Document ID: FEMA-2005-0051-0001
Agency: fema
Document Type: Rule
Title: Special Community Disaster Loans Program
Posted Date: 2005-10-18T12:52:31Z

[Federal Register: October 18, 2005 (Volume 70, Number 200)]
[Rules and Regulations]               
[Page 60443-60449]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr18oc05-9]                         

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DEPARTMENT OF HOMELAND SECURITY

Federal Emergency Management Agency

[DHS-2005-0051]
RIN 1660-AA44

44 CFR Part 206

 
Special Community Disaster Loans Program

AGENCY: Federal Emergency Management Agency, Emergency Preparedness and 
Response Directorate, Department of Homeland Security.

ACTION: Interim rule with request for comments.

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SUMMARY: This interim rule implements the Special Community Disaster 
Loans Program authorized in the Community Disaster Loan Act of 2005 
(2005 Act). This interim rule describes the procedures and requirements 
for a program designed to provide loans for essential services to local 
governments that have experienced a loss in revenue due to a major 
disaster. These regulations do not apply to the traditional Community 
Disaster Loans Program which is permanently authorized.

DATES: Effective: This rule is effective October 18, 2005. Comments: 
Comments are due on or before December 19, 2005.

ADDRESSES: You may submit comments, identified by Docket DHS-2005-0051, 
Special Community Disaster Loans

[[Page 60444]]

Program, by one of the following methods:
     Federal eRulemaking Portal: http://www.regulations.gov. 

Follow the instructions for submitting comments.
     E-mail: FEMA-rules@dhs.gov. Include Docket DHS-2005-0051, 
Special Community Disaster Loans Program in the subject line of the 
message.
     Facsimile: Rules Docket Clerk, Office of General Counsel, 
Federal Emergency Management Agency, (fax) 202-646-4536. Include Docket 
DHS-2005-0051, Special Community Disaster Loans Program, in the subject 
line of the message.
     Mail or Hand Delivery/Courier: For paper, disk, or CD-ROM 
submissions, Rules Docket Clerk, Office of the General Counsel, Federal 
Emergency Management Agency, Department of Homeland Security, 500 C 
Street, SW., Washington, DC 20472. Include Docket DHS-2005-0051, 
Special Community Disaster Loans Program, in the subject line of the 
message.

FOR FURTHER INFORMATION CONTACT: James A. Walke, FEMA, 500 C Street, 
SW., Washington, DC 20472, or call (202) 646-2751, or e-mail 
james.walke@dhs.gov.

SUPPLEMENTARY INFORMATION:

Public Participation

    Interested persons are invited to participate in this rulemaking by 
submitting written data, views, or arguments on all aspects of the 
interim rule. FEMA also invites comments that relate to the economic, 
environmental, or federalism affects that might result from this 
interim rule. Comments that will provide the most assistance to FEMA in 
developing these procedures will reference a specific portion of the 
interim rule, explain the reason for any recommended change, and 
include data, information, or authority that support such recommended 
change.
    Instructions: All submissions received must include the agency name 
and docket number for this rulemaking. All comments received will be 
posted without change to http://www.regulations.gov, including any 

personal information provided.
    Docket: For access to the docket to read background documents or 
comments received, go to http://www.regulations.gov. Submitted comments 

may also be inspected at Office of General Counsel, Federal Emergency 
Management Agency, 500 C Street, SW., Room 840, Washington, DC 20472.

Background

    This interim rule implements the Community Disaster Loan Act of 
2005, Pub. L. 109-88. The 2005 Act authorizes FEMA to transfer $750 
million from the funds appropriated in the Second Emergency 
Supplemental Appropriations Act To Meet Immediate Needs Arising From 
The Consequences Of Hurricane Katrina, 2005, Pub. L. 109-62, to provide 
up to $1 billion in loan authority. For loans issued pursuant to the 
2005 Act, the 2005 Act adds three elements to the traditional program 
under section 417 of the Robert T. Stafford Disaster Relief and 
Emergency Assistance Act (Stafford Act), 42 U.S.C. 5184: (1) The 2005 
Act removes the $5 million limit on individual loans; (2) the 2005 Act 
specifies that the loans are ``to assist local governments in providing 
essential services;'' and (3) the 2005 Act makes inapplicable the loan 
cancellation provision of section 417(c)(1) of the Stafford Act.
    In determining what constitutes ``essential services,'' it is 
presumed that in light of the limited resources available to the 
governments impacted by major disasters whose revenue losses make them 
eligible for this program, proceeds from these loans will be limited to 
the performance of core municipal operating functions including police 
and fire protection, trash collection, school operation, revenue 
collection, and other services related to protecting and promoting the 
health, safety, and public welfare of the community.
    Under section 417 of the Stafford Act (42 U.S.C. 5184), loans may 
be provided to ``local governments.'' Section 102 of the Stafford Act 
(42 U.S.C. 5122) broadly defines ``local government'' to mean a county; 
municipality; city; town; township; local public authority; school 
district; special district; intrastate district; council of governments 
(regardless of whether the council of governments is incorporated as a 
nonprofit corporation under State law); regional or interstate 
government entity or agency or instrumentality of a local government; 
an Indian tribe or authorized tribal organization, or Alaska Native 
village or organization; and a rural community, unincorporated town or 
village, or other public entity, for which an application for 
assistance is made by a State or political subdivision of a State. 42 
U.S.C. 5122(6); 44 CFR 206.2(a)(16). This broad definition covers 
entities having an executive, administrative, legislative, or judicial 
nature. It may include school districts, sheriffs' offices, judicial 
bodies, district attorney offices, district courts, and water and 
sewage authorities.
    Operators of private nonprofit facilities are not eligible for 
Special Community Disaster Loans as they do not meet the definition of 
local government under the Stafford Act. However, if a local government 
deems it appropriate, it may provide proceeds from a loan under this 
Program to an operator of a private nonprofit facility that provides 
the community essential services, such as a volunteer fire department, 
volunteer emergency medical provider, or a hospital. For example, it 
may provide loan proceeds to a volunteer fire department in the 
community for expenses not otherwise available under the Stafford Act 
or other Federal sources that would be necessary for the Fire 
Department to continue to carry out their essential services to the 
community. Further, if the local government provides loan proceeds to 
the private nonprofit, the local government will be solely responsible 
for repayment of the loan and for fulfillment of all conditions of 
these regulations, which include the loan application and the 
promissory note.
    This interim rule takes effect immediately in order to allow FEMA 
to provide these loans as soon as possible to the local governments 
already impacted by Hurricanes Rita and Katrina, as Congress 
anticipated in the speedy passage of the Act. However, FEMA still seeks 
comments on this rule, especially from local governments who are 
applying for Special Community Disaster Loans, or from local 
governments that are considering applying for Special Community 
Disaster Loans, as well as citizens of these communities. Because of 
the desire to provide assistance rapidly and because much of the 
financial information required for the traditional Community Disaster 
Loans Program is to determine cancellation eligibility, which does not 
apply to the Special Community Disaster Loans Program, FEMA has 
attempted to streamline the financial and other information 
requirements that local governments need to provide to apply for a 
loan. For example, FEMA recognizes that Hurricanes Katrina and Rita may 
have damaged or destroyed many of the records of applicants. Therefore, 
if FEMA finds that the applicant cannot provide any specific 
application requirements, FEMA may waive the requirement to provide 
certain information if it is consistent with congressional intent to 
expedite assistance while still maintaining appropriate accountability 
for Federal funds.

[[Page 60445]]

    FEMA is also aware of its responsibility to the taxpayers to ensure 
that this program is operated with the appropriate level of 
accountability. Therefore, FEMA particularly welcomes comments on 
whether this interim rule effectively strikes the balance of providing 
administrative flexibility to local governments while safeguarding 
taxpayer resources.

Administrative Procedure Act

    In general, FEMA publishes a rule for public comment before issuing 
a final rule under the Administrative Procedure Act, 5 U.S.C. 533 and 
44 CFR 1.12. The Administrative Procedure Act, however, provides an 
exception from that procedure for good cause. The public benefit of 
this rule is the ability to issue loans under the Community Disaster 
Loan Act of 2005, Pub. L. 109-88, to assist local governments that have 
experienced a loss in revenue due to a major disaster so that those 
governments can provide essential municipal services. There is an 
immediate need for local governments impacted by Hurricanes Katrina and 
Rita to provide essential services to their citizens. Any delay in 
distributing these loans pending completion of notice and comment and 
publication of a final rule could have a severe impact on the health, 
safety, and welfare of the citizens of the affected local governments.
    In accordance with 5 U.S.C. 553(d)(3), FEMA has determined that 
delaying implementation of this rule to await public notice and comment 
is unnecessary, impracticable, and contrary to the public interest. 
Delay is not in the public interest and is impracticable because of the 
immediate need for local governments impacted by Hurricanes Katrina and 
Rita to provide essential services to their citizens. FEMA also finds 
good cause, under 5 U.S.C. 553(d)(3), for this interim rule to take 
effect immediately. It would be impracticable and contrary to the 
public interest to subject this interim rule to prior notice and public 
comment, or to delay its taking effect.
    Although FEMA has good cause to publish this rule without prior 
notice and comment, FEMA values public comments. As a result, FEMA is 
soliciting public comments on this interim rule and may revise the 
final rule in response to those comments. In particular FEMA invites 
comments from local governments who are applying for Special Community 
Disaster Loans, or considering doing so, as well as citizens of these 
communities.

Executive Order 12866--Regulatory Planning and Review

    Under Executive Order 12866, 58 FR 51735, October 4, 1993, a 
``significant regulatory action'' is subject to Office of Management 
and Budget (OMB) review and the requirements of Executive Order 12866. 
Section 3(f) of the Executive Order defines ``significant regulatory 
action'' as one that is likely to result in a rule that may:
    (1) Have an annual effect on the economy of $100 million or more, 
or may adversely affect in a material way the economy, a sector of the 
economy, productivity, competition, jobs, the environment, public 
health or safety, or State, local or tribal governments or communities;
    (2) Create a serious inconsistency or otherwise interfere with an 
action taken or planned by another agency;
    (3) Materially alter the budgetary impact of entitlements, grants, 
user fees, or loan programs, or the rights and obligations of 
recipients thereof; or
    (4) Raise novel legal or policy issues arising out of legal 
mandates, the President's priorities, or the principles set forth in 
the Executive Order.
    This rulemaking is considered to be an economically significant 
regulatory action under section 3(f) of Executive Order 12866. 
Accordingly, it has been reviewed by the Office of Management and 
Budget.
    The requirements of this interim rule apply only to the Special 
Community Disaster Loans under the Community Disaster Loan Act of 2005, 
Pub. L. 109-88. Community Disaster Loans issued prior to the enactment 
of Pub. L. 109-88 or other loans not issued under the authority of the 
Pub. L. 109-88 are not covered under the regulations. Consequently, 
this interim rule will not impose any additional requirements on local 
governments that are not requesting a Special Community Disaster Loan.
    Historically, FEMA has only provided an average of about $8 million 
per year in Community Disaster Loans ($233 million in the last 29 
years), and no loans have been issued since Fiscal Year 1999. Only in 
one previous year has FEMA provided Community Disaster Loans that 
exceeded $100 million. FEMA believes that this rule is economically 
significant as Congress has authorized $1 billion in new loan authority 
and lifted the $5 million limit on individual loans. The devastating 
impact of Hurricanes Katrina and Rita make it very possible that more 
than $100 million in Special Community Disaster Loans could be made 
within the next year.
    Further, the 2005 Act does not provide for loan cancellation, which 
is allowed under the traditional Community Disaster Loans Program. The 
term of a Special Community Disaster Loan is five years, unless 
extended by FEMA. FEMA may consider requests for an extension based on 
the financial condition of the local government. The total term of any 
loan under section 417(a) of the Stafford Act normally may not exceed 
ten years, but in extenuating circumstances involving financial 
hardship, the local government may request from FEMA an additional 
period beyond ten years to repay the indebtedness.
    FEMA will also have discretion to allow localities facing unique 
economic hardships to receive discounted interest rates, at levels 
consistent with the lowest rate offered by the Small Business 
Administration's disaster loan program. In addition, Special Community 
Disaster Loans will require either the State to co-sign the Promissory 
Note, or if the State declines to cosign the Promissory Note or cannot 
legally do so, the local government must pledge collateral security to 
cover the principal amount of the Note. In the event of default on the 
loan by the borrower, the FEMA claims collection officer will take 
action to recover the outstanding principal plus related interest under 
Federal debt collection authorities, including administrative offset 
against other Federal funds due the borrower and/or referral to the 
Department of Justice for judicial enforcement and collection.

Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA) mandates that an agency 
conduct an RFA analysis when an agency is ``required by section 553 * * 
*, or any other law, to publish general notice of proposed rulemaking 
for any proposed rule, or publishes a notice of proposed rulemaking for 
interpretative rule involving the internal revenue laws of the United 
States * * *.'' 5 U.S.C. 603(a). RFA analysis is not required when a 
rule is exempt from notice and comment rulemaking under 5 U.S.C. 
553(b). DHS has determined that good cause exists under 5 U.S.C. 
553(b)(B) to exempt this rule from the notice and comment requirements 
of 5 U.S.C. 553(b). Therefore no RFA analysis under 5 U.S.C. 603 is 
required for this rule.

Unfunded Mandates Reform Act of 1995

    The Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1531-1538) 
requires Federal agencies to assess the effects of their discretionary 
regulatory actions. In

[[Page 60446]]

particular, the Unfunded Mandates Reform Act addresses actions that may 
result in the expenditure by a State, local, or tribal government, in 
the aggregate, or by the private sector, of $100,000,000 or more in any 
one year. The Unfunded Mandates Reform Act does not require an 
assessment in the case of an interim rule issued without prior notice 
and public comment. Nevertheless, FEMA does not expect this rule to 
result in such an expenditure. FEMA discusses this rule's effects 
elsewhere in this preamble.

Executive Order 13132, Federalism

    This interim rule will not have substantial direct effects on the 
States, on the relationship between the National Government and the 
States, or on the distribution of power and responsibilities among the 
various levels of government. It will not preempt any State laws. In 
accordance with section 6 of Executive Order 13132, FEMA determines 
that this rule will not have federalism implications sufficient to 
warrant the preparation of a federalism impact statement.

National Environmental Policy Act

    This interim rule falls within the exclusion category of 44 CFR 
10.8 (d)(2)(ii), which addresses the preparation, revision, adoption of 
regulations, directives, manuals, and other guidance documents related 
to actions that qualify for categorical exclusions. Because no other 
extraordinary circumstances have been identified, this interim rule 
will not require the preparation of either an environmental assessment 
or an environmental impact statement as defined by the National 
Environmental Policy Act.

Paperwork Reduction Act of 1995

    This interim rule will revise information collection requirements 
currently approved under the Paperwork Reduction Act of 1995. Under the 
Paperwork Reduction Act, a person may not be penalized for failing to 
comply with an information collection that does not display a currently 
valid OMB control number.
    FEMA submitted an information collection request to the OMB for 
review and clearance in accordance with the review procedures of the 
Paperwork Reduction Act of 1995. OMB approved the requested revision of 
this information collection, which is assigned OMB control number 1660-
0083 and expires on April 30, 2006.

List of Subjects in 44 CFR Part 206

    Disaster Assistance, Community Disaster Loans, Loan Programs.

0
Accordingly, for the reasons set forth in the preamble, amend part 206 
of Chapter I of title 44 of the Code of Federal Regulations as follows:

PART 206--FEDERAL DISASTER ASSISTANCE FOR DISASTERS DECLARED ON OR 
AFTER NOVEMBER 23, 1988

0
1. The authority citation for part 206 continues to read:

    Authority: Robert T. Stafford Disaster Relief and Emergency 
Assistance Act, 42 U.S.C. 5121-5206; Reorganization Plan No. 3 of 
1978, 43 FR 41943, 3 CFR, 1978 Comp., p. 329; E.O. 12127, 44 FR 
19367, 3 CFR, 1979 Comp., p. 376; E.O. 12148, 44 FR 43239, 3 CFR, 
1979 Comp., p. 412; and E.O. 12673, 54 FR 12571, 3 CFR, 1989 Comp., 
p. 214.

0
2. Amend the subpart K of the Section Contents of part 206, by adding 
the following in proper numerical order:

Subpart K--Community Disaster Loans

Sec.

* * *

206.368-206.369 [Reserved]
206.370 Purpose and scope.
206.371 Loan program.
206.372 Responsibilities.
206.373 Eligibility criteria.
206.374 Loan application.
206.375 Loan administration.
206.376 [Reserved]
206.377 Loan repayment.
206.378-206.389 [Reserved]

0
3. Revise Sec.  206.360 to read as follows:

Sec.  206.360  Purpose.

    This subpart provides policies and procedures for local governments 
and State and Federal officials concerning the Community Disaster Loan 
program under section 417 of the Stafford Act. Sections 206.360 through 
206.367 of the subpart do not implement the Community Disaster Loan Act 
of 2005. (see Sec.  206.370).

0
4. Add Sec.  206.370 through 206.377 as follows:

Sec.  206.370  Purpose and scope.

    (a) Purpose. Sections 206.370 through 206.377 provide policies and 
procedures for local governments and State and Federal officials 
concerning the Special Community Disaster Loans program under section 
417 of the Stafford Act and the Community Disaster Loan Act of 2005, 
Public Law 109-88.
    (b) Scope. Sections 206.370 through 206.377 apply only to Special 
Community Disaster Loans under the Community Disaster Loan Act of 2005, 
Public Law 109-88. Community Disaster Loans issued prior to the 
enactment of Public Law 109-88 or other subsequent loans not issued 
under the authority of the Public Law 109-88 are not covered under 
Sec. Sec.  206.370 through 206.377.

Sec.  206.371  Loan program.

    (a) General. The Associate Director may make a Special Community 
Disaster Loan to any local government which has suffered a substantial 
loss of tax and other revenues as a result of a major disaster and 
which demonstrates a need for Federal financial assistance in order to 
provide essential services.
    (b) Amount of loan. The amount of the loan is based upon need, not 
to exceed 25 percent of the operating budget of the local government 
for the fiscal year in which the disaster occurs. The term fiscal year 
as used in this subpart means the local government's fiscal year.
    (c) Interest rate. The interest rate is the rate for five year 
maturities as determined by the Secretary of the Treasury in effect on 
the date that the Promissory Note is executed. This rate is from the 
monthly Treasury schedule of certified interest rates which takes into 
consideration the current average yields on outstanding marketable 
obligations of the United States. If an applicant can demonstrate 
unusual circumstances involving financial hardship, the Associate 
Director may approve a rate equal to the five year maturity rate plus 1 
per centum, adjusted to the nearest \1/8\ percent, and further reduced 
by one-half.
    (d) Time limitation. The Associate Director may approve a loan in 
either the fiscal year in which the disaster occurred or the fiscal 
year immediately following that year.
    (e) Term of loan. The term of the loan is 5 years, unless otherwise 
extended by the Associate Director. The Associate Director may consider 
a request for an extension of a loan based on the local government's 
financial condition. The total term of any loan under section 417(a) of 
the Stafford Act normally may not exceed 10 years from the date the 
Promissory Note was executed. However, when extenuating circumstances 
exist and the recipient demonstrates an inability to repay the loan 
within the initial 10 years, but agrees to repay such loan over an 
extended period of time, additional time may be provided for loan 
repayment (see Sec.  206.377(c)).
    (f) Use of loan funds. The local government shall use the loaned 
funds

[[Page 60447]]

to assist in providing essential services. The funds shall not be used 
to finance capital improvements nor the repair or restoration of 
damaged public facilities. The loan may not be used as the nonfederal 
share of any Federal program, including those under the Stafford Act.
    (g) Relation to other assistance. Any Special Community Disaster 
Loans made under this program shall not reduce or otherwise affect any 
commitments, grants, or other assistance under the Stafford Act or part 
206 of this title.

Sec.  206.372  Responsibilities.

    (a) The local government shall submit the financial information 
required by FEMA in the application for a Community Disaster Loan or 
other format specified by FEMA and comply with the assurances on the 
application, the terms and conditions of the Promissory Note, and 
Sec. Sec. 206.370 through Sec. Sec. 206.377. The local government shall 
send all loan application, loan administration, and loan settlement 
correspondence through the Governor's Authorized Representative (GAR) 
and the FEMA Regional Office to the FEMA Associate Director.
    (b) The GAR shall certify on the loan application that the local 
government can legally assume the proposed indebtedness and that any 
proceeds will be used and accounted for in compliance with the FEMA-
State Agreement for the major disaster. States are encouraged to take 
appropriate pre-disaster action to resolve any existing State 
impediments which would preclude a local government from incurring the 
increased indebtedness associated with a loan in order to avoid 
protracted delays in processing loan application requests resulting 
from major disasters.
    (c) The Regional Director or designee shall review each loan 
application received from a local government to ensure that it contains 
the required documents and transmit the application to the Associate 
Director. He/she may submit appropriate recommendations to the 
Associate Director.
    (d) The Associate Director, or a designee, shall execute a 
Promissory Note with the local government and shall administer the loan 
until repayment is completed and the Promissory Note is discharged.
    (e) The Associate Director or designee shall approve or disapprove 
each loan request, taking into consideration the information provided 
in the local government's request and the recommendations of the GAR 
and the Regional Director.
    (f) The FEMA Chief Financial Officer shall establish and maintain a 
financial account for each outstanding loan and disburse funds against 
the Promissory Note.

Sec.  206.373  Eligibility criteria.

    (a) Local government. (1) The local government must be located 
within the area eligible for assistance under a major disaster 
declaration. In addition, State law must not prohibit the local 
government from incurring the indebtedness resulting from a Federal 
loan.
    (2) Criteria considered by FEMA in determining the eligibility of a 
local government for a Special Community Disaster Loan include the loss 
of tax and other revenues as result of a major disaster, a demonstrated 
need for financial assistance in order to perform essential 
governmental functions, the maintenance of an annual operating budget, 
and the responsibility to provide essential services to the community. 
Eligibility for other assistance under the Stafford Act does not, by 
itself, establish entitlement to such a loan.
    (b) Loan eligibility--(1) General. To be eligible, the local 
government must show that it may suffer or has suffered a substantial 
loss of tax and other revenues as a result of a major disaster or 
emergency, and it must demonstrate a need for financial assistance in 
order to provide essential municipal services. Loan eligibility is 
based on the financial condition of the local government and a review 
of financial information and supporting documentation accompanying the 
application.
    (2) Substantial loss of tax and other revenues. The fiscal year of 
the disaster or the succeeding fiscal year is the base period for 
determining whether a local government may suffer or has suffered a 
substantial loss of revenue. Criteria used in determining whether a 
local government has or may suffer a substantial loss of tax and other 
revenue include the following disaster-related factors:
    (i) Whether the disaster caused a large enough reduction in cash 
receipts from normal revenue sources, excluding borrowing, which 
affects significantly and adversely the level and/or categories of 
essential services provided prior to the disaster;
    (ii) Whether the disaster caused a revenue loss of over 5 percent 
of total revenue estimated for the fiscal year in which the disaster 
occurred or for the succeeding fiscal year.
    (3) Demonstrated need for financial assistance. The local 
government must demonstrate a need for financial assistance in order to 
perform essential governmental functions. The criteria used in making 
this determination may include some or all of the following factors:
    (i) Whether there are sufficient funds to meet current fiscal year 
operating requirements;
    (ii) Whether there is availability of cash or other liquid assets 
from the prior fiscal year;
    (iii) Current financial condition considering projected 
expenditures for governmental services and availability of other 
financial resources;
    (iv) Ability to obtain financial assistance or needed revenue from 
State and other Federal agencies for direct program expenditures;
    (v) Debt ratio (relationship of annual receipts to debt service);
    (vi) Displacement of revenue-producing business due to property 
destruction;
    (vii) Necessity to reduce or eliminate essential services; and
    (viii) Danger of municipal insolvency.

Sec.  206.374  Loan application.

    (a) Application. (1) The local government shall submit an 
application for a Special Community Disaster Loan through the GAR. The 
loan must be justified on the basis of need and shall be based on the 
actual and projected expenses, as a result of the disaster, for the 
fiscal year in which the disaster occurred and for the 3 succeeding 
fiscal years. The loan application shall be prepared by the affected 
local government and be approved by the GAR. FEMA has determined that a 
local government, in applying for a loan as a result of having suffered 
a substantial loss of tax and other revenue as a result of a major 
disaster, is not required to first seek credit elsewhere (see Sec.  
206.377(c)).
    (2) The State exercises administrative authority over the local 
government's application. The State's review should include a 
determination that the applicant is legally qualified, under State law, 
to assume the proposed debt, and may include an overall review for 
accuracy of the submission. The GAR may request the Regional Director 
to waive the requirement for a State review if an otherwise eligible 
applicant is not subject to State administration authority and the 
State cannot legally participate in the loan application process.
    (b) Financial requirements. (1) The loan application shall be 
developed from financial information contained in the local 
government's annual operating

[[Page 60448]]

budget (see paragraph (b)(2) of this section) and shall include a 
Summary of Revenue Loss and Unreimbursed Disaster-Related Expenses, a 
Statement of the Applicant's Operating Results--Cash Position, and 
certification and assurances requested by the Associate Director.
    (i) Copies of the local government's financial reports (Revenue and 
Expense and Balance Sheet) for the 3 fiscal years immediately prior to 
the fiscal year of the disaster and the applicant's most recent 
financial statement must, unless impracticable, accompany the 
application. The local government's financial reports to be submitted 
are those annual (or interim) consolidated and/or individual official 
annual financial presentations for the General Fund and all other funds 
maintained by the local government.
    (ii) Each application for a Special Community Disaster Loan must 
also include:
    (A) A statement by the local government identifying each fund (i.e. 
General Fund, etc.) which is included as its annual Operating budget, 
and
    (B) A copy of the pertinent State statutes, ordinances, or 
regulations which prescribe the local government's system of budgeting, 
accounting and financial reporting, including a description of each 
fund account.
    (2) Operating budget. For loan application purposes, the operating 
budget is that document or documents approved by an appropriating body, 
which contains an estimate of proposed expenditures, other than capital 
outlays for fixed assets for a stated period of time, and the proposed 
means of financing the expenditures.
    (3) Operating budget increases. Budget increases due to increases 
in the level of, or additions to, municipal services not rendered at 
the time of the disaster or not directly related to the disaster shall 
be identified.
    (4) Revenue and assessment information. The applicant shall provide 
information concerning its method of tax assessment including 
assessment dates and the dates payments are due.
    (5) Estimated disaster-related expense. Unreimbursed disaster-
related expenses of a municipal operating character should be 
estimated.
    (c) Federal review. (1) The Associate Director or designee shall 
approve a Special Community Disaster Loan to the extent it is 
determined that the local government has suffered a substantial loss of 
tax and other revenues and demonstrates a need for financial assistance 
as the result of the disaster to provide essential municipal services.
    (2) Resubmission of application. If a loan application is 
disapproved, in whole or in part, by the Associate Director because of 
inadequacy of information, a revised application may be submitted by 
the local government within sixty days of the date of the disapproval. 
Decision by the Associate Director on the resubmission is final.
    (d) Special Community Disaster Loan. (1) The loan shall not exceed 
the lesser of:
    (i) The amount of projected revenue loss plus the projected 
unreimbursed disaster-related expenses of a municipal operating 
character for the fiscal year of the major disaster and the subsequent 
3 fiscal years, or
    (ii) 25 percent of the local government's annual operating budget 
for the fiscal year in which the disaster occurred.
    (2) Promissory note. (i) Upon approval of the loan by the Associate 
Director or designee, he or she, or a designated Loan Officer will 
execute a Promissory Note with the applicant. The Note must be co-
signed by the State (see paragraph (d)(2)(ii) of this section). The 
applicant should indicate its funding requirements on the Schedule of 
Loan Increments on the Note.
    (ii) If the State cannot legally cosign the Promissory Note, the 
local government must pledge collateral security, acceptable to the 
Associate Director, to cover the principal amount of the Note. The 
pledge should be in the form of a resolution by the local governing 
body identifying the collateral security.
    (e) Waiver of requirements. Notwithstanding any other provision of 
this or other sections promulgated pursuant to Public Law 109-88, the 
Associate Director may, upon the request of an applicant or loan 
recipient, waive any specific application requirement or financial 
reporting requirement (see, e.g., Sec.  206.375(a)(2)) upon a finding 
by the Associate Director that the effects of the major disaster 
prevent the applicant from fulfilling the application requirement and 
that waiving the requirements would be consistent with the purposes of 
the Community Disaster Loan Act of 2005.

Sec.  206.375  Loan administration.

    (a) Funding. (1) FEMA will disburse funds to the local government 
when requested, generally in accordance with the Schedule of Loan 
Increments in the Promissory Note. As funds are disbursed, interest 
will accrue against each disbursement.
    (2) When each incremental disbursement is requested, the local 
government shall submit a copy of its most recent financial report (if 
not submitted previously) for consideration by FEMA in determining 
whether the level and frequency of periodic payments continue to be 
justified. The local government shall also provide the latest available 
data on anticipated and actual tax and other revenue collections. 
Desired adjustments in the disbursement schedule shall be submitted in 
writing at least 10 days prior to the proposed disbursement date in 
order to ensure timely receipt of the funds.
    (b) Financial management. (1) Each local government with an 
approved Special Community Disaster Loan shall establish necessary 
accounting records, consistent with local government's financial 
management system, to account for loan funds received and disbursed and 
to provide an audit trail.
    (2) FEMA auditors, State auditors, the GAR, the Regional Director, 
the Associate Director, the Department of Homeland Security Inspector 
General, and the Comptroller General of the United States or their duly 
authorized representatives shall, for the purpose of audits and 
examination, have access to any books, documents, papers, and records 
that pertain to Federal funds, equipments, and supplies received under 
Sec. Sec.  206.370 through 206.377.
    (c) Loan servicing. (1) The applicant annually shall submit to FEMA 
copies of its annual financial reports (operating statements, balance 
sheets, etc.) for the fiscal year of the major disaster, and for each 
of the 3 subsequent fiscal years.
    (2) FEMA will review the loan periodically. The purpose of the 
reevaluation is to determine whether projected revenue losses, 
disaster-related expenses, operating budgets, and other factors have 
changed sufficiently to warrant adjustment of the scheduled 
disbursement of the loan proceeds.
    (3) FEMA shall provide each loan recipient with a loan status 
report on a quarterly basis. The recipient will notify FEMA of any 
changes of the responsible municipal official who executed the 
Promissory Note.
    (d) Inactive loans. If no funds have been disbursed from the loan 
program, and if the local government does not anticipate a need for 
such funds, the note may be cancelled at any time upon a written 
request through the State and Regional Office to FEMA.

Sec.  206.376  [Reserved]

Sec.  206.377  Loan repayment.

    (a) Prepayments. The local government may make prepayments against 
loan at any time without any prepayment penalty.

[[Page 60449]]

    (b) Repayment. Loan funds become due and payable in accordance with 
the terms and conditions of the Promissory Note. The note shall include 
the following provisions:
    (1) The term of a loan made under this program is 5 years, unless 
extended by the Associate Director. Interest will accrue on outstanding 
cash from the actual date of its disbursement by FEMA or FEMA's 
designated Disbursing Agency.
    (2) The interest amount due will be computed separately for each 
Treasury disbursement as follows: I = P X R X T, where I = the amount 
of simple interest, P = the principal amount disbursed; R = the 
interest rate of the loan; and, T = the outstanding term in years from 
the date of disbursement to date of repayment, with periods less than 1 
year computed on the basis of 365 days/year.
    (3) Each payment made against the loan will be applied first to the 
interest computed to the date of the payment, and then to the 
principal. Prepayments of scheduled installments, or any portion 
thereof, may be made at any time and shall be applied to the 
installments last to become due under the loan and shall not affect the 
obligation of the borrower to pay the remaining installments.
    (4) The Associate Director may defer payments of principal and 
interest for up to five years. However, interest will continue to 
accrue.
    (5) Any costs incurred by the Federal Government in collecting the 
note shall be added to the unpaid balance of the loan, bear interest at 
the same rate as the loan, and be immediately due without demand.
    (6) In the event of default on this note by the borrower, the FEMA 
claims collection officer will take action to recover the outstanding 
principal plus related interest under Federal debt collection 
authorities, including administrative offset against other Federal 
funds due the borrower and/or referral to the Department of Justice for 
judicial enforcement and collection.
    (c) Additional time. In unusual circumstances involving financial 
hardship, the local government may request an additional period of time 
beyond the original 10 year term to repay the indebtedness. Such 
request may be approved by the Associate Director subject to the 
following conditions:
    (1) The local government must submit documented evidence that it 
has applied for the same credit elsewhere and that such credit is not 
available at a rate equivalent to the current Treasury rate.
    (2) The principal amount shall be the original principal plus 
related interest less any payments made.
    (3) The interest rate shall be the Treasury rate in effect at the 
time the new Promissory Note is executed but in no case less than the 
original interest rate. A reduced rate may not be applied if was it was 
not previously applied to the loan.
    (4) The term of the new Promissory Note shall be for the settlement 
period requested by the local government but not greater than 10 years 
from the date the new note is executed.

Sec.  Sec.  206.378--206.389  [Reserved]

    Dated: October 14, 2005.
R. David Paulison,
Acting Director, Emergency Preparedness and Response, Federal Emergency 
Management Agency, Department of Homeland Security.
[FR Doc. 05-20920 Filed 10-17-05; 8:45 am]

BILLING CODE 4410-10-P