained in rural areas;
    (iv) Number of additional students electing to attend higher 
education institutions,
    (v) Lives saved due to prompt medical diagnosis and treatment;
    (vi) New education courses offered, including college level 
courses; and
    (vii) Expanded use of educational facilities such as night 
training.
    (7) A general overview of the telecommunications system to be 
developed, including the types of equipment, technologies, and 
facilities used.
    (8) A description of the participating hubs and end user sites and 
the number of rural residents which will be served by the proposed 
project at each end user site.
    (9) A brief narrative describing the project service area to allow 
a determination of rural eligibility in accordance with Sec. 1703.109. 
The applicant must list all counties located in the proposed service 
area, and the Economic Research Service's Rural--Urban Continuum 
Category for each county. These categories may be obtained from RUS, 
any USDA Rural Development state office or from State Land Grant 
University Cooperative Extension Offices.
    (10) The applicant must indicate whether or not it is willing to 
have its grant application forwarded to other agencies within USDA for 
consideration in the event the application is not selected for funding 
under this subpart.
    (d) A section on compliance with scoring criteria. The applicant 
must provide a justification for the number of points the proposed 
project will obtain for each of the criteria for scoring applications 
set forth in Sec. 1703.117.
    (e) Financial information. The applicant must provide financial 
information to support the need for the grant funds for the project, 
show its financial capacity to carry out the proposed work, and show 
project feasibility. The financial information must include the 
following:
    (1) A current balance sheet from the applicant reflecting its 
financial condition. When the applicant is a partnership, company, 
corporation or other entity, current balance sheets are needed from 
each of the entities that has at least a 20 percent interest in such 
partnership, company, corporation or other entity. When the applicant 
is a consortium, a current balance sheet is needed from each member of 
the consortium and from each of the entities that has at least a 20 
percent interest in such member of the consortium. While not required, 
an audit report is preferable and must be for a period which ended no 
earlier than 12 months preceding the date of the application; and
    (2) A pro-forma income and expense statement for each participating 
hub and end user site for the project covered by the application. The 
pro-forma statements must cover a minimum of 5 years after completion 
of the project and reflect that the project is feasible and sustainable 
in order to be considered for grant funds by showing sufficient income 
to pay cash operating expenses including telecommunications access and/
or toll charges, system maintenance, salaries, training, and any other 
general operating expenses; and provide for replacement of depreciable 
items. Depreciation shall be based on Internal Revenue Service 
depreciation rules, or other recognized telecommunications industry 
guidelines. The applicant shall provide sufficient documentation to 
substantiate any depreciation projections.

[[Page 33631]]

    (3) For each hub and end user site, the applicant must identify and 
provide reasonable evidence of each source of revenue. If the 
projection relies on cost sharing arrangements among hub and end user 
sites, the applicant must provide evidence of agreements made among 
project participants.
    (4) For applicants eligible under Sec. 1703.103(a)(3), and 
explanation of the economic analysis justifying the rate structure to 
ensure that the benefit of the financial assistance is passed through 
to the other persons receiving telemedicine or distance learning 
services.
    (5) Exception. An exception is granted for K to 12 school in 
meeting the requirements of paragraphs (e)(1) through (e)(4) of this 
section. In lieu of submitting the financial data required in 
paragraphs (e)(1) through (e)(4) of this section, RUS will accept the 
current financial statements in a form currently acceptable to the 
applicant school system's county or State authority.
    (f) A statement of experience. The applicant must provide a written 
narrative (not exceeding three single spaced pages) describing its 
demonstrated capability and experience, if any, in operating an 
education or health care endeavor and any project similar to the 
proposed project. Experience in a similar project is desirable but not 
required.
    (g) Funding commitment from other sources. The applicant must 
provide evidence of the commitment of funds for the project in addition 
to the funds requested under this subpart. Evidence should be from an 
authorized representative of the source organization that the funds are 
available and will be used for the purposed project.
    (h) Proposed evaluation methodology. The applicant must provide a 
proposed method of evaluating the success of the project in meeting the 
objectives of the program as set forth in Secs. 1703.100 and 1703.101 
and the proposed scope of work.
    (i) Compliance with other Federal statutes and regulations. The 
applicant is required to submit evidence that it is in compliance with 
other Federal statutes and regulations, as detailed in Sec. 1703.33 as 
follows:
    (1) Equal opportunity and nondiscrimination requirements;
    (2) Architectural barriers;
    (3) Flood hazard area precautions;
    (4) Uniform Relocation Assistance and Real Property Acquisition for 
Federal and Federally Assisted Programs;
    (5) Drug-free workplace;
    (6) ``Certification Regarding Debarment, Suspension and Other 
Responsibility Matters--Primary Covered Transaction (See 7 CFR 
3017.510);
    (7) Intergovernmental review of Federal programs; and
    (8) Restrictions on lobbying. For an application for a grant in 
excess of $100,000, a certification statement, ``Certification 
Regarding Lobbying:'' is required. If the applicant is engaged in 
lobbying activities, the applicant must submit a completed disclosure 
form, ``Disclosure of Lobbying Activities'' (see 7 CFR part 3018).
    (j) Environmental impact and historic preservation. The applicant 
must provide details of the project's impact on the environment and 
historic preservation. Grants made under this part are subject to part 
1794 of this chapter which contains the policies and procedures of RUS 
for implementing a variety of Federal statutes, regulations and 
executive orders generally pertaining to protection of the quality of 
the human environment that are listed in Sec. 1794.1 of this chapter. 
The application shall contain a separate section entitled 
``Environmental Impact of the Project.''
    (1) Environmental information. An ``Environmental Questionnaire,'' 
appendix B to this subpart, may be used by applicants to assist in 
complying with the requirements of this section. Copies of the 
Environmental Questionnaire are available for RUS.
    (2) Grants for technical assistance projects. For a proposal to 
fund a technical assistance project, the only environmental information 
normally required is whether or not the proposed project being studied 
or analyzed will be located within an area protected under the Coastal 
Barrier Resources Act (16 U.S.C. 3501 et seq.). Generally, the use of 
Federal funds to promote development on coastal barriers is strictly 
limited by the Coastal Barrier Resources Act.
    (3) Grants for all other projects. Applications for a grant to fund 
a project that is not subject to paragraph (j)(2) of this section must 
be accompanied by the information described in this paragraph. The 
Administrator will review supporting materials in the application and 
initiate an environmental review process pursuant to part 1794 of this 
chapter. This process will focus on any environmental concerns or 
problems that are associated with the project. The level and scope of 
the environmental review will be determined in accordance with the 
National Environmental Policy Act of 1969 (NEPA), as amended, (42 
U.S.C. 4321 et seq.), the Council on Environmental Policy for 
Implementing the Procedural Provisions of NEPA (40 CFR parts 1500 
through 1508), RUS's Environmental Policies and Procedures (part 1794 
of this chapter) and other relevant Federal environmental laws, 
regulations and Executive orders. Activity related to the project that 
may adversely affect the environment or limit the choice of reasonable 
alternatives shall not be undertaken prior to completion of RUS's 
environmental review process.
    (4) For a proposed project that only involves internal 
modifications or equipment additions to buildings or other structures 
(for example, relocating interior walls or adding computer facilities) 
and/or external changes or additions to existing buildings, structures 
or facilities requiring physical disturbance of less than 0.4 hectare 
(0.99 acre) the environmental information normally required is: a 
description of the internal modifications or equipment additions, and 
the external changes or additions to existing buildings, structures or 
facilities being proposed, the size of the site in hectares, and the 
general nature of the proposed use of the facilities once the project 
is completed, including any hazardous materials to be used, created or 
discharged, any substantial amount of air emissions, wastewater 
discharge, or solid waste that will be generated.
    (k) A completed Standard Form 424 ``Application for Federal 
Assistance,'' along with a board of directors resolution authorizing 
the grant request.
    (l) Evidence of the applicant's legal existence and authority to 
enter into a grant agreement with RUS and perform activities proposed 
under the grant application.
    (m) Evidence that the applicant is not delinquent on any obligation 
owed to the Federal government (7 CFR parts 3015 and 3016).
    (n) Evidence that the applicant has consulted with the USDA State 
Director, Rural Development, concerning the availability of other 
sources of funding available at the state or local level.
    (o) Supplemental information. The applicant should provide any 
additional information it considers relevant to the project and likely 
to be helpful in determining the extent to which the proposed project 
would further the purposes of this subpart.
    (p) Additional information requested by RUS. The applicant must 
provide any additional information the Administrator may consider 
relevant to the application and necessary to adequately evaluate the 
application and make grant decisions. The Administrator may also 
request modifications or changes, including

[[Page 33632]]

changes in the amount of funds requested, in any proposal described in 
a grant application submitted under this part.


Sec. 1703.108  Conflict of interest.

    At any time prior to the disbursement of a grant awarded under this 
subpart, the Administrator may disqualify an otherwise eligible project 
whenever, in the judgment of the Administrator, the project would 
create a conflict of interest or the appearance of a conflict of 
interest. The Administrator will notify the applicant in writing of 
his/her intention to disqualify the project under this section and set 
forth the basis for his/her determination that a conflict of interest 
or appearance exists. Thereafter, the applicant will have 30 days from 
the date of such notice to file a written response with the 
Administrator. If the Administrator receives the applicant's response 
within the 30-day period, the Administrator will consider the 
information contained therein before making a final determination 
whether to disqualify the project. The Administrator will promptly 
notify the applicant of the final determination whether a conflict of 
interest or appearance of a conflict exists. If the determination is 
affirmative, the notice will also advise the applicant whether the 
project is disqualified or conditionally disqualified. If the project 
is conditionally disqualified, the notice will state under what 
circumstances the project may continue to be eligible for assistance 
under this subpart. The Administrator's decision under this section 
will be final.


Sec. 1703.109  Determining what is rural.

    The RUS Administrator shall determine whether a project service 
area possesses sufficient characteristics to be considered a rural area 
for purposes of this subpart. The Administrator shall make such 
determination on the following basis:
    (a) The project service area is located within nonmetropolitan 
counties included in one of the lowest four categories (6-9) of the ERS 
Rural--Urban Continuum Scale (rural--urban continuum) as set forth in 
appendix A to this subpart. Those categories are as follows:
    (1) Aggregate urban population (sum of cities, towns, villages or 
other incorporated communities of 2,500 or more) of less than 20,000, 
adjacent to a metropolitan area (category 6);
    (2) Urban population of less than 20,000, not adjacent to a 
metropolitan area (category 7);
    (3) Completely rural (no cities, towns, villages or other 
incorporated areas of 2,500 or greater) adjacent to a metropolitan area 
(category 8);
    (4) Completely rural, not adjacent to a metropolitan area (category 
9).
    (b) In the case of project service areas not categorized as rural 
areas under paragraph ( a) of this section, consideration will be given 
to the degree of rurality the area possesses taking into account such 
factors as:
    (1) Whether the project service area is located within the 
boundaries of an incorporated community of 2,500 persons or more as 
determined by the U.S. Census Bureau;
    (2) Where the county or counties in which the project service area 
is located rank on the rural--urban continuum;
    (3) Whether natural geographic barriers or an absence of roads may 
impede access from the project service area to metropolitan areas;
    (4) Whether the county is a spatially large county and the project 
service area is not within the commuting area of an urbanized area; and
    (5) Whether the economy of the project service area centers on 
natural resource-based activities such as farming, ranching, mining, or 
timber production, or is highly specialized.
    (c) In the case of a project that will serve end users located in 
more than one county, at least one of which is not categorized as rural 
under paragraph (a) of this section, RUS will determine the rurality of 
the project service area case-by-case using factors such as those 
identified in paragraph (b) of this section. To the extent practicable, 
in the case of a project that is expected to benefit residents of urban 
areas as well as residents of rural areas, instead of rejecting an 
application because it benefits areas they are not rural, RUS may 
allocate the grant accordingly to assure that grant funds primarily 
benefit only residents of rural areas.
    (d) If a determination made under this section results in the 
denial of an application, the applicant may appeal such determination 
to the Administrator in writing setting forth the reasons why it 
disagrees. Thereafter, the Administrator will review the determination 
and decide in writing whether to sustain, reverse or modify the 
original determination. The Administrator's determination will be 
final. A copy of the Administrator's decision will be furnished 
promptly to the applicant.


Secs. 1703.110-1703.112  [Reserved]


Sec. 1703.113  Application filing dates, location, processing, and 
public notification.

    (a) Applications for funding under this subpart shall be submitted 
to the Administrator, Rural Utilities Service, U.S. Department of 
Agriculture, 14th and Independence Avenue, SW., Washington, DC 20250-
1500. Applications should be marked ``Attention: Assistant 
Administrator, Telecommunications Program''.
    (b) Applications will be reviewed for eligibility and considered 
for funding on a quarterly or annual basis. The Administrator will 
publish a notice in the Federal Register indicating the deadline(s) for 
application submissions and the amount of available grant funds.
    (c) RUS will review each application for completeness in accordance 
with Sec. 1703.107, and notify the applicant, within 15 working days of 
the receipt of the application, of the results of this review, citing 
any information which is incomplete. To be considered, the applicant 
must submit the remaining information postmarked no later than the 
application filing deadline set forth in paragraph (b) of this section, 
or 15 working days from the receipt of RUS's letter, whichever is the 
later date. If the applicant fails to submit such information to 
complete the application in accordance with Sec. 1703.107, the 
application shall be denied and returned to the applicant.
    (d) After receipt of all completed applications, the Administrator 
will publish notice in the Federal Register of all completed 
applications received for funding under this subpart. The Administrator 
will also make those applications available for public inspection at 
the U.S. Department of Agriculture, 14th and Independence Avenue, SW., 
Washington, DC. For purposes of this paragraph, applications include 
any information not protected by the Privacy Act of 1974, 5 U.S.C. 
552a, and any other information that has not been designated as 
proprietary information by the applicant.
    (e) For instances where multiple applicants are necessary to carry 
out a project due to project feasibility or applicant authorities, 
multiple applications may be submitted jointly by the applicants. The 
applicants must clearly mark or otherwise identify any information in 
the application it deems proprietary.
    (f) The applicant must submit an original and three copies of a 
completed application. The applicant must also submit a copy of the 
application to the State government point of contact at the same time 
it submits an application to RUS. All applications must include the 
information described in Sec. 1703.107.

[[Page 33633]]

Secs. 1703.114-1703.116  [Reserved]


Sec. 1703.117  Criteria for scoring applications.

    (a) Criteria. The criteria in this section will be used by the 
Administrator to score applications that have been determined to be in 
compliance with the requirements of this subpart. There are six general 
criteria for scoring applications:
    (1) The financial need of the community and the project;
    (2) The financial composition of the project;
    (3) The comparative rurality of the proposed project service area;
    (4) The documented need for services;
    (5) Connectivity with outside networks; and
    (6) The cost effectiveness of the design.
    (b) Selection. Applications will be selected for funding based on 
scores, availability of funds, and the provisions of Sec. 1703.118. The 
Administrator will make determinations regarding the reasonableness of 
all numbers; dollar levels; rates; the nature of the project; cost; 
location; and other characteristics of the application and the proposed 
project to determine the number of points assigned to an application 
for all selection criteria. Joint applications submitted by multiple 
applicants as set forth in Sec. 1703.113 will be rated as a single 
application.
    (c) Financial need of community and project. A comparison of the 
per capita personal income in the county or counties where the project 
of the beneficiaries are located to the national per capita personal 
income levels--up to 80 points.
    (1) If the per capita personal income level in the county where the 
grant beneficiaries will be located:
    (i) Is less than equal to 80 percent of the national per capita 
personal income level, 80 points, the maximum number of points;
    (ii) Is greater than 80 percent and less than or equal to 90 
percent of the national per capita personal income level--60 points;
    (iii) Is greater than 90 percent and less than or equal to 100 
percent of the national per capita personal income level--30 points;
    (iv) Is greater than 100 percent and less than or equal to 110 
percent of the national per capita personal income level--5 points;
    (v) Exceeds 100 percent of the national per capita personal income 
level--0 points.
    (2) If the project will serve grant beneficiaries in several 
counties, the Administrator will use an unweighted mean of the counties 
for the comparison.
    (3) RUS will use the most recent annual per capita personal income 
levels it has obtained from the Bureau of Economic Analysis, U.S. 
Department of Commerce, or other government sources and processed into 
a suitable format.
    (d) Financial composition of project. A comparison of the ability 
of the applicant to contribute financially to the project, and to 
secure other non-Federal sources of funding. Criteria include:
    (1) Evidence of additional financial support for the project from 
non-Federal sources above the applicant's required 42.85 percent 
matching of the RUS grant as set forth in Sec. 1703.104; the applicant 
must include evidence from authorized representatives of the sources 
that the funds are available and will be used for the proposed 
project--up to 60 points.
    (i) Matching for allowable grant purposes less than nor equal to 50 
percent of the RUS grant--0 points;
    (ii) Matching for allowable grant purposes greater than 50 percent, 
but less than or equal to 100 percent of the RUS grant--10 points;
    (iii) Matching for allowable grant purposes greater than 100 
percent, but less than or equal to 150 percent of the RUS grant--20 
points;
    (iv) Matching for allowable grant purposes greater than 150 
percent, but less than or equal to 200 percent of the RUS grant--30 
points;
    (v) Matching for allowable grant purposes greater than 200 percent, 
but less than or equal to 250 percent of the RUS grant--40 points;
    (vi) Matching for allowable grant purposes greater than 250 
percent, but less than or equal to 300 percent of the RUS grant--50 
points;
    (vii) Matching for allowable grant purposes greater than 300 
percent of the RUS grant--60 points;
    (2) Bonus Points For Community Involvement. In addition to the 
points allocated under Sec. 1703.117(d)(1), bonus points will be scored 
for funding supplied by local sources. Criteria include:
    (i) Proportion of non-Federal sources of funding supplied by local 
sources above the applicant's required 42.85 percent matching of the 
RUS grant. For purposes of this paragraph, local funding sources shall 
constitute any for-profit or non-profit entity or entities which derive 
income from the area to be served by the proposed project, and any 
village, town, county, regional, or other local governmental or public 
entity whose jurisdiction includes at least part of the proposed 
project service area. A local funding source shall not include a state 
or Federal governmental entity. The applicant shall provide evidence 
from authorized local representatives that the funds are available and 
will be used for the proposed project--up to 20 points.
    (A) Less than or equal to 50 percent to the RUS grant supplied by 
local funding sources--0 points;
    (B) Greater than 50 percent, but less than or equal to 100 percent 
of the RUS grant supplied by local funding sources--5 points;
    (C) Grater than 100 percent, but less than or equal to 150 percent 
of the RUS grant suppled by local funding sources--10 points;
    (D) Greater than 150 percent, but less than or equal to 200 percent 
of the RUS grant supplied by local funding sources--15 points;
    (E) Greater than 200 percent of the RUS grant supplied by local 
funding sources--20 points, the maximum number of points;
    (ii) Reserved
    (e) The Comparative Rurality of the Proposed Project Service Area. 
(1) This criterion is used after a project service area has been 
determined eligible in accordance with Sec. 1703.109. The methodology 
contained in the section is used to evaluate the relative rurality 
(i.e., population and isolation) of service areas for various projects. 
Under this system, the end user sites and hubs (as defined in 
Sec. 1703.102) contained within the proposed project service area are 
identified. Then, that service area is given a score according to the 
characteristics for the county(ies) in which the end user sites are 
located. Evaluation is based on the population of the county or 
counties, and the location of the county or counties relative to 
metropolitan statistical areas. This system incorporates a framework 
based on the classification of nonmetropolitan counties by urbanization 
and proximity to metropolitan areas, developed by analysts and 
demographers at the USDA Economic Research Service (ERS), as set forth 
in appendix A to this subpart.
    (2) The following definitions are used in the evaluation of 
rurality:
    (i) Metropolitan statistical area (MSA)--as defined by the Office 
of Management and Budget (OMB), and MSA includes core counties 
containing a city of 50,000 or greater population or containing several 
smaller cities totaling 50,000 or greater population and a total 
population of at least 100,000. Additional contiguous counties are 
included in the MSA if they are economically and socially integrated 
with the core county.
    (ii) Metropolitan County--as defined by OMB, a metropolitan county 
is part

[[Page 33634]]

of an MSA and contains a place, or two adjoining places, totaling at 
least 50,000 in population, and has residents who are economically and 
socially integrated with a metropolitan core.
    (iii) Adjacency to Metropolitan area--the proximity of a county to 
an MSA measured by a shared boundary with an MSA, and having at least 2 
percent of employed county residents commuting to MSA's for employment.
    (3) If the end user site(s) for the project are located in a 
nonmetropolitan county or counties (ERS Rural--Urban Continuum Scale 
categories 4-9 as set forth in Appendix A to this subpart), the 
applicant will receive points as follows:
    (i) With an ERS category of 9--60 points, the maximum number of 
points;
    (ii) With an ERS category of 8--55 points;
    (iii) With an ERS category of 7--40 points;
    (iv) With an ERS category of 6--35 points;
    (v) With an ERS category of 5--20 points;
    (vi) With an ERS category of 4-15 points; or
    (vii) With an ERS category of 0 through 3 (metropolitan counties)--
0 points.
    (4) Applicants having proposed end users sites located in a 
nonmetropolitan county or counties which are adjacent to a metropolitan 
area, may receive an adjustment of up to 5 additional points, as 
determined by the Administrator. Applicants must document that the end 
users are isolated from urban centers by virtue of available mass 
transportation, highway infrastructure, or geography.
    (5) Applicants having proposed user sites located in a metropolitan 
county or counties (ERS categories 0-3) may receive 10 points if the 
population density of the county or counties is no greater than 110 
percent of the adjoining nonmetropolitan county with the lowest 
population density.
    (6) If all the end user sites in a proposed network or system are 
located in a single county or in multiple counties which have the same 
characteristics, a score will be assigned directly from one of the 
categories set forth in Sec. 1703.117(e)(3).
    (7) If end users sites are located in multiple counties with 
different characteristics, a weighted average will be calculated using 
the following:
    (i) The total number of end user sites located in rural areas will 
be determined and be assigned a uniform percentage to be used in a 
weighted average formula (e.g., with 5 sites, each site would be 
weighted 20%). A hub will not be counted in a weighted average unless 
the hub is also utilized as an end user site. For purposes of ranking, 
if a hub also is utilized as an end user site, the hub will be 
considered as an end user site.
    (ii) The counties which contain end user sites will be identified.
    (iii) Each end user site will be assigned a number of points 
according to the classification system for the county in which it is 
located.
    (iv) The percentage value for each site determined in step 1 will 
be multiplied by the number of points scored from the site's county 
classification.
    (v) The total points for each end user site, obtained from the 
calculations in step 4, will be added to reach a final weighted average 
for the project.
    (8) The following example illustrates the provision of paragraph 
(e)(7) of this section.

    Example Calculation. Greenbriar Valley Development Authority has 
submitted an application for an interactive classroom network which 
includes a hub in a metropolitan area and 3 end user sites, located 
in 3 rural counties. The hub is located in a large city and is not 
utilized as an end user site, so the hub will not be considered part 
of the network or system.
    The first end user site is located in the town of Midway, in 
Greenbriar County, less than 20,000 adjacent to a metropolitan area. 
Thus, it has a category of 6 on the ERS Rural--Urban Continuum 
Scale.
    The second end user site is in Lewistown, in Lewis County, which 
has an aggregate urban population of less than 20,000, not adjacent 
to a metropolitan area. Thus, it has a category of 7 on the ERS 
Rural--Urban Continuum Scale.
    The third end user site is in the town of Rocky Creek, in 
Fayette County, which has an aggregate urban population of 20,000 or 
more, but not adjacent to a metropolitan area. Thus, it has a 
category of 5 on the ERS Rural--Continuum Scale.
    Step (1) The total number of end user sites = 3; thus each end 
user site receives 33% weight in the formula.
    Step (2) The counties identified are Greenbriar, Lewis and 
Fayette.
    Step (3) Greenbriar County, ERS Rural--Urban Continuum Scale 
category 6 = 30 points;
    Lewis County, ERS Rural--Urban Continuum Scale category 7 = 35 
points;
    Fayette County, ERS Rural Urban Continuum Scale category 5 = 10 
points.
    Step (4) Midway site--30 points  x  33% = 9.9 points Lewistown 
site--35 points  x  33% = 11.6 points
    Rocky Creek site--10 points  x  33% = 3.3 points
    Step (5) 9.9 + 11.6 + 3.3 = 24.8 total weighted average score.

    (f) Documented need for services (1) This criterion will be used by 
the Administrator to score applications based on the documentation 
submitted in the support of the grant application that reflects the 
need for the services proposed by the project. The applicant should 
indicate whether or not the proposed services could be provided if RUS 
grant funds were not available. Up to 60 points can be assigned to this 
criterion.
    (2) The Administrator will consider the extent to which the need 
for improved educational or medical services in the proposed rural area 
compares to other regions. RUS will also consider any support by 
recognized experts in the related educational or medical field, and 
documentation substantiating the educationally and/or medically 
underserved nature of the applicant's proposed service area. The 
Administrator will consider the extent of the applicant's documentation 
showing:
    (i) The justification for specific educational and/or medical 
services which are needed and will provide direct benefits to rural 
residents;
    (ii) That rural residents, and other beneficiaries, desire the 
educational and/or medical services to be provided by the project (a 
strong indication of need is the willingness of local end users or 
institutions to pay, to the extent possible, for proposed services);
    (iii) The applicant's inability to pay for the proposed project 
without grant funds, given the financial strength of the applicant, its 
partners, or subsidiaries, as described in Sec. 1703.107(e)(1);
    (iv) The project's development and support based on input from the 
local residents and institutions.
    (v) The extent to which the application is consistent with the 
State strategic plan prepared by the Rural Development State Director 
of the United States Department of Agriculture.
    (3) Examples of the need for medical services could include rural 
physicians and medical professionals inability to access support 
functions, such as consulting with others on a diagnosis or access to 
the latest recommendations in treatment procedures and techniques, up-
to-date health-care research, or continuing medical studies. Other 
medical needs could be to retain more patients at the local hospital or 
medical facility in order to prevent the closure of the rural hospital 
or medical facility.
    (g) Connectivity with outside networks. (1) This criterion will be 
used by the Administrator to score applications based on the 
documentation submitted in support of the grant application that 
reflects the connectivity of the proposed projects with other 
educational and/or medical networks. Up to 25 points can be assigned to 
this criterion.

[[Page 33635]]

    (2) Consideration will be given to the extent that the proposed 
project will interconnect with other existing networks at the regional, 
statewide or national levels. RUS believes that to the extent possible, 
educational and medical networks should be designed to connect to the 
widest practicable number of other networks that expand the 
capabilities of the proposed project, thereby affording rural residents 
opportunities that may not be available at the local level.
    (3) Consideration will also be given to the extent that facilities 
constructed with federal financial assistance, particularly financial 
assistance under this chapter provided to entities other than the 
applicant, will be utilized to extend or enhance the benefits of the 
proposed project.
    (h) Cost effective design. (1) This criterion will be used by the 
Administrator to score applications based on the documentation 
submitted in the support of the grant application that reflects the 
cost efficiency of the project design. Up to 15 points can be assigned 
to this criterion.
    (2) Consideration will be given to the extent that the proposed 
technology or technologies for delivering the proposed educational and/
or medical services for the project service area are the most cost 
effective for the type of project proposed, including utilizing the 
transmission facilities of the local telecommunications provider. The 
Administrator will consider the applicant's documentation comparing 
various systems and technologies, and the choice of the applicant's 
system as being the most cost-effective system. The Administrator will 
also consider the applicant's documentation relating to buying or 
leasing options for specific equipment. The application must contain 
information necessary for the Administrator to use accepted analytical 
and financial methodologies to determine whether the applicant is 
proposing the most cost-effective option.


Sec. 1703.118  Other application selection and appeal provisions.

    (a) Regardless of the number of points an application receives in 
accordance with Sec. 1703.117, the Administrator may, based on his/her 
review of the applications in accordance with the requirements of this 
part:
    (1) Limit the number of applications selected for projects located 
in any one state during a fiscal year;
    (2) Limit the number of selected applications for a particular 
project; and
    (3) Select an application receiving fewer points than another 
higher scoring application if there are insufficient funds during a 
particular funding period to select the higher scoring application; 
provided, however, the Administrator may ask the applicant of the 
higher scoring application if it desires to reduce the amount of its 
application to the amount of funds available if, notwithstanding the 
lower grant amount, the Administrator determines the project is 
financially feasible in accordance with Sec. 1703.107(h) at the lower 
amount.
    (b) The Administrator will not approve a grant application if he/
she determines that:
    (1) The applicant's proposal does not indicate financial 
feasibility or is not sustainable in accordance with the requirements 
of Sec. 1703.107(e) (1) and (2);
    (2) The applicant's proposal indicates technical flaws, which, in 
the opinion of the Administrator, would prevent successful 
implementation, operation, or sustainability of the proposed project; 
or
    (3) Any other aspect of the applicant's proposal fails to 
adequately address any requirements of this subpart or contains 
inadequacies which would, in the opinion of the Administrator, 
undermine the ability of the project to meet the general purpose of 
this part or comply with policies of the Distance Learning and 
Telemedicine Grant Program set forth in Sec. 1703.101.
    (c) The Administrator may reduce the amount of the applicant's 
grant award based on insufficient program funding for the fiscal year 
in which the project is reviewed if the Administrator determines that, 
notwithstanding a lower grant award, the project will show financial 
feasibility in accordance with Sec. 1703.107(e), and the program 
purposes set forth in Sec. 1703.100 can be met. RUS will discuss its 
findings informally with the applicant and make every effort to reach a 
mutually acceptable agreement with the applicant. Any discussions with 
the applicant and agreements made with regard to a reduced grant amount 
will be confirmed in writing, and these actions shall be deemed to have 
met the notification requirements set forth in paragraph (d) of this 
section.
    (d) The Administrator will provide the applicant an explanation of 
any determinations made with regard to paragraphs (b)(1) through (b)(3) 
of this section prior to making final project funding selections for 
the year. The applicant will be provided 15 days from the date of the 
Administrator's letter to respond, provide clarification, or make any 
adjustments or corrections to the project. If, in the opinion of the 
Administrator, the applicant fails to adequately respond to any 
determinations or other findings made by the Administrator, the project 
will not be funded, and the applicant will be notified of this 
determination.
    (e) For Fiscal Year 1996 grant applications, RUS will notify all 
grant applicants of the numerical scoring each complete grant 
application received and the cutoff points needed to receive funding 
for Fiscal Year 1996. If the grant application numerical scoring is 
below the score necessary to obtain funding, the applicant may appeal 
the numerical scoring to the Secretary in writing not later than 10 
days after the applicant is notified of the scoring level. The 
applicant must state the reason it is appealing the numerical scoring 
and submit the reasons the application should be reconsidered. RUS will 
allow 14 days after the close of the appeal period to make the final 
grant selections for Fiscal Year 1996.
    (f) RUS reserves the right to use other data it considers most 
appropriate if ``county'' data is unavailable for a particular area. In 
those cases, the Administrator will use data compiled on a basis of the 
equivalent of a county in the state, such as a parish, or on another 
basis that most approximates ``county'' level data.


Secs. 1703.119-1703.121  [Reserved]


Sec. 1703.122  Further processing of selected applications.

    (a) During the period between the selection of the application and 
the execution of implementing documents, the applicant must inform the 
Administrator if the project is no longer viable or the applicant no 
longer desires a grant for the project. If the applicant so informs the 
Administrator, the selection will be rescinded and written notice to 
that effect shall be sent promptly to the applicant.
    (b) If an application has been selected and the nature of the 
project changes, the applicant may be required to submit a new 
application to the Administrator for consideration depending on the 
degree of change. A new application will be subject to review in 
accordance with this subpart. The selection may not be transferred to 
another project.
    (c) If state or local governments raise objections to a proposed 
project under the intergovernmental review process that are not 
resolved within 3 months of the Administrator's selection of the 
application, the Administrator may rescind the selection and written 
notice to that effect will be sent promptly to the applicant.
    (d) Recipients of grants will be required to submit RUS Form 479-A,

[[Page 33636]]

``Distance Learning and Telemedicine Technical Questionnaire.''
    (e) After an applicant has submitted such additional information, 
if any, the Administrator determines is necessary for completing the 
grant documents, the Administrator will send the documents to the 
applicant to execute and return to RUS.
    (1) The grant documents will include a letter of agreement and any 
other legal documents the Administrator deems appropriate, including 
suggested forms of certifications and legal opinions.
    (2) The letter of agreement will, among other things, constitute 
the Administrator's approval of funds for the project subject to 
certain terms and conditions and include at a minimum, a project 
description, approved purposes of the grant, the maximum amount of the 
grant, supplemental funds to be provided to the project and certain 
agreements or commitments the applicant may have proposed in its 
application.
    (f) Until the letter of agreement has been executed and delivered 
by RUS and by the applicant, the Administrator reserves the right to 
require any changes in the project or legal documents covering the 
project to protect the integrity of the program and the interests of 
the United States Government.
    (g) If the applicant fails to submit, within 120 calendar days from 
the date of the Administrator's selection of an application, all of the 
information that the Administrator determines to be necessary to 
prepare legal documents and satisfy other requirements of this subpart, 
the Administrator may rescind the selection of the application and 
written notice to that effect will be sent promptly to the applicant.


Secs. 1703.123-1703.125  [Reserved]


Sec. 1703.126  Disbursement of grant funds.

    (a) For grants of $100,000 or greater, prior to the disbursement of 
funds, the grantee, if it is not a unit of government, will provide 
evidence of fidelity bond coverage as required by Sec. 3015.17 of this 
title.
    (b) Grant funds will be disbursed to grantees on a reimbursement 
basis, or with unpaid invoices for the eligible purposes set forth in 
this subpart, by the following process:
    (a) An SF 270, ``Request for Advance or Reimbursement,'' will be 
completed by the applicant and submitted to RUS not more frequently 
than once a month; and
    (2) After receipt of a properly completed SF 270, payment will 
ordinarily be made within 30 days.
    (c) The grantee's share in the cost of the project will be 
disbursed in advance of grant funds, or if the grantee agrees, on a pro 
rata distribution basis with grant funds during the disbursement 
period. Grantee will not be permitted to provide its contribution at 
the end of the project.


Sec. 1703.127  Reporting and oversight requirements.

    (a) A project performance activity report will be required of all 
grantees on a semi-annual basis.
    (b) A final project performance report will be required. It must 
provide an evaluation of the success of the project in meeting the 
objectives of the program. The final report may serve as the last semi-
annual report.
    (c) RUS will monitor grant recipients as necessary to assure that 
projects are completed in accordance with the approved scope of work 
and that funds are expended for approved purposes. Grants made under 
this part will be administered under, and are subject to parts 3015 
through 3018 of this title.
    (d) Grantees shall diligently monitor performance to ensure that 
time schedules are being met, projected work by time periods is being 
accomplished, and other performance objectives are being achieved. 
Grantees are to submit an original and one copy of each report to RUS. 
The project performance reports shall include, but not be limited to, 
the following:
    (1) A comparison of actual accomplishments to the objectives 
established for that period;
    (2) Reasons why established objectives were not met;
    (3) A description of any problems, delays, or adverse conditions 
which have occurred, or are anticipated, and which may affect the 
attainment of overall project objectives, prevent the meeting of time 
schedules or objectives, or preclude the attainment of particular 
project work elements during established time periods. This disclosure 
shall be accompanied by a statement of the action taken or planned to 
resolve the situation; and
    (4) Objectives and timetable established for the next reporting 
period.


Sec. 1703.128  Audit requirements.

    The grantee will provide an audit report in accordance with part 
3015, subpart I, of this title. The audit requirements only apply to 
the year(s) in which grant funds are received. Audits must be prepared 
in accordance with generally accepted government auditing standards 
(GAGAS) using publication, ``Standards for Audit of Governmental 
Organization, Program, Activities and Functions.''


Secs. 1703.129-1703.134  [Reserved]


Sec. 1703.135  Grant administration.

    (a) The Administrator will review grantees, as necessary, to 
determine whether funds were expended for approved purposes. The 
grantee is responsible for ensuring that the project complies with all 
applicable regulations, and that the grant funds are expended only for 
approved purposes. The grantee is responsible for ensuring that 
disbursements and expenditures of funds are properly supported by 
invoices, contracts, bills of sale, canceled checks, or other 
appropriate forms of evidence, and that such supporting material is 
provided to the Administrator, upon request, and is otherwise made 
available, at the grantee's premises, for review by the RUS 
representatives, grantee's certified public accountant, the Office of 
Inspector General, U.S. Department of Agriculture, the General 
Accounting Office and any other officials conducting an audit of the 
grantee's financial statements or records, and program performance 
under the grant awarded under this subpart. Grantees will be required 
to permit RUS to inspect and copy any records and documents that 
pertain to the project.
    (b) Grants provided under this program will be administered under, 
and are subject to parts 3015 and 3016 of this title, as appropriate. 
Parts 3015 and 3016 of this title subject grantees to a number of 
requirements which cover, among other things, financial reporting, 
accounting records, budget controls, record retention and audits, 
bonding and insurance, cash depositories for grant funds, grant related 
income, use and disposition of real property and/or equipment purchased 
with grant funds, procurement standards, allowable costs for grant 
related activities, and grant close-out procedures.


Sec. 1703.136  Changes in project objectives or scope.

    The grantee will obtain prior approval for any material change to 
the scope or objectives of the approved project, including changes to 
the scope of work or budget. Failure to obtain prior approval of 
changes can result in suspension or termination of grant funds.


Sec. 1703.137   Grant termination provisions.

    (a) Termination for cause. The Administrator may terminate any 
grant in whole, or in part, at any time before the date of completion 
of grant disbursement, whenever it is

[[Page 33637]]

determined that the grantee has failed to comply with the conditions of 
the grant. The Administrator will promptly notify the grantee in 
writing of the determination and the reasons for the termination, 
together with the effective date.
    (b) Termination for convenience. The Administrator or the grantee 
may terminate a grant in whole, or in part, when both parties agree 
that the continuation of the project would not produce beneficial 
results commensurate with further expenditure of funds. The two parties 
will agree upon termination conditions, including the effective date, 
and in the case of partial terminations, the portion to be terminated. 
The grantee will not incur new obligations for the terminated portion 
after the effective date, and will cancel as many outstanding 
obligations as possible. The Administrator will allow full credit to 
the grantee for the Federal share of the noncancelable obligations, 
properly incurred by the grantee prior to termination.


Secs. 1703.138-1703.139   [Reserved]


Sec. 1703.140   Expedited telecommunication loans

    (a) General. (1) The Administrator will afford expedited 
consideration and determination to an application for a loan or a 
request for advance of funds submitted by a local exchange carrier 
pursuant to section 2334(h) of the Act (7 U.S.C. 950aaa et seq.).
    (2) Funds obtained through the expedited procedures established by 
this section must be used primarily to provide advanced 
telecommunication services in rural areas using a telecommunications 
project that the Administrator has approved under this subpart.
    (3) Only those elements of a telecommunications project that have 
not been funded in whole, or in part, with a grant made under this 
subpart are eligible for expedited consideration or determination under 
this section.
    (b) Expeditied loan applications. (1) In order to qualify for 
expedited consideration or determination under paragraph(a)(1) of this 
section, the loan application must:
    (i) Be from a local exchange carrier that will use the requested 
funds for the purpose set forth in paragraph(a)(2) of this section;
    (ii) Be a completed one that complies with the requirements of part 
1737, subpart C, of this chapter; and
    (iii) Be received concurrently with the related grant application 
or within 14 days of the date notice of such application is published 
in the Federal Register as set forth in Sec. 1703.113(d).
    (2) Expedited consideration and determination of a qualifying 
application for a loan under this section means that within 45 days of 
receipt or 45 days of selection of the related grant application, 
whichever occurs later, the Administrator will:
    (i) Issue a characteristics letter, as set forth in part 1737, 
subpart I, of this chapter, to the loan applicant; or
    (ii) Inform the loan applicant that its application for a loan has 
been denied.
    (c) Expedited advances. (1) In order to qualify for expedited 
consideration or determination under paragraph(a)(1) of this section, 
the request for advance of funds must:
    (i) Be from a local exchange carrier that will use the funds for 
the purpose set forth in paragraph(a)(2) of this section;
    (ii) Be for all or part of a loan which has received release 
approval pursuant to part 1737, subpart K, of this chapter; and
    (iii) Be in compliance with the requirements of part 1744 of this 
chapter.
    (2) Expedited consideration and determination of a qualifying 
request for advance of loan funds under this section means that the 
Administrator will advance funds to the borrower within 45 days of 
receiving a request which complies with the provision of this section.

Appendix A to Subpart D of Part 1703--ERS Rural--Urban Continuum 
Scale

ERS Rural--Urban Continuum Codes:

Metropolitan Counties:

    0--Central counties of metropolitan areas of 1 million 
population or more.
    1--Fringe counties of metropolitan areas of 1 million population 
or more.
    2--Counties in metropolitan areas of 250 thousand to 1 million 
population.
    3--Counties in metropolitan areas of less than 250 thousand 
population.

Nonmetropolitan Counties:

    4--Aggregate urban population (sum of cities, towns, villages or 
other incorporated communities of 2,500 or more) of 20,000 or more, 
adjacent to metropolitan area.
    5--Aggregate urban population of 20,000 or more, not adjacent to 
a metropolitan area.
    6--Aggregate urban population of 2,500 of 19,999, adjacent to a 
metropolitan area.
    7--Aggregate urban population of 2,500 to 19,999, not adjacent 
to a metropolitan area.
    8--Completely rural (no cities, towns, villages or other 
incorporated areas of 2,500 or greater) adjacent to a metropolitan 
area.
    9--Completely rural, not adjacent to a metropolitan area.

    Notes: Metropolitan status is that announced by the Office of 
Management and Budget in June 1993, when the current population 
criteria were first applied to results of the 1990 Census. Adjacency 
was determined by physical boundary adjacency and a finding that at 
least 2 percent of the employed labor force in the nonmetropolitan 
county commuted to metropolitan central counties.

Codes prepared in Rural Economy Division, Economic Research 
Service, USDA. A listing of counties and corresponding codes are 
available from ERS at the following address:

Room 337, 1301 New York Avenue, NW, Washington, DC 20005-4788, 
Phone: (202) 219-0534

or through the Internet via the ERS Home Page or directly at the 
following Internet address:

    gopher://usda.mannlib.cornell.edu:70/11data-sets/rural/89021

Appendix B to Subpart D of Part 1703--Environmental Questionnaire

    Note: It is extremely important to respond to all questions 
completely to ensure expeditious processing of the Distance Learning 
and Telemedicine grant. The information herein is required by 
Federal law.
    Important: Any activity related to the project that may 
adversely affect the environment or limit the choice of reasonable 
development alternatives shall not be undertaken prior to the 
completion of Rural Utilities Service's environmental review 
process.
Legal Name of Applicant------------------------------------------------
Signature
(Type/Sign/Date)-------------------------------------------------------

    The applicant's representative certifies, to the best of his/her 
knowledge and belief, that the information contained herein is 
accurate. Any false information may result in disqualification for 
consideration of the grant or rescission of the grant.
    I. Project Description--Detailing construction, including, but 
not limited to, internal or external modifications of existing 
structures, new building construction, and/or installation of 
telecommunications transmission facilities (defined in 7 CFR 
1703.102), including satellite uplinks or downlinks, microwave 
transmission towers, and cabling.
    1. Describe the portion of the project, and site locations 
(including legal ownership of real property), involving internal 
modifications, or equipment additions to buildings or other 
structures (e.g., relocating interior walls or adding computer 
facilities) for each site.
    2. Describe the portion of the project, and site locations 
(including legal ownership or real property) involving external 
changes or additions to existing buildings, structures or facilities 
requiring physical disturbance of less than .99 acres. List the size 
of each individual site in acres and attach a diagram showing the 
general layout of the proposed facilities for each site.
    3. Describe the portion of the project, and site locations 
(including legal ownership or real property), involving construction 
of transmission facilities, including cabling, microwave towers, 
satellite dishes; or, new construction of buildings; or, disturbance 
of

[[Page 33638]]

property of .99 acres or greater for each project site.
    4. Describe the nature of the proposed use of the facilities, 
and whether any hazardous materials, air emissions, wastewater 
discharge or solid waste will result.
    5. State whether or not any project site(s) contain or are near 
properties listed or eligible for listing in the National Register 
of Historic Places, and identify any historic properties (The 
grantee must supply evidence that the State Historic Preservation 
Officer (SHPO) has cleared development regarding any historical 
properties).
    6. Provide information whether or not any facility(ies) or 
site(s) are located in a 100-year floodplain. A National Flood 
Insurance Map should be included reflecting the location of the 
project site(s).
    II. For projects which involve construction of transmission 
facilities, including cabling, microwave towers, satellite dishes, 
new construction of buildings, or physical disturbance of real 
property of .99 acres or greater, the following information must be 
submitted (7 CFR 1703.107(j)(3))
    1. A map (preferably a U.S. Geological Survey map) of the area 
for each site affected by construction (include as an attachment).
    2. A description of the amount of property to be cleared, 
excavated, fenced or otherwise disturbed by the project and a 
description of the current land use and zoning and any vegetation 
for each project site affected by construction.
    3. A description of buildings or other structures (i.e., 
transmission facilities), including dimensions, to be constructed or 
modified.
    4. A description of the presence of wetlands or existing 
agricultural operations and/or threatened or endangered species or 
critical habitats on or near the project site(s) affected by 
construction.
    5. Describe any actions taken to mitigate any environmental 
impacts resulting from the proposed project (use attachment if 
necessary).

    Note: The applicant may submit a copy of any environmental 
review, study, assessment, report or other document that has been 
prepared in connection with obtaining permits, approvals or other 
financing for the proposed project from State, local or other 
Federal bodies. Such material, to the extent relevant, may be used 
to meet the requirements herein.

    Dated: June 21, 1996.
Jill Long Thompson,
Under Secretary, Rural Development.
[FR Doc. 96-16321 Filed 6-26-96; 8:45 am]
BILLING CODE 3410-15-M`