An interim final rule effective October 25, 1999, was published in the Federal Register on October 22, 1999 (64 FR 56945-56947, Docket No. PY-99-002). We amended 7 CFR part 56 (the regulations) by adding a definition of the term “ambient temperature,” by amending the refrigeration requirements, and by adding a labeling requirement.

Comments on the interim final rule were required to be received on or before December 21, 1999. We received five comments. They were from a research firm, an organization representing State department of agriculture officials, a consumer organization, and two industry associations.

In the interim final rule, we explained that new FSIS temperature and labeling requirements in 9 CFR part 590 became effective August 27, 1999. These new requirements implemented mandatory 1991 amendments to the EPIA. The interim changes made by the Agricultural Marketing Service (AMS) to 7 CFR part 56 are deemed necessary to avoid a conflict between the temperature and labeling requirements published by FSIS and regulations of the AMS voluntary shell egg grading program.

The research firm that commented agreed with the temperature requirement, added a note of caution concerning storage temperature changes that can cause eggs to sweat, and recommended that this issue be addressed in the regulations. The regulations already contain the requirement that every reasonable precaution be exercised to prevent the “sweating” of eggs (§ 56.76(f)(2)).

The organization representing State department of agriculture officials supported the temperature requirement. The amendatory language states that eggs should be placed under refrigeration “promptly after packaging.” This organization suggested that the meaning of “promptly” be clarified in either the regulations or the instructions to the graders. The Agency provides detailed information and explanation concerning technical aspects of the grading program in its Shell Egg Graders Handbook, where this issue will be addressed.

The consumer organization, while supporting the temperature and labeling requirements, felt that they did not go far enough. In response to food safety concerns, this organization recommended that the temperature requirement should be 41 °F instead of 45 °F, that only one specific labeling statement should be allowed, and that the statement's size and placement should be mandated. As we explained in our interim final rule, FSIS has already finalized its rule concerning refrigeration in order to comply with the legislative amendment. This amendment, dealing with voluntary grading of shell eggs, is intended to conform to the FSIS requirements of refrigeration and labeling found in 9 CFR part 590. The organization also commented that AMS should set a specific time limit for processors to move packaged eggs into coolers. AMS will address this issue in its Shell Egg Graders Handbook.

One industry association expressed concern about the industry's ability to comply with the temperature requirements established by FSIS regulations. Those regulations have been in effect since August 27, 1999. Any questions concerning them should be addressed to FSIS. The main purpose of this rule is to conform to those regulations.

The other industry association supported the refrigeration and labeling requirements, but wanted them to cover all shell eggs regulated under the EPIA and monitored under the shell egg surveillance program, not just those under the voluntary shell egg grading program. Shell eggs regulated under the EPIA are already covered by FSIS refrigeration and labeling requirements mandated in 9 CFR part 590, and the changes made by the interim final rule to 7 CFR part 56 does not alter that coverage.

Pursuant to requirements set forth in the Regulatory Flexibility Act (RFA) (5 U.S.C. 601 et seq. ), the AMS has considered the economic impact of this rule on small entities. The purpose of the RFA is to fit regulatory actions to the scale of businesses subject to such actions in order that small businesses will not be unduly or disproportionately burdened. The Small Business Administration defines small entities that produce and process chicken eggs as those whose annual receipts are less than $9,000,000 (13 CFR 121.201). Approximately 550,000 egg laying hens are needed to produce enough eggs to gross $9,000,000. Thus, entities with less than 550,000 laying hens would meet the small business definition.

The Agricultural Marketing Act of 1946, as amended, authorizes a voluntary grading program for shell eggs, with implementing regulations in 7 CFR part 56. Shell egg processors that apply for service must pay for the services rendered. These user fees are proportional to the volume of shell eggs graded, so that costs are shared by all users. Shell egg processors who meet the facility and operating requirements are entitled to pack their eggs in packages bearing official USDA grade identification when AMS graders are present to certify that the eggs meet the requirements as labeled. Plants in which these grading services are performed are called official plants. There are about 700 shell egg processors registered with the Department that have 3,000 or more laying hens. Of these, 159 are official plants that use USDA's grading service and would be subject to this rule. Of these 159 official plants, the AMS believes approximately 25 would meet the small business definition.

The EPIA, enacted in 1970, authorizes the mandatory inspection of egg products operations and the mandatory surveillance of the disposition of shell eggs that are undesirable for human consumption, with implementing regulations in 7 CFR part 59. Congress amended the refrigeration and labeling requirements of the EPIA as part of the Food, Agriculture, Conservation and Trade Act Amendments of 1991.

In 1992, the AMS proposed changes to 7 CFR part 59 to implement the 1991 EPIA amendments and to 7 CFR part 56 to make its temperature and labeling requirements consistent with part 59. Before AMS published the final rule, however, the Department consolidated food safety responsibilities under FSIS. Egg products inspection functions under the EPIA were delegated to FSIS, while shell egg surveillance and grading functions continued to be administered by AMS. FSIS promulgated a final rule with request for comments to implement the 1991 EPIA amendments in 7 CFR part 59, later redesignated as 9 CFR part 590, which became effective August 27, 1999. Among other changes, the amendments require a storage temperature at no greater than 45 °F (7.2 °C) for eggs after they have been packed into containers destined for the ultimate consumer.

Since the proposed changes to the shell egg grading regulations were not finalized, AMS is revising 7 CFR part 56 to conform to the FSIS temperature and labeling requirements mandated by the 1991 EPIA amendments. Because the proposed rule was published some years ago, AMS published this rule as an interim final rule with request for comments. We are only making changes deemed necessary to avoid conflict between the requirements of the final rule published by FSIS and the AMS shell egg grading program.

All shell egg processors that currently use or are likely to use USDA grading service typically have over 3,000 layers and are therefore required to comply with the provisions of the EPIA. Accordingly, all eggs these processors pack into consumer containers for the ultimate consumer must comply with EPIA refrigeration and labeling requirements. Additionally, industry practice is to refrigerate all processed and graded eggs the same way, whether packed into containers destined for the ultimate consumer, or only officially identified as U.S. Grade AA, A, or B.

Therefore, AMS has determined that the provisions of this rule will not impose any additional requirements on small or large egg handlers. Accordingly, it will not have a significant economic impact on a substantial number of small entities that use USDA's voluntary shell egg grading service. In addition, FSIS discussed its RFA analysis when it published its final rule for 7 CFR part 59, and determined that it would not have a significant economic impact on a substantial number of all small entities that produce and process chicken eggs.

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

This rule has been reviewed under Executive Order 12988, Civil Justice Reform. It is not intended to have retroactive effect. This rule will not preempt any State or local laws, regulations, or policies, unless they present an irreconcilable conflict with this rule. There are no administrative procedures that must be exhausted prior to any judicial challenge to the provisions of this rule.

In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq. ), the information collection and recordkeeping requirements that appear in part 56 have been previously approved by the Office of Management and Budget (OMB) under OMB control number 0581-0128. There are no new requirements provided for in this rulemaking action.

After consideration of all relevant material presented, including the comments received, we are finalizing the interim rule without change.

The Northeast Dairy Compact Commission (“Commission”) was established under authority of the Northeast Interstate Dairy Compact (“Compact”). The Compact was enacted into law by each of the six participating New England states as follows: Connecticut—Pub. L. 93-320; Maine—Pub. L. 89-437, as amended, Pub. L. 93-274; Massachusetts—Pub. L. 93-370; New Hampshire—Pub. L. 93-336; Rhode Island—Pub. L. 93-106; Vermont—Pub. L. 93-57. In accordance with Article I, Section 10 of the United States Constitution, Congress consented to the Compact in Pub. L. 104-127 (FAIR Act), Section 147, codified at 7 U.S.C. 7256. Subsequently, the United States Secretary of Agriculture, pursuant to 7 U.S.C. 7256(1), authorized implementation of the Compact. In November 1999, the Congressional consent to the Compact was extended through September 30, 2001. 7 U.S.C. 7256(3), as amended by Pub. L. 106-113 § 4.

Pursuant to its rulemaking authority under Article V, Section 11 of the Compact, the Commission concluded an informal rulemaking process and voted to adopt a compact over-order price regulation on May 30, 1997.  1 The Commission has subsequently amended and extended the compact over-order price regulation. The current compact over-order price regulation is codified at 7 CFR Chapter XIII.

The Compact requires the Commission, when establishing a compact over-order price, to “take such action as necessary and feasible to ensure that the over-order price does not create an incentive for producers to generate additional supplies of milk.” Compact Article IV, Section 9(f). As required by this section, the Commission has taken several steps to monitor milk production in New England since implementation of the over-order price regulation. In 1997, the Commission contracted with two Universities to conduct various studies, including an assessment of the cost of milk production in New England and an analysis of milk supply in the Compact region. In 1998, the Commission's Committee on Regulations and Rulemaking held five regional meetings to obtain information from the region's farmers regarding the increase in milk production in the region and the Commission's responsibilities under Article IV, Section 9(f) of the Compact. The Commission also conducted an historical review of milk supply control methods that have been attempted in the past on a national or regional level. Finally, the Commission initiated a series of informal rulemaking proceedings.

The Commission began informal rulemaking proceedings relating to milk supply management by issuing a notice on November 27, 1998. In that notice the Commission requested public comment and testimony on several subjects and issues, including whether additional supply management policies and provisions should be incorporated into the over-order price regulation.  2 The Commission specifically solicited comments on four distinct methods of addressing milk supply management through the Compact producer price payment. The four options were: (1) to establish a cap that would limit the milk eligible for the Compact payments to up to 95,000 pounds of a producer's monthly milk production; (2) to establish a cap that would limit the milk eligible for the Compact payments at the 1998 production level for farms producing in excess of 600,000 pounds per month; (3) a refund/assessment plan that would withhold an assessment from each Compact monthly pool and refund the assessed funds to only producers who did not increase their milk production during the program period; and (4) a split pool proposal that would withhold a certain amount from each monthly pool and then redistribute those funds to all eligible producers by dividing the total and paying a set percentage to all farms on an equal basis and the remainder on a per hundredweight basis.

The Commission held a public hearing to receive testimony on December 11, 1998 in Boxborough, Massachusetts and comments were received until 5:00 p.m. on December 31, 1998. At its January 13, 1999 meeting, the Commission voted to close the subjects and issues rulemaking proceeding and to refer the issues and comments and testimony received to the Committee on Regulations and Rulemaking for review and analysis. The Committee was directed to return to the Commission with its recommendations no later than the May 1999 meeting.

The Committee presented its recommendations to the Commission at the April 7, 1999 meeting. The Commission voted to initiate an informal rulemaking proceeding and to propose a specific assessment and refund program to address its responsibilities under Article IV, Section 9(f) of the Compact. 3 The assessment and refund program proposed assessing a flat rate of $250,000, or approximately four cents per hundredweight, from each producer pool. The assessment obligation would have carried forward to the next pool in any month without a Compact payment. The refund of the assessments would have been paid to only those producers who increased their milk production at a rate of one percent or less. The refund would be paid in two parts, the first at a flat rate to each eligible producer, and the second part to only those producers who reduced their milk production based on the hundredweight of milk that the current year's production was less than the prior year's production. The Commission held a public hearing on May 5, 1999 in Concord, New Hampshire and received comments until May 19, 1999.

At its meeting on June 2, 1999, and after considering the testimony and comments submitted in the rulemaking proceeding, the Commission voted to reopen the proceeding and to propose as a second option a base/excess plan, in addition to a modified assessment/refund plan. 4 The proposed base/excess plan would establish a monthly base production level for each producer, using the prior year's production in that month as the base. The producer would then only be eligible for Compact payments on the volume of milk produced in the current month up to the base volume of milk produced in the same month in the prior year. There would be no Compact payment on milk produced in excess of the base. The amended assessment and refund plan would establish an assessment of five cents per hundredweight against the producer pay price, but only in months with a Compact payment.

In 1983, the NCUA Board issued Interpretive Ruling and Policy Statement (IRPS) 83-3, Federal Credit Union Leasing of Personal Property to Members, 48 FR 52560 (November 21, 1983), stating that FCUs may lease personal property to their members if the leasing of the personal property is the functional equivalent of secured lending. In 1997, the NCUA Board determined that IRPS 83-3 would be better suited as a regulation. 62 FR 11773 (March 13, 1997). In 1998, the Board issued a notice of proposed rulemaking (NPRM) and request for comment on leasing. 63 FR 57950 (October 29, 1998). The Board evaluated the comments received and incorporated many of the suggested changes. Due to these changes to the original proposed leasing regulation, the Board issued a second NPRM and request for comment. 64 FR 55866 (October 15, 1999). The comment period for the second NPRM expired on December 17, 1999.

NCUA received twelve comments on the second proposed leasing regulation. Comments were received from three federal credit unions, two credit union trade associations, four credit union leagues, one bank trade association, one insurance company, and one leasing company. In general, the commenters support the rule, although most commenters suggest modifications. Those commenters who compared the second proposed rule to the first think the second proposal is an improvement. Specific comments are addressed in the section-by-section analysis below.

In drafting the proposed leasing regulation, the NCUA Board chose to use a plain English, question and answer format. The Board supports plain English as a means to increase regulatory comprehension and improve compliance among those affected by the regulation. Plain English drafting emphasizes the use of informative headings (often written as a question), lists and charts where appropriate, non-technical language, and sentences in the active voice. The NCUA wrote this proposed regulation as a series of questions and answers. The word “you” in an answer refers to an FCU.

This analysis contains a section-by-section summary of the second proposed rule; discusses the comments received on each section, if any; and describes any changes made as a result of those comments. The phrase “proposed section” as used below refers to draft language in the second NPRM.

Proposed § 714.1 stated that part 714 covers the standards and requirements that an FCU must follow when engaged in the lease financing of personal property. We received no comments and made no changes in the final rule.

Proposed § 714.2 stated that FCUs may engage in direct or indirect leasing, and closed-end or open-end leasing.

Proposed § 714.2(c) provides “[i]n an open-end lease, your member assumes the risk and responsibility for any difference in the estimated residual value and the actual value of the property at lease end.” Proposed § 714.2(d) provides that for a closed-end lease the FCU assumes the risk and responsibility for that same difference. Two commenters note that any excessive wear and tear on the leased property will be included in the difference between the estimated residual value and the actual value of the property at lease end so that the proposed rule apparently assigns the responsibility for excessive wear and tear differently depending on whether the lease is open-end or closed-end. One of these commenters suggests that § 714.2 be modified to place the risk and responsibility for excess wear and tear on the lessor FCU, regardless of the form of leasing. The other commenter suggests that the responsibility for excess wear and tear should always be with the member lessee.

As stated in the preamble to IRPS 83-3, the lessee is always responsible for a decrease in value due to excessive wear and tear. The lessee, with possession of the leased property, is in the best position to protect the property from excess wear and tear regardless of whether the lease is open-end or closed end. Accordingly, the Board amends § 714.2(d) to clarify that, in closed-end leasing, the member lessee will be responsible for excessive wear and tear and the FCU will be responsible for the remainder of the difference between the estimated residual value and the actual value. Proposed § 714.2(c) on open-end leasing already places the responsibility for excessive wear and tear on the member lessee and needs no modification in the final rule.

The following example illustrates the allocation of risks in closed-end leasing. Assume you, an FCU, lease a $12,000 car under a closed-end leasing arrangement. At lease inception, the car has an estimated residual value of $3,000. The lease is not covered by any residual value insurance or third-party guarantee. Assume further that, during the term of the lease, the used car market for this particular make and model softens. When the car is returned at the end of the lease, you sell it at public auction for only $2,000, which is $1,000 less than your estimated residual value. If the car suffers from normal wear and tear, you are responsible for the entire difference between the estimated residual value and the actual residual value. If, however, excess wear and tear reduced the car's actual residual value by $500, the member will be responsible for $500 and you will be responsible only for the remaining $500 of residual value loss.

Proposed § 714.3 stated that an FCU does not have to own the leased property in an indirect leasing arrangement if the FCU: (1) Receives a full assignment of the lease; (2) is named as the sole lienholder of the property; (3) enters into a security agreement with the leasing company to protect the FCU's lien on the property; and (4) takes all necessary steps to record and perfect the security interest.

One commenter supports the full assignment requirement. Three other commenters believe that the full assignment of the lease is unnecessary and decisions about how much of the lease should be assigned are best left to the discretion of the FCU. One of these three commenters noted that the Office of the Comptroller of the Currency (OCC) has no full assignment requirement in its leasing rules for national banks, and another argued that full assignment was unnecessary if the FCU “can protect its interest by possession.” The commenters opposed to full assignment did not specify any particular harm to FCUs arising from the requirement. Also, the Board notes that the one leasing company that commented on the second NPRM stated that full assignment was “unnecessary but not objectionable.” (emphasis added).

The final rule leaves the full assignment requirement intact. The full assignment requirement stems from two main concerns. First, in the event of a leasing company's bankruptcy, the failure to obtain a complete assignment of the lease may permit the bankruptcy trustee to argue that the trustee owns the lease and can treat it as an executory contract subject to repudiation. Second, the Board is concerned that advancing the funds to allow a nonmember leasing company to purchase property for leasing, and then allowing that nonmember to retain both lease and title to the underlying property, is tantamount to making a loan to a nonmember. While banks regulated by the OCC may lend money to anyone, FCUs may only lend money to members. 12 U.S.C. 1757. The second NPRM contains additional discussion of these concerns. 64 FR 55866, 55867 (October 15, 1999). Also, with regard to the comment about protection of its interest by “possession,” the FCU may protect its lease assignment by possession of the original lease documents or by an appropriate filing. U.C.C. § 9-102(1)(b) (sale of chattel paper), § 9-304(1), § 9-305. However, the FCU must still obtain a full assignment.

Two commenters object to the following statement in the preamble to the proposed § 714.3: “It (the security agreement) must set forth the terms and conditions upon which the leasing company or the member may be in default and thus entitle the FCU to take immediate possession of the property.” These commenters read the quoted language as requiring the security agreement to contain an exhaustive list of every obligation under the lease and every possible form of default.

The Board does not intend to mandate that every leasing security agreement include an exhaustive listing of obligations and defaults on those obligations. The Board does believe that an FCU “should consider the contingencies that may seriously affect (its) security and see that the security agreement specifies them as events of default.” James J. White and Robert S. Summers, Uniform Commercial Code, § 34-2 (4th ed. 1995). Section 714.3 provides that the FCU must have the right to take possession and dispose of the leased property in the event of “a default by the lessee, a default in the leasing company's obligations to you, or a material adverse change in the leasing company's financial condition.” Ultimately, the FCU must determine for itself how much detail about these and other default contingencies is included in the security agreement.

Another commenter asked whether NCUA intended to require a detailed security agreement for each lease, or whether the substance of a well-drafted security agreement could be subsumed into a lease program agreement. The Board believes that obligations and defaults may be described in the security agreement itself or may be incorporated by clear reference to some other document such as the master leasing agreement or contract. Also, a single security agreement may cover multiple leases, so long as the agreement sufficiently describes which leases are covered.

One commenter suggests that the rule should reinstate the requirement for an irrevocable power of attorney contained in the first NPRM but dropped from the second. The NCUA Board believes that a power of attorney is unnecessary for an FCU holding a well-defined and perfected security interest in the leased property. In the event of a default by a leasing company or lessee, an FCU should be able to take possession and dispose of the collateral without the power of attorney. Accordingly, the final rule no longer contains any requirement for a power of attorney. The Board notes, however, that the final rule does not prohibit an FCU from employing a power of attorney, in addition to a security agreement.

Proposed § 714.4 stated that leases must be net, full payout leases, with a maximum estimated residual value of 25% of the original cost of the leased property unless guaranteed. In a full payout lease, the FCU must recoup its entire investment in the leased property, plus the cost of financing that investment, from the lessee's payments and the estimated residual value of the leased property.

Numerous comments were directed to the guarantee requirement. Some commenters want the requirement eliminated, some want the 25% threshold raised, and others want the requirement maintained at 25% or lowered.

The commenters who want to eliminate the guarantee requirement cite the authority of national banks and federal thrifts to engage in certain leasing transactions without any guarantee. As discussed below, however, the legal authority supporting FCU leasing varies from that for national banks and federal thrifts. Unlike banks and thrifts, which have express authority to lease, FCUs have no express authority.

Prior to 1982, all federal depository institutions relied on the same source of legal authority for leasing: their express authority to lend money and the argument that leasing is incidental to this express lending authority. A lease under this incidental authority must be the equivalent of a secured loan. Dependence on the residual value to recover the depository institution's costs involves risks that are unlike those of secured lending and, hence, the residual value must “contribute insubstantially” to the institution's recovery of its costs. M&M Leasing Corporation v. Seattle First National Bank , 563 F.2d 1377, 1384 (9th Cir. 1977), cert. denied, 436 U.S. 956 (1978). For national banks, the OCC quantified M&M Leasing 's “insubstantial” contribution at 25%, and required any reliance above 25% be guaranteed. 12 CFR 23.21(a)(2). The NCUA adopted this same 25% limit on the unguaranteed portion of the residual value in IRPS 83-3.

In the 1980s, Congress provided national banks and federal thrifts with additional, express statutory authority to conduct leasing activities in an aggregate amount not to exceed ten percent of assets. See the Garn—St. Germain Depository Institutions Act of 1982, Pub. L. No. 97-320, § 330(3), codified at 12 U.S.C. 1464(c)(2)(A); and the Competitive Banking Equality Act of 1987 (CEBA), Pub. L. No. 100-86, § 108, codified at 12 U.S.C. 24(Tenth). This express leasing authority empowers national banks and federal thrifts to assume increased risks in areas unique to leasing, including residual value risk. For example, in the Senate Report accompanying CEBA's grant of express authority to national banks, the Senate Committee on Banking, Housing, and Urban Affairs stated its expectation that with the express authority to lease “the Comptroller will relax or eliminate the residual value limitation [on national banks] in the Comptroller's regulation in a manner consistent with sound banking practices.” S. Rep. No. 100-19, at 42 (1987). Accordingly, neither OCC nor OTS require residual value guarantees for leases aggregating less than ten percent of assets and so covered by express leasing authority. See 12 CFR part 23, subpart B; 12 CFR 560.41(d). However, both the OCC and OTS still require residual value guarantees for banks and thrifts for leases in excess of ten percent of assets and thus subject to the restrictions on residual value risk enunciated in M&M Leasing. See 12 CFR part 23, subpart C; 12 CFR 560.41(c), (b)(2).

One commenter that supported elimination of the guarantee requirement asks, in the alternative, if credit unions with a demonstrated ability to handle risk could set the unguaranteed portion of the residual at some level higher than 25% of original cost. Other commenters support the guarantee at its current 25% level or feel that the 25% level should be lowered. The Board has carefully considered whether it should set the unguaranteed portion of the residual at some level other than the 25% figure contained in IRPS 83-3. As discussed below, the Board is not inclined to vary from the long-standing 25% limitation.

Any increase in the unguaranteed residual value above 25% may cause the unguaranteed residual to “contribute substantially” to the recovery of an FCU's costs and thus render the FCU's leasing program illegal under M&M Leasing . The line between “substantial” and “insubstantial” is imprecise and not susceptible to exact quantification. Nevertheless, the Board considers a 25% contribution to cost recovery as insubstantial, and any figure larger than 25% as problematic. The OCC has used the current 25% figure for decades.

Also, the Board believes that the economic impact of the guarantee requirement is not significant. Insurance companies offer reasonably-priced residual value insurance that satisfies the current 25% requirement. In vehicle leasing, for example, a policy with a 25% deductible can generally be obtained for a small, one-time premium of between one-half to one percent of the estimated residual value. In addition, the Board is aware of FCUs that purchase residual insurance in coverage amounts exceeding the requirements of the rule and yet remain competitive in their vehicle leasing markets.

The Board also considered the possibility of tightening the 25% guarantee requirement. The Board notes that, with the authority to put up to 25% of the original cost at risk, credit unions may still suffer significant losses if actual residual values fall short of estimates. Nevertheless, in the past FCUs have handled this risk well. The Board is willing to allow FCUs to use their business judgment in deciding how to handle residual value risks up to the 25% level.

One commenter suggests that instead of tying the guarantee to 25% of the original cost, it should be tied to “a certain percentage of the blue book value.” The Board believes that the guarantee requirement is best tied to an FCU's actual investment in the property, as the key to loss avoidance in leasing is recovery of costs. Also, the leasing regulation covers leasing of all personal property, not just vehicles. No particular publication such as the “blue book” provides property values on every form of personal property. The leasing rule's guarantee requirement is stated in terms flexible enough to cover all personal property leasing.

Five commenters request that any guarantee requirement extend only to the amount of the estimated residual needed to satisfy the full payout test. These commenters believe that the proposed rule, which separates the residual value guarantee requirement from the full payout test, is inconsistent with the OCC leasing rule and IRPS 83-3. The Board concurs with these commenters. The full payout test requires that FCUs plan to recover all leasing costs from the combination of lease payments and the estimated residual value. The guarantee requirement is intended to protect an FCU against the possibility of excessive residual losses. The Board believes that an FCU should only be required to guarantee the portion of the estimated residual value that is above 25% of the original investment that is needed to meet the full payout requirement, meaning the amount an FCU relies on to recover its costs. The Board has changed the final rule to connect the guarantee requirement clearly with the full payout test. This connection results in a lesser guarantee requirement and a corresponding reduction in the burden on FCUs. An illustration of the effect of the final rule follows.

Assume you, an FCU, pay $12,000 for a car and lease it under a closed-end leasing arrangement. Assume that your internal cost of financing is $2,000 and that lease payments over the life of the lease will be $8,500. To meet the full payout requirement, you must recover $14,000 (your investment and the cost of financing) from the lease payments and your estimated residual value. Thus, in addition to the $8,500 in lease payments, you will be relying on $5,500 in residual value to meet the full payout requirement. You only have to guarantee the portion of the residual value on which you rely to meet the full payout requirement that exceeds 25% of the cost of the car, in this case, $3,000. Thus, the amount of the residual value that must be guaranteed will be $2,500 ($5,500-$3,000).

For leases with estimated residual values in excess of 25% of original cost and subject to the guarantee requirement, two commenters were uncertain whether an FCU may assume the first dollars of residual risk or must guarantee the first dollars. These commenters request clarification.

Neither the proposed rule nor the IRPS require that FCUs guarantee the first dollars of residual risk. Conversely, neither the rule nor the IRPS require that FCUs assume the first dollar of residual risk. FCUs are free to guarantee or assume the first dollars of residual risk as they deem appropriate. The Board is aware that insurers offer residual value policies with deductibles that place the first dollars of risk on the FCU. Such policies are an acceptable form of guarantee.

The Board also notes that residual value insurance policies offer different payout formulae. For example, one form of insurance pays the difference between the estimated residual value and the actual sales price of the property at the time of disposition. Another, more common form pays the difference between the estimated residual value and the average price being obtained for the given type of property at the time of disposition. Either of these payout formulae, with appropriate deductibles, is permissible for FCUs. However, if the FCU elects to purchase residual insurance that relies on average sale prices rather than the specific sale proceeds from the property at lease end, the FCU should ensure the terms of insurance are reasonable in relation to the method the FCU uses to dispose of the leased property. For example, if the FCU expects to dispose of leased vehicles at wholesale auction, it should use residual insurance that pays based on wholesale prices. Likewise, if the FCU expects to get most of its leased vehicles back in “average” condition, it should look for insurance tied to that condition.

Seven commenters object to language in the preamble to the second NPRM on the financing of certain costs associated with the lease. The preamble states that the financing of mechanical breakdown protection, credit life and disability premiums, and license and registration fees raised safety and soundness concerns and these services should not be financed. The preamble cites a specific concern that an FCU will have little or no value in the collateral to secure the financing of the additional costs. The commenters generally recognized the problem with undercollateralization but do not believe a blanket prohibition on the financing of particular items was the best response. As one commenter put it, “the problem of undercollateralization is best determined by how much is financed relative to the collateral, not by what expenses are financed.” Some commenters note that the current industry practice among banks and credit unions is to finance some or all of these costs in particular cases. Some commenters suggest that FCUs should adopt lease-to-value guidelines similar to the loan-to-value guidelines used in lending programs, such as a maximum lease investment (or loan investment) of 110% of the vehicle's MSRP.

The Board remains concerned that FCUs not overextend themselves but recognizes that a blanket prohibition on the financing of certain enumerated services is not the best approach to this issue. Instead, the Board recommends that FCUs take appropriate measures to ensure that their leases are properly collateralized and their leasing programs remain the functional equivalent of secured lending.

Proposed § 714.5 provided that an estimated residual value greater than 25% of the original cost of the leased property may be used if a financially capable party guarantees the amount above 25% of the original cost of the property. If the guarantor is an insurance company, the guarantor must have an A.M. Best rating of at least a B+ or the equivalent from another major rating company. The FCU must have financial documentation on hand demonstrating that the guarantor has the resources to meet the guarantee.

Two commenters object to the establishment of a minimum rating for insurance companies. One of these commenters cites state regulation of insurance companies as sufficient to establish any particular company's soundness. A third commenter agreed with the concept of a minimum rating but thought it should be tougher than B+, such as a minimum “A” or “AA” rating.

The NCUA Board believes that establishing a minimum rating standard ensures that an insurance company guarantor will have the resources to meet the guarantee. A Best's rating of B+ is the lowest rating that is considered by Best to be “secure,” while any rating lower than a B+ is considered to be “vulnerable.” FCUs that satisfy the guarantee requirement through residual insurance are dependent on the insurance company's ability to pay residual claims when the leases end, often years into the future. The Board believes that FCUs should not use insurers who are identifiable as financially vulnerable.

The requirement for a residual insurer to maintain a B+ rating also makes it easier for an FCU using an insurance company to satisfy the financial documentation requirement of § 714.5. An FCU that maintains a recent report indicating that their residual insurer is rated B+ or better would meet the minimum documentation requirements. If the FCU desires to use the Internet, an up-to-date rating can be obtained at any time both cheaply and quickly.

One commenter, citing IRPS 83-3 and current OCC rules, requests that § 714.5 be amended to specifically exclude an affiliate of the FCU from acting as residual value guarantor. The Board notes that credit union service organizations (CUSOs) have specified, limited powers. 12 CFR part 712. Although CUSOs may engage in insurance brokerage or agency activities, they have no authority to assume insurable risks, such as residual value risk, for FCUs or other entities. 12 U.S.C. 1757(7); 12 CFR 712.5, 712.6; 51 FR 10353, 10357 (March 26, 1986). The Board does not believe a modification to § 714.5 is necessary.

Proposed § 714.6 states that an FCU must retain salvage powers over the leased property. NCUA received no comments on this section, and it remains unchanged.

Proposed § 714.7 provides that the FCU must maintain a contingent liability insurance policy with an endorsement for leasing or be named as the co-insured. The insurance company must have a rating of at least B+. The lessee must carry the normal liability and collateral protection insurance on the leased property, and the FCU must be named as an additional insured on the liability insurance policy and as the loss payee on the collateral protection insurance policy.

Two commenters suggest that the phrase “collateral protection insurance” be replaced with “physical damage” or “property insurance” to more accurately reflect the type of insurance a lessee would purchase. The Board concurs with these commenters. The Board replaced the phrase “collateral protection insurance” with “property insurance,” which would include protection from physical damage, loss, or theft.

Proposed § 714.8 stated that the interest rate provisions of the NCUA lending rule are not applicable to lease transactions. Proposed § 714.8 also exempted lease transactions from the NCUA lending rules on early payment. NCUA received no comments on this section, and it remains unchanged in the final version.

Proposed § 714.9 provided that indirect leasing arrangements are not subject to the purchase of eligible obligation rules set forth in § 701.23 if the lease complies with the FCU's leasing polices and the FCU receives a full assignment of the lease no more than five business days after it is signed by the member and the leasing company.

Two commenters object to the five-business-day requirement. One commenter believes the time required to transfer paper in indirect lending is similar to that required in indirect leasing and states that many retail installment contracts are not received within five days. This commenter recommends changing the five-business-day requirement to thirty business days. The other commenter states that the five-day language does not mirror the “very soon” language employed in the eligible obligations rule and that the difference may cause confusion. The eligible obligations rule has a provision specifying which indirect lending and indirect leasing obligations will be classified as loans and not as eligible obligations for purposes of the aggregate 5% limitation imposed on eligible obligations. 12 CFR 701.23(b)(3)(iv). One of the specified criteria for excluding indirect leasing arrangements from this 5% limitation is that the “lease contract [be] assigned to the federal credit union very soon after it is signed.” The latter commenter prefers that the “very soon” language of the eligible obligations rule be used in § 714.9, the corresponding provision of the leasing rule. For consistency between the leasing rule and the eligible obligations rule and to maintain flexibility, the Board has replaced the language of the proposed § 714.9 with a direct reference to § 701.23(b)(3)(iv) including a restatement of its requirements.

Proposed § 714.10 set forth the additional laws with which an FCU must comply when engaged in leasing. One commenter notes that national bank and federal thrift leasing activities are subject to lending limits and recommends that our regulatory limits on loans to one borrower and loans to officials limitations be incorporated into the final leasing regulation. The Board notes that the proposed § 714.10 already required FCUs engaged in leasing to comply with the greater part of the NCUA lending rule, § 701.21, including the lending limits found at §§ 701.21(c)(5) and (d). Accordingly, no change to § 714.10 was made in the final rule.

Two commenters ask that we address the risks of balloon lending in the leasing regulation. Assured-value balloon loans, or “lease-look-alike” loans, allow the borrower to return the financed property at the end of the loan term in lieu of making the remaining balloon payment. The commenters argue that these loans carry residual risks for FCUs very similar to those in traditional closed-end leasing and should be regulated similarly.

As was discussed in the preamble to the second NPRM, the primary distinction between a loan and a lease is who owns the underlying property. In a loan, the borrower owns the property and the lender is a lienholder. In a lease, the borrower-lessee has no ownership or lienhold interest in the property. Accordingly, it is the NCUA Board's position that programs, which involve loans and not leases, are significantly different from leasing arrangements, and should not be addressed in a leasing regulation.

The NCUA Board determined that the requirement in § 714.5 that an FCU must obtain or have on file statistics documenting that a guarantor has the resources to meet an estimated residual value guarantee constitutes a collection of information under the Paperwork Reduction Act. Both NPRMs contained a description of the requirement and an estimate of the associated workload. No comments were received on the estimated workload. OMB assigned control number 3133-0151 to this collection. 12 CFR part 795.

The NCUA Board certifies that the proposed regulation will not have a significant economic impact on a substantial number of small credit unions. Small credit unions are defined by NCUA, pursuant to its authority to define “small organizations,” as those credit unions with assets of $1 million or less. 5 U.S.C. 601(4), (6); NCUA IRPS 81-4, 46 FR 29248 (1981); NCUA IRPS 87-2, 12 CFR 791.8(a). As of December 31, 1999, there were 1,069 FCUs that met the small organization standard. Of these 1,069 FCUs, only seven report any leasing activity, with a total of only 66 leases amongst these credit unions. Accordingly, a regulatory flexibility analysis is not required.

Executive Order 13132, Federalism, dated August 4, 1999, prescribes certain requirements for executive branch policies “that have federalism implications.” Policies that have federalism implications include any regulations that 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. Independent regulatory agencies, such as NCUA, are not required to follow EO 13132 but are encouraged to do so, and NCUA voluntarily complies with EO 13132. The final leasing rule, however, will only apply to federally-chartered credit unions. The rule has no substantial direct effects on States or on the relationship or distribution of power and responsibility between the national government and the States. NCUA has determined that this rule does not constitute a policy that has federalism implications for purposes of the executive order.

NCUA has determined that this rule will not affect family well-being within the meaning of Section 654 of the Treasury and General Government Appropriations Act, 1999, Pub. L. No. 105-277, 112 Stat. 2681 (1998).

The Small Business Regulatory Enforcement Fairness Act of 1996 (Pub. L. No. 104-21) provides generally for congressional review of agency rules. A reporting requirement is triggered in instances where NCUA issues a final rule as defined by section 551 of the Administrative Procedures Act. 5 U.S.C. 551. The Office of Management and Budget has reviewed this rule and has determined that for purposes of the Small Business Regulatory Enforcement Fairness Act of 1996 it is not a major rule.

In a notice published in the Federal Register of March 2, 2000 (65 FR 11319), FDA announced that a food additive petition (FAP 0A4716) had been filed by Eka Chemicals, Inc., c/o Keller and Heckman LLP, 1001 G St. NW., suite 500 West, Washington, DC 20001. The petition proposed to amend the food additive regulations in § 173.300 Chlorine dioxide (21 CFR 173.300) to provide for the safe use of chlorine dioxide produced by treating an aqueous solution of sodium chlorite with hydrogen peroxide in the presence of sulfuric acid.

FDA has evaluated data in the petition and other relevant material. Based on this information, the agency concludes that the proposed use of the additive is safe, that the additive will achieve its intended technical effect, and, therefore, that the regulation in § 173.300 should be amended as set forth below.

In accordance with § 171.1(h) (21 CFR 171.1(h)), the petition and the documents that FDA considered and relied upon in reaching its decision to approve the petition are available for inspection at the Center for Food Safety and Applied Nutrition by appointment with the information contact person listed above. As provided in § 171.1(h), the agency will delete from the documents any materials that are not available for public disclosure before making the documents available for inspection.

In the notice of filing, FDA gave interested parties an opportunity to submit comments on the petitioner's environmental assessment. FDA received no comments in response to that notice.

The agency has carefully considered the potential environmental effects of this action. FDA has concluded that the action will not have a significant impact on the human environment, and that an environmental impact statement is not required. The agency's finding of no significant impact and the evidence supporting that finding, contained in an environmental assessment, may be seen in the Dockets Management Branch (address above) between 9 a.m. and 4 p.m., Monday through Friday.

This final rule contains no collection of information. Therefore, clearance by the Office of Management and Budget under the Paperwork Reduction Act of 1995 is not required.

Any person who will be adversely affected by this regulation may at any time file with the Dockets Management Branch (address above) written objections by June 30, 2000. Each objection shall be separately numbered, and each numbered objection shall specify with particularity the provisions of the regulation to which objection is made and the grounds for the objection. Each numbered objection on which a hearing is requested shall specifically so state. Failure to request a hearing for any particular objection shall constitute a waiver of the right to a hearing on that objection. Each numbered objection for which a hearing is requested shall include a detailed description and analysis of the specific factual information intended to be presented in support of the objection in the event that a hearing is held. Failure to include such a description and analysis for any particular objection shall constitute a waiver of the right to a hearing on the objection. Three copies of all documents are to be submitted and are to be identified with the docket number found in brackets in the heading of this document. Any objections received in response to the regulation may be seen in the Dockets Management Branch between 9 a.m. and 4 p.m., Monday through Friday.

The Department of Defense published an Interim Final Rule with a request for comments on December 10, 1998 (63 FR 68194). The following comments were received:

Comment: The Statute Requires Prompt Payment In A Manner Requested By The Awardee.

Section 657(d)(2) of Pub. L. 104-201, as amended, states that “Subject to subsection (f), if the Secretary determines that the claimant is eligible for the payment, the Secretary shall promptly pay the claim.” (Emphasis added.) Subsection (f) provides notwithstanding any agreement (including a power of attorney) to the contrary, the actual disbursement of a payment under this section may be made only to the person who is eligible for payment under subsection (a) or (b) and only—upon the appearance of that person, in person, at the designated distribution office in the United States or its territories; or as such other location or in such manner as that person may request in writing.

The only change made to this subsection by the FY 99 National Defense Authorization Act was the addition of “[n]otwithstanding any agreement (including a power of attorney) to the contrary” at the beginning of Subsection (f)(1).

The statutory requirements for disbursement are clearly stated. First, the payment must be disbursed to the person eligible for payment. Thus, the check must be made payable to the intended beneficiary and not to a third party, such as the person's attorney or another designee or assignee, regardless of any agreement to the contrary.

The second condition for payment is that it be made: (1) in person at a designated distribution office in the United States or its territories or, (2) if the beneficiary requests in writing, at such other location or in such other manner as that person may request. The statute recognizes that many payment recipients may not be able to appear in person to receive their payments. Many, for instance, still live in Vietnam under a repressive government that denies them the ability to travel or even to correspond freely. Hence the statute allows the eligible person to request alternative methods of payment.

The Secretary of Defense has complete discretion in determining whether a claim is justified and such determinations are considered final and conclusive. Pub. L. 104-201, section 6570). However, once DoD has determined that a person is eligible for payment under the provisions of the Vietnamese Commando Compensation Act, that discretion ends. The agency is mandated by statute to promptly pay the claim. DoD may not establish unreasonable regulations that hinder payments to those persons eligible for the compensation established by Congress. In fact, section 657(f)(2) provides that DoD shall hold funds in trust for eligible persons only until such time as “ the person makes an election ” (emphasis added) to appear in person at a disbursing office or to request payment at another location or in another manner.

Response: Section 657(f) provides that the actual disbursement of a payment may be made only to an eligible claimant, not withstanding any agreement to the contrary. The statute does not require that payment be made in any manner requested by a claimant; rather, it authorizes the Department, in its discretion, to grant requests by eligible claimants to receive their payments at a particular location or in a manner other than the personal appearance of the claimant at a designated distribution office. This provision does not negate the independent requirement that only eligible claimants may receive payments.

Comment: The Interim Regulation Violates The Statute And Inflicts Hardship.

The interim regulation drastically curtails the statutory right of eligible persons to receive their payments in the manner they request. As revised, regulation states that:

By requiring that all payments be made by “physical delivery of the payment” only to the eligible person, DoD has imposed an unreasonable burden on the intended beneficiaries of the Congressionally mandated compensation. By imposing such an arbitrary condition on payments, DoD set an unnecessary hurdle which many persons eligible for compensation will be unable to clear. Such arbitrary action violates DoD's statutory obligation to promptly pay the claims after eligibility has been determined.

It does little good for DoD to state that it will hold the funds in trust for the person authorized to receive payment “until such time as the person complies with the conditions for disbursement.” 32 CFR 270.11. For the most part, the Commandos and their beneficiaries, especially those still living in Vietnam, are poor and need the money now. The Commandos themselves are middle-aged or older and many are in very poor health. Disbursing payments only if the awardees can figure out some way to get to a Defense Finance Accounting Service office or can arrange some other face-to-face meeting with a Defense Department representative authorized to disburse payments would frustrate the intent of Congress to pay claimants as fairly and expeditiously as possible.

In fact, the statutory language found in section 657(f)(2) does not authorize the Commission to withhold payment until “the person complies with the conditions for disbursement” but rather until “the person makes an election under such paragraph (i.e., appear in person at a designated disbursement office or request payment at another location or in another manner).” The statute gives the awardee, and not DoD, the right to elect how payment will be made. If that request is reasonable, i.e., if the eligible person will receive the funds to which he or she is entitled, DoD may not deny the request without a valid reason.

DoD states that it is required to make physical delivery of the payment to the eligible person because of new language in section 668 of the FY 99 National Defense Authorization Act, Pub. L. 105-261, which amended section 657(f)(1) of the National Defense Authorization Act for Fiscal Year 1997 (Pub. L. 104-201). The amendment simply added the words “Notwithstanding any agreement (including a power of attorney) to the contrary” before the description of how “actual disbursement” will be made. DoD's revised regulation, however, equates “actual disbursement” to “the physical delivery of payment.” 63 FR 68195. Such a distortion of the term “actual disbursement” is completely unreasonable.

“Disbursement” does not equate to “physical delivery.” As defined in the American Heritage College Dictionary, to disburse means “to pay out; expend.” The Federal Government typically makes disbursements of payments by issuing checks or initiating electronic funds transfers (“EFTs”). See, e.g., 31 CFR 205.3, 206.2, 208.2(c). The Department of Defense, as a matter of course, disburses payments by mail or EFT to service members and civilian employees, as well as to other persons eligible for government payments. See, e.g., 32 CFR 63.6 (procedures for direct payment of retired pay to former spouses). Therefore, to equate disbursement with the actual physical delivery of a payment to the beneficiary is unreasonable and flies in the face of the Government's normal way of doing business.

The statutory language mandating payments to eligible individuals provides no authority for DoD to withhold payment until “physical delivery” of the payment can be made. DoD seems to believe that some remarks contained in the Congressional Record justify its avoidance of the statutory mandate to make prompt payment for approved claims. Such a position is entirely insupportable.

It is a basic canon of statutory construction that, absent a clearly expressed legislative intention to the contrary, the language of the statute must ordinarily be regarded as conclusive. United States v. Turkette 452 U.S. 576, 580 (1981); Consumer Products Safety Comm'n v. GTE Sylvania, Inc , 447 U.S. 102, 108 (1980). Given a “straightforward statutory command, there is no reason to resort to legislative history.” United States v. Gonzales , 520 U.S. 1, 10 (1997) (quoting Connecticut Nat. Bank v. Germain 503 U.S. 249, 254 (1992)). There is no ambiguity in the language of section 657(f) that would necessitate looking beyond the four corners of the statute to decipher its meaning.

Even if the statutory language were not clear regarding disbursement of payment, a review of the scant legislative history associated with the modification of the disbursement language in section 657(f)(1) lends no support to DoD's position that payments must be made physically to the eligible person. In remarks made on the floor of the Senate on June 23, 1998, Senator John McCain (R-Arizona), one of the sponsors of the amendment explained that the amendment “would ensure that the Vietnamese commandos receive their rightful share of the funds authorized and appropriated by Congress.” 142 Cong. Rec. S6849 (daily ed. July 23, 1998). Senator McCain stated that the amendment “seeks to clarify that the actual disbursement of a payment under our 1996 legislation may be made only to the person eligible for the payment, notwithstanding any agreement, including a power of attorney, to the contrary.” Id.

Nothing in the Senator's brief remarks supports a conclusion that payments must be made by means of “physcial delivery” to the eligible persons. The statute and the Senator's remarks clearly establish that payments can be made only to the eligible recipients. Hence, a payment check could not be made out to a third person for later payment to the recipient. However, an eligible recipient can request that his or her check be mailed to a particular address or that the funds be electronically transferred to a particular account. Unless DoD had a reasonable basis for concluding that the recipient would not receive the payment to which he or she was entitled if the payment request were honored, the statute requires the Commission to follow the reasonable payment request of an eligible recipient.

Response: As discussed above, the regulation implements the plain language of the statute, and ensures that eligible claimants receive all of the money they are owed in the most secure and expeditious manner possible.

Comment: The Regulation Can Be Revised To Comply With The Statute.

For all of these reasons, the amendment to 32 CFR 270.11 must be modified. In order to comply with Section 657(f) of Pub. L. 104-201, as amended, the following revised language is suggested:

Section 3(1) of the MMPA (16 U.S.C. 1362(1))defines the term, “depletion” or “depleted”, as

Section 3(9) of the MMPA (16 U.S.C. 1362(9)) further defines OSP as “ * * *with respect to any population stock, the number of animals which will result in the maximum productivity of the population or the species, keeping in mind the carrying capacity (K) of the habitat and the health of the ecosystem of which they form a constituent element.”

NMFS regulations at 50 CFR 216.3 clarify the definition of OSP as a population size that falls within a range from the population level of a given species or stock that is the largest supportable within the ecosystem (K) to its maximum net productivity level (MNPL). Maximum net productivity is the greatest net annual increment in population numbers or biomass resulting from additions to the population from reproduction, less losses due to natural mortality.

Section 2 of the MMPA (13 U.S.C. 1361) states that marine species, populations and/or stocks should not be permitted to fall below their OSP level. Historically, MNPL has been expressed as a range of values (generally 50 to 70 percent of K) determined theoretically by estimating what size stock in relation to the original stock size will produce the maximum net increase in population (42 FR 12010, 1 March 1977). In 1977, the midpoint of this range (60 percent) was used to determine whether dolphin stocks in the eastern tropical Pacific Ocean were depleted (42 FR 64548, 27 December 1977). The 60-percent value was included in the final rule governing the taking of marine mammals incidental to commercial fishing operations (45 FR 72178, 31 October 1980).

On November 19, 1998, NMFS initiated a Status Review of the Cook Inlet beluga whale stock (63 FR 64228). The comment period on the status review extended from November 19, 1998, through January 19, 1999, and was initiated at the same time that workshops were being convened to review beluga whale stocks throughout Alaska. The workshops were held by the Alaska Beluga Whale Committee (November 16-17, 1998) and the Alaska Scientific Review Group (November 18-20, 1998), a body established under the MMPA to provide scientific advice to NMFS and the U.S. Fish and Wildlife Service. Additionally, NMFS received a petition from the State of Alaska on January 21, 1999, to designate this stock as depleted under the MMPA.

NMFS also received two petitions, one on March 3, 1999, and another on March 10, 1999, to list Cook Inlet beluga whales as endangered under the Endangered Species Act (ESA). One petition requested emergency listing under section 4(b)(7) of the ESA and designation of critical habitat. Both petitions requested immediate action to implement regulations for the subsistence harvest. This notice addresses neither these petitions nor comments received relating solely to the possible ESA listing. NMFS determined that the petitioned actions may be warranted (64 FR 17347, April 9, 1999), but no determination on whether listing this stock as a threatened or endangered species under the ESA has been made at this time.

To further ensure that the status review was comprehensive and based on the best available scientific data, the comment period was followed by a NMFS-sponsored workshop on March 8-9, 1999, that provided a review of relevant scientific information on this stock. At this workshop, NMFS received additional public comments and recommendations. The proceedings and abstracts of presentations from this workshop are available (NMFS, 1999).

Following a review of public comments and of the available information presented at the workshops, NMFS published a proposed rule to designate the Cook Inlet stock of beluga whales as depleted (64 FR 56298, 19 October 1999) and allowed a 60-day comment period, which was later extended until January 19, 2000. NMFS also conducted a public hearing on November 22, 1999, on the proposed designation of the Cook Inlet stock of beluga whales as depleted under the MMPA.

NMFS received 800 letters from the public during the comment period on the proposed rule. Many letters contained comments regarding a finding under the ESA; however, comments and responses in this notice are limited only to those related to the depletion designation under the MMPA.

Comment 1 : Many comments (783) concurred with NMFS' decision to designate the Cook Inlet beluga whale stock as depleted under the MMPA. Many commenters further recommended that NMFS proceed immediately in listing the stock as endangered under the ESA and in designating critical habitat.

Response : With regard to the depleted determination, NMFS concurs with the comment. The Cook Inlet beluga whale stock is below OSP and, therefore, depleted under the MMPA. This final rule designates the stock as depleted. No final determination has been made under the ESA at this time.

Comment 2 : Seven commenters supported a depleted designation only, and five would add their support only if it is necessary to help regulate a hunt under a co-management agreement with Alaska Native organizations and until the population recovers.

Response : NMFS has determined that the stock is below its OSP; therefore, the stock meets the definition of depleted under the MMPA. NMFS is designating the stock as depleted. The MMPA provides that, while the Alaska Native subsistence harvest is generally exempt from its provisions, the Federal government can restrict subsistence harvests of populations or stocks that are depleted.

Comment 3 : Ten commenters were opposed to designating the Cook Inlet beluga whale as depleted under the MMPA or threatened or endangered under the ESA.

Response : Because the stock meets the definition of depleted under the MMPA, NMFS must designate the stock as depleted and begin developing conservation and management strategies for the stock's recovery.

Comment 4 : Two commenters stated that NMFS has the authority and responsibility to manage the beluga harvest in Cook Inlet without listing the stock under either the MMPA or the ESA.

Response : NMFS recognizes its responsibility to conserve all stocks of marine mammals regardless of their status; however, the MMPA establishes a specific procedure for the Federal government to regulate subsistence harvest, which has been identified as the major factor responsible for the decline of the stock, once a stock is designated as depleted.

Comment 5 : Four commenters urged NMFS to expeditiously enter into a co-management agreement for the beluga harvest, and three of these stated that this should be the ultimate application of the depleted listing.

Response : NMFS is pursuing a co-management agreement for the conservation of Cook Inlet beluga and the management of the beluga harvest. The depletion finding is a necessary component of an effective co-management agreement because enforceable harvest restrictions are dependent upon a depleted determination.

Comment 6 : Three commenters urged NMFS to enter into a co-management agreement with the Cook Inlet Marine Mammal Council (CIMMC).

Response : During 1999, NMFS engaged in negotiations with CIMMC for the management of the beluga harvest. Although these negotiations have not yet produced an agreement, NMFS plans to continue to work with CIMMC to complete an enforceable co-management agreement to conserve the stock and co-manage subsistence use.

Comment 7 : One commenter noted NMFS failure to enter into a co-management agreement and stated that NMFS should give the co-management process a chance before making a depleted determination.

Response : NMFS will continue to negotiate with Alaska Native organizations to enter a co-management agreement to promote recovery of the stock. Please see response to comment 5.

Comment 8 : One commenter stated that NMFS refused CIMMC's attempts to negotiate a co-management agreement.

Response : NMFS has not refused CIMMC's attempts to negotiate a co-management agreement. NMFS and CIMMC met in January 1997 to discuss a draft co-management agreement that CIMMC had prepared. During this meeting, NMFS and CIMMC discussed limitations on authority to restrict the harvest of Cook Inlet beluga and agreed that negotiations on stock or area-specific agreements should be postponed until after NMFS and the Indigenous Peoples' Council for Marine Mammals completed an umbrella co-management agreement. Since then, NMFS and CIMMC have held several discussions to promote conservation of Cook Inlet beluga, including those that resulted in NMFS's contracting with CIMMC to provide an estimate of annual harvest; however, these discussions have not yet produced an agreement on the harvest of Cook Inlet beluga.

Comment 9 : One commenter urged NMFS to promulgate regulations to control the harvest before the Congressional moratorium expires in September of 2000.

Response : This final rule is the first step in promulgating such regulations. NMFS intends to consult closely with affected Alaska Native organizations in preparing such regulations to avoid misunderstanding that could slow their completion. Regulations to restrict subsistence harvest of marine mammals cannot be completed until a formal rulemaking hearing has been held in accordance with section 103(d) of the MMPA.

Comment 10 : One commenter asked why NMFS has not proposed new emergency policies or enforcement strategies to protect Cook Inlet beluga.

Response : The MMPA and ESA establish a specific regulatory process for limiting subsistence harvest, and neither statute includes emergency provisions to eliminate portions of the process. No cause other than the subsistence harvest has been directly linked to the decline; therefore, other emergency polices, strategies, or actions would not likely promote recovery. Special legislation has protected Cook Inlet beluga whales from subsistence harvest since May 21, 1999. This final rule is the first step in promulgating regulations governing the subsistence harvest when the special legislation expires on October 1, 2000.

Comment 11 : One commenter stated that beluga hunting should be limited to personal and family subsistence needs, and two others suggested that NMFS prohibit the sale of beluga products.

Response : The MMPA has specific provisions related to

Alaska Native use of marine mammals for subsistence or handicraft purposes, and these include a limited sale of edible products within Alaska Native villages or for Native consumption.

Comment 12 : One commenter stated that the MMPA does not permit the wasteful taking or the primarily commercial harvest of beluga. Further, Congress intended that NMFS regulate any commercial sale beyond that which constitutes a limited cash economy.

Response : Comment noted.

Comment 13 : One commenter urged NMFS to use its full authority under the MMPA to implement protective measures on areas of ecological significance to beluga.

Response : The MMPA allows NMFS to implement conservation or management measures to alleviate impacts on rookeries, mating grounds, or other areas of similar significance to marine mammals where it can be demonstrated that the impacts may be causing a decline or impeding recovery of a strategic stock. Other than subsistence harvest, NMFS has not identified impacts that are having such an effect on the stock.

Comment 14 : Five commenters asked NMFS to publish clearly defined criteria for delisting beluga.

Response : Although delisting is an action under the ESA, NMFS interprets the comment to mean criteria for determining the stock has recovered from depletion. The criterion for determining that the stock has recovered would be that the stock is no longer below the lower bound of its OSP.

Comment 15 : Many commenters stated that Cook Inlet beluga face threats from anthropogenic sources, urged NMFS to evaluate the possible effects of these activities on beluga in Cook Inlet, and suggested that NMFS consider any impacts in a conservation plan. These commenters cited a variety of threats, including the following: contaminants (toxins such as PCBs, pesticides, heavy metals, hydrocarbons); oil and gas development with associated seismic activity, drilling and refineries; chemical plants; noise pollution (Anchorage Airport); mass strandings; commercial fishery interactions (entanglements) and food competition; shipping/vessel traffic; urban runoff/non-point source pollution; municipal wastewater/sewage discharges; recreational and commercial (whale watching) boat traffic/personal water craft; killer whale predation; forestry activities/logging; fish farms; dredging; and development.

Response : NMFS is currently preparing a draft Environmental Impact Statement (DEIS) that reviews the impacts of a range of anthropogenic activities on Cook Inlet beluga. This DEIS will also evaluate the impacts of subsistence harvest on the beluga whale recovery. A conservation plan will be prepared unless it would not promote the conservation of the stock.

Comment 16 : Two commenters stated that pollutants or commercial and industrial activities are not a factor in the “alleged” decline of Cook Inlet beluga.

Response : These factors will be evaluated within the DEIS.

Comment 17 : Two commenters stated that water and sediment studies demonstrate that the oil and gas industry is not contaminating Cook Inlet. Additional studies show that oil and gas activities are not influencing the distribution of beluga in the inlet.

Response : Comment noted.

Comment 18 : Four commenters stated that data from the municipality of Anchorage water monitoring and other water quality studies show no impact to Cook Inlet from industrial activities. Further, Federal and state studies have demonstrated that pollution is not a factor in the beluga decline.

Response : Comment noted.

Comment 19 : One commenter stated that local, state and Federal studies have demonstrated that industrial activity is not a detriment to Cook Inlet beluga.

Response : Comment noted.

Comment 20 : Several commenters expressed concern that a depleted designation would restrict commercial and industrial activity in Cook Inlet, with widespread economic repercussions.

Response : A depleted designation does not, in itself, mandate any restrictions on these or any other activities within the Cook Inlet region. Rather, it formally recognizes that the stock is below its OSP.

Comment 21 : One commenter stated that, although NMFS presumes that the subsistence harvest is the cause of the beluga decline, no research has been conducted on the impacts to beluga from oil and gas discharges, sewage discharges, or non-point source runoff on beluga.

Response : Although NMFS has not initiated research specifically to determine whether or not these factors were affecting the stock, the Status Review (NMFS, 1999) examined existing information and indicated that habitat modification related to these activities could not account for the decline in the stock. Details of this analysis are included in the DEIS.

Comment 22 : One commenter stated that the entire decline of beluga in Cook Inlet cannot be attributed to subsistence harvest alone; other factors need to be evaluated.

Response : The information included in the Status Review clearly shows that the harvest from 1994 through 1998, the period when reliable abundance estimates were available, was sufficient to account for the decline.

Comment 23 : One commenter stated that Cook Inlet is the only U.S. drilling area exempt from regulations prohibiting the dumping of certain toxins and heavy metals.

Response : Comment noted.

Comment 24 : One commenter recommended that NMFS refine its capacity to adequately assess and diagnose declines in the Cook Inlet beluga whale population.

Response : Since 1994, when NMFS first became aware that mortality of Cook Inlet beluga was exceeding sustainable levels, NMFS directed substantial resources into scientific research assessing the trend of the stock, determining stock boundaries, and estimating annual mortality. The resulting program produced a series of abundance estimates from 1994 through 1998, and these estimates have met scientific scrutiny. Reviews of these NMFS projects have been conducted through the peer-review process inherent in completing scientific publications and through comments received from annual meetings of the Alaska Scientific Review Group (which was established specifically to provide a critical review of NMFS research). Aerial surveys are conducted under standardized protocols, which were established in 1994. These protocols allow reliable inter-year comparisons of estimates. Analytical procedures were improved during the period from 1994 to 1998, and these improvements were applied to all of the abundance estimates from 1994 to 1999 to maintain consistence when trends in abundance are estimated. Thus, NMFS has, indeed, improved its capacity to assess this stock.

Comment 25 : One commenter stated that NMFS must take the time to improve the quality of the science before considering any listing of this species.

Response : NMFS interpreted the phrase “any listing” in this comment and any subsequent comment to mean a listing as threatened or endangered under the ESA or a designation as depleted under the MMPA. The MMPA requires that NMFS base its determination on the best available scientific information. The scientific basis for the determination is discussed in the response to comment 24, and it is clearly sufficient to determine that the stock is below its OSP and, therefore, is depleted.

Comment 26 : One commenter stated that data on beluga are scarce and derived from questionable methodologies and that a listing determination should be delayed until better data can be obtained.

Response : NMFS disagrees that the existing data are inadequate to be used as a basis for the depleted determination. The data from 1994 through 1998 indicate a high probability that the stock has declined below its OSP. Furthermore, the limited information from the 1960s through the 1980s suggest the actual historical abundance exceeded the estimate from 1994, and the stock is even farther below its OSP than the data from 1994 through 1999 indicate.

Comment 27 : One commenter stated that NMFS is currently relying on ineffective and inadequate methods for assessing the beluga population.

Response : See previous response to comment 24.

Comment 28 : One commenter noted that the 1998 draft abundance estimate was revised abruptly to a level far lower than the original and that a critical analysis of the new estimate was not made available for public scientific review.

Response : The 1998 abundance estimate was revised after analyses of the survey data from 1994 through 1998 were completed. These revised estimates have been thoroughly reviewed in the scientific community and constitute the best available scientific information.

Comment 29 : One commenter asserted that, since previous (historical) uncorrected counts of Cook Inlet Beluga have ranged between 300 to 500 whales, NMFS should base OSP at 500 animals rather than at 1,000 animals, the agency's current use for OSP.

Response : Uncorrected counts are not an accurate estimate of population abundance because they fail to include estimates of animals that were present but not counted during surveys, such as animals that are below the surface at the time of the count. Such estimates of animals present but not counted are commonly used in the scientific literature and are accepted statistical practices for making conservation or management decisions.

Uncorrected counts are valuable for assessing population trends, and those available for the Cook Inlet beluga population show variation but no specific trend prior to the 1994-1999 surveys. Therefore, NMFS concluded that the abundance was relatively stable during the period for which the Alaska Department of Fish and Game conducted its surveys.

Comment 30 : Two commenters stated that a new abundance estimate formula was used on the uncorrected (raw) counts from each year resulting in a percentage decline ranging from 38 percent to 62 percent between 1994 and 1998 depending upon which analysis (old or new) was used on the raw count. This new formula should be published and reviewed before it is used as the basis of any new listing.

Response : See previous response to comment 24 for a discussion of formulas and survey design for estimating abundance of Cook Inlet beluga. NMFS used one analytical technique in the initial abundance estimates (e.g., 1994) and reported these estimates. By 1998, NMFS had improved the analytical technique and used the new technique to re-analyze all abundance estimates during the period 1994 through 1999. Such an approach allowed NMFS to make its determination on estimates that were collected under a standard protocol and analyzed by the same analytical techniques. The formulas upon which the analytical techniques were based and the specific application of these analytical techniques to the 1994 through 1998 beluga surveys has been subjected to peer review.

Comment 31 : Two commenters stated that NMFS has used a number of different population numbers, including raw counts, abundance estimates, minimum abundance estimates, and anecdotal accounts in making listing decisions and that the agency should halt this practice and choose one value for evaluation.

Response : When making a finding on a stock of marine mammals that is used for subsistence harvest, NMFS must, by statutory requirement, ensure that the finding is supported by substantial evidence on the basis of the record as a whole. Therefore, NMFS has considered all sources of evidence in evaluating the status of Cook Inlet beluga.

Comment 32 : One commenter states that NMFS's population trend data is imprecise and that beluga in Cook Inlet may not be depleted.

Response : Although the estimates and data upon which they are based are not perfect, they are sufficient to conclude that the stock is depleted. As explained in the previous response to comment 24, NMFS supports the abundance estimates upon which this determination is based.

Comment 33 : One commenter questioned why NMFS used the most recent population estimate of 347 and not the more conservative figure of 217 beluga whales as its 1998 population estimate.

Response : NMFS scientists counted 193 beluga during its 1998 aerial survey and 217 during the 1999 survey. These counts are not abundance estimates. Instead, abundance estimates include calculations for the number of animals that were not seen during the count but were present during the survey. Such an approach is a standard statistical practice and is overwhelmingly supported in the scientific literature. The abundance estimate from the 1998 surveys is 347 beluga.

Comment 34 : One commenter stated that the abundance estimates are confusing and questionable.

Response : NMFS understands that statistical procedures used in abundance estimates are often complex; however, they provide the best available scientific information.

Comment 35 : One commenter stated that the data and conclusions do not match when applying NMFS harvest figures against NMFS population estimates.

Response : The relationship between the harvest and the population trend is within the margins of error for the estimates.

Comment 36 : One commenter stated that more research is needed on food resource availability for beluga especially in regard to the Susitna River salmon stocks.

Response : Comment noted.

Comment 37 : Two commenters suggested that NMFS establish a research protocol for the Cook Inlet beluga that involves an advisory committee of Federal and state agencies, CIMMC, oil and gas industry, fishing, transportation, municipality, tourism, and environmental groups.

Response : Comment noted. NMFS also notes that the Alaska Scientific Review Group was established specifically to review and advise NMFS on research protocols and other scientific matters on marine mammals in Alaska. Although the Review Group does not include representatives from all the entities suggested in the comment, its meetings and workshops are open to the public.

Comment 38 : One commenter stated that NMFS should take the time to improve the quality of its data before making any listing decisions.

Response : See response to comments 24 through 35.

Comment 39 : One commenter stated that NMFS should direct resources for the collection of more biological data on beluga, including data to estimate life history parameters.

Response : Comment noted.

Comment 40 : One commenter stated that more research is needed to determine where Cook Inlet beluga go during the winter months.

Response : Such information would improve our understanding of Cook Inlet beluga; however, winter distribution likely has little effect on the size and trend of the breeding population that is found in Cook Inlet. This comment, however, did cause NMFS to realize that the proposed rule would have included individuals from the stock only when they were in Cook Inlet. NMFS realizes that beluga may leave the confines of Cook Inlet during the winter and perhaps at other times during the year. To correct this oversight, NMFS has revised the final rule to modify the definition of the stock so that Cook Inlet beluga are included when they are outside of the inlet.

Comment 41 : One commenter stated that NMFS needs to conduct additional DNA studies of beluga in Cook Inlet and Bristol Bay, as well as DNA studies of other whales sighted in Prince William Sound to determine whether the Cook Inlet Beluga population is isolated and unique.

Response : The models used to distinguish between aggregations of animals are very sensitive to animals moving between areas; thus, if more than a handful of individuals dispersed between the groups during an entire generation, the models would not distinguish them as separate. The existing data support a significant difference among all 5 stocks of beluga in Alaska, and the Cook Inlet stock is the most distinct. Given these findings, additional information is not likely to add meaningfully to the question of whether or not the stocks are distinct. Beluga occurrence in Prince William Sound is too rare to justify a dedicated sampling effort, but, when one or more beluga are seen there, NMFS will attempt to obtain tissue samples for genetic analysis as the opportunity arises.

Comment 42 : One commenter stated that a better method for counting beluga whales needs to be developed and more aerial surveys of Cook Inlet beluga need to be performed in the summer months.

Response : Comment noted. NMFS plans to continue aerial surveys of Cook Inlet beluga in the late spring and early summer.

Comment 43 : One commenter stated that limited food supplies might be affecting beluga health in Cook Inlet and that reports indicated that the beluga appeared thin.

Response : Comment noted.

Comment 44 : Two commenters offered assistance to NMFS to improve assessment methods and provide practical, enhanced data collection methods.

Response : NMFS appreciates offers of assistance. Currently, NMFS is satisfied with its beluga assessment methods; however, NMFS staff are open to new ideas to improve assessment or conduct the assessments more efficiently.

Comment 45 : One commenter stated that the extensive subsistence harvest is to blame for the decline in beluga.

Response : Comment noted.

Comment 46 : One commenter expressed concern over the impact the depleted listing will have on their subsistence way of life.

Response : NMFS recognizes that subsistence harvests are important to Alaska Native culture and supports the provisions of the MMPA that enable such harvests to continue. Conservation measures may restrict harvest of the stock temporarily; however, the lack of conservation measures could lead to a continued decline or extirpation of the stock, which would have a profound and long-term effect on local subsistence harvest. Furthermore, NMFS does not intend to promulgate conservation measures unilaterally. Rather, NMFS intends to work with the local Alaska Native community through the co-management process to design conservation measures that would sustain the beluga population for subsistence use by future generations.

Comment 47 : One commenter stated that tribal knowledge should be used to determine OSP and that the tribes should collect and analyze this data.

Response : NMFS welcomes information based upon tribal knowledge to be presented for use in conservation decisions. Tribal knowledge would be incorporated into the entire body of evidence supporting management decisions. NMFS, however, is directed to use the best available scientific information in making findings under the MMPA and would have to follow this direction in its decisions.

Comment 48 : One commenter stated that NMFS cites Traditional Knowledge for its K in determining OSP, yet the agency does not adequately consider Traditional Knowledge when identifying the cause of the beluga decline and the appropriate remedies. The commenter noted that it is not appropriate for NMFS to use Traditional Knowledge to support one point while failing to consider it in other regards.

Response : NMFS considered all information available in making the depletion finding. The tangible evidence for historical abundance of Cook Inlet beluga is sparse and not well documented, and NMFS concluded that the historical abundance, which is used as an estimate of K, is unknown. Several lines of evidence, including observations by Alaska Natives and weakly-supported abundance estimates, were considered to estimate historical abundance.

For the purposes of the depletion finding, assigning the cause of the decline is of less importance than establishing whether the population is below its OSP. Addressing the cause or causes of the decline will be more critical in designing and implementing conservation measures to promote recovery of the stock. NMFS will give due consideration to all sources of information and intends to work closely with the affected Alaska Native community, as well as with other affected constituents, in identifying and designing appropriate conservation measures.

Comment 49 : One commenter stated that NMFS has acknowledged that many hunters do not belong to organized native organizations and that they have not been cooperative about reducing the harvest of beluga.

Response : NMFS agrees that voluntary efforts have not been effective in limiting harvest to sustainable levels; however, NMFS has observed an overall cooperative approach to recognizing the problem and the need to promote recovery.

Comment 50 : One commenter stated that NMFS decided to list the beluga as depleted because of pressure from conservation groups.

Response : NMFS is basing its depleted determination on the basis of the best available scientific information, as required by the MMPA. The best available scientific information indicates that the stock is below its OSP.

Comment 51 : One commenter stated that NMFS's review of factors in the beluga's decline (other than harvest) was cursory. While NMFS's assumptions may prove to be correct, it appears that NMFS was pressured by political and commercial entities to downplay the role of anthropogenic factors in the beluga's decline.

Response : NMFS acknowledges that there is little information available to evaluate the range of factors (other than harvest) that may be involved in the decline. Thus, it is not surprising that such an evaluation appears cursory. NMFS maintains, however, that there is sufficient information available to conclude that the stock is depleted.

Comment 52 : One commenter advised NMFS that if Cook Inlet and Bristol Bay beluga are found to co-mingle, the depleted determination should be revoked.

Response : If NMFS were to learn that individuals from Cook Inlet and Bristol Bay mix temporarily during the non-breeding seasons, NMFS would still not have the evidence upon which to conclude that the stock is no longer depleted. The genetic analyses demonstrate conclusively that there is insufficient interbreeding among the various stocks of beluga in Alaska to mask the genetic distinction of each stock or to have a measurable effect on population status and trends.

Comment 53 : One commenter disagreed with NMFS's assertion that the Cook Inlet stock of beluga is an isolated stock that lives yearround in the Inlet.

Response : NMFS has not asserted that all members of the stock remain within the inlet yearround (see response to comment 40). NMFS has asserted, and continues to assert, that the stock within Cook Inlet is genetically distinct from other aggregations of beluga in Alaska, which inhabit areas north of the Aleutian Peninsula.

Comment 54 : One commenter expressed a fear that, if NMFS designates the Cook Inlet beluga whale as depleted, it will regulate the harvest with little regard for the opinions of Native Alaskan hunters.

Response : NMFS recognizes the importance of beluga whales to the Cook Inlet communities and will work with local Alaska Natives to promote recovery of the beluga stock so that a sustainable harvest can be maintained for future generations.

Comment 55 : One commenter stated that the MMPA does not provide sufficient habitat protection to Cook Inlet beluga.

Response : Comment noted.

Comment 56 : One commenter urged NMFS to develop a regional contingency stranding plan under 16 U.S.C. 1421 c (b).

Response : NMFS intends to develop a contingency stranding plan for the region.

Comment 57 : One commenter expressed concern that beluga blubber from Cook Inlet is a source of significant contaminant exposure for human subsistence consumers.

Response : Comment noted.

Comment 58 : One commenter urged NMFS to conduct studies on beluga tissue samples to assess the health of the population, determine contaminant body burdens, and determine the effects of various pollutants on the Cook Inlet stock of beluga whales.

Response : NMFS has conducted health, contaminant, and life-history studies on Cook Inlet beluga and intends to continue such studies.

Comment 59 : One commenter, concerned about incidental mortality in fishing operations, suggested that NMFS reclassify fisheries in Cook Inlet from Category III to Category II fisheries to allow for additional data collection to assess the fisheries' impact on the beluga.

Response : These fisheries are currently included in Category III because NMFS believes they have only a remote likelihood of seriously injuring marine mammals. Because these fisheries have such a low mortality rate, NMFS would more likely use its limited resources to evaluate other mortality factors than to direct them into such an expensive activity that would likely provide little additional information.

Comment 60 : Three commenters stated that NMFS lacks the data to determine the level of incidental take in fisheries. They recommended that NMFS place observers on Category III fishing vessels to determine the accurate level of incidental take, if any. The commenter insisted that these actions would help NMFS to better assess incidental take of beluga and to better understand what is happening to their food supply.

Response : See response to comment 59.

Comment 61 : One commenter urged NMFS to expeditiously prepare a conservation plan under the MMPA for Cook Inlet beluga.

Response : NMFS will prepare a conservation plan as quickly as limited resources will allow. Initial conservation efforts will not, however, be delayed until such a plan is final.

To designate the Cook Inlet population of beluga whales as a depleted stock under the MMPA, it must first qualify as a “population stock” or “stock”. Based on the best available information as discussed below, NMFS determined that beluga whales in Cook Inlet are a population stock or stock as defined by the MMPA.

Section 3(11) of the MMPA defines a population stock or stock as a group of marine mammals of the same species or smaller taxa in a common spatial arrangement, that interbreed when mature. Although this definition is in part a legal interpretation, stocks, species, and populations are biological concepts that must be defined on the basis of the best scientific data available.

NMFS considered several lines of evidence regarding the population structure of Cook Inlet beluga whales in the proposed designation. They are summarized in the following discussion.

Distribution of beluga whales within Cook Inlet : The summer or open water distribution of Cook Inlet beluga whales is considered to be largely confined to waters of Cook Inlet (Laidre et al., In press). Analysis of aerial surveys for beluga whales and other survey data for the northern Gulf of Alaska suggests no large, persistent group of beluga whales exists other than in Cook Inlet. This distribution pattern is consistent with western and Arctic beluga whale stocks in Alaska, which regularly return to discrete coastal summering areas. Additionally, the Cook Inlet area is physically separated from the remaining four Alaskan beluga whale stocks by the Alaskan Peninsula, which may act as a partial barrier restricting movement between stocks.

Genetic Isolation : Genetic profiles have been obtained from approximately 470 beluga whales in Alaska and Canada, including 64 animals from Cook Inlet. Mitochondrial DNA analysis of beluga whale stocks from Cook Inlet, Bristol Bay, eastern Chukchi Sea, eastern Bering Sea, and Beaufort Sea indicated that they are all significantly different from each other (O'Corry-Crowe, et al ., 1997). Of these, the Cook Inlet beluga whales were found to be the most distinct.

Based on the best available scientific information available as discussed below, NMFS has determined that the Cook Inlet stock of beluga whales is below OSP and is, therefore, depleted.

Historical Abundance : The true K, which is the basis for OSP determinations, for this stock is unknown. Furthermore, reliable historical abundance estimates, which may be used as a substitute for K, are not available.

The available evidence for historical abundance prior to the 1994 surveys includes counts from the 1960s through the early 1980s conducted by the Alaska Department of Fish and Game. These counts ranged from about 200 to about 500 individuals. Based upon reports from these counts, Gehringer and Greenwalt (1978) concluded that the abundance in Cook Inlet was about 500 beluga and that the stock was considered to be at carrying capacity. More recent information and evaluation of the data upon which Gehringer and Greenwalt (1978) based their conclusions show that their conclusions were not correct.

There is a large body of literature on estimating the abundance of wild animals, including marine mammals. The literature is conclusive that direct counts are not an accurate estimate of actual abundance because animals are missed due to a variety of reasons: marine mammals may be underwater when the aircraft is in the area; wind and water conditions may be so rough that animals are missed; animals may be so close to one another that they are counted as one; and some animals (particularly juveniles) may be so small that they are missed in the count. To expand counts to an estimate of the actual abundance, the literature contains a variety of statistical models to estimate the number of individuals that were in the area, but were not counted during a survey. These models result in correction factors to expand direct counts into estimates of abundance.

Calkins (1984) used such a correction factor of 2.7, which was developed for beluga surveys in Bristol Bay. By applying this correction factor to his maximum count of 479 beluga in August 1979, Calkins estimated the abundance to be about 1,300 beluga in Cook Inlet.

NMFS scientists advise that, when a survey includes locating and counting animals on a single pass in an airplane, the correction factor may be as high as 3. Thus, Calkins's estimate of about 1,300 beluga in August 1979 appears reasonable. Furthermore, applying such a correction factor to other counts by the Alaska Department of Fish and Game suggests the historical abundance may have been 1,000 or more animals.

Additional evidence also supports an estimate of historical abundance exceeding 1,000 beluga. NMFS biologists have discussed beluga biology, distribution, and abundance with experienced Alaska Native hunters in the Cook Inlet region, and these hunters agreed that there may have been 1,000 or more beluga in the 1970s and early 1980s. Huntington (1999) interviewed Alaska Native elders and hunters regarding their knowledge of Cook Inlet beluga and reported their observation that fewer Cook Inlet beluga have appeared in upper Cook Inlet in recent years.

Recent Abundance : More recently, Hobbs et al . (in press) designed a research program to establish a reliable method to estimate the number of beluga in Cook Inlet and to provide such estimates of abundance. Their methods included repeated counts of groups of beluga by multiple observers and video-taping groups for an extended period to reduce the number of whales that were missed during the counts. The video, along with another enlarged image, was used to identify beluga that surfaced during the counting period and to distinguish between small animals that may have been counted as a single individual. Their survey design also used radio-tagged whales to estimate the duration of dives by individual whales so the abundance estimate could be further corrected to account for whales that were underwater for the entire period that the group was counted and video-taped.

Hobbs et al . (in press) flew standardized surveys of beluga whales in Cook Inlet during June/July of 1994-1999. An aerial survey was also conducted in 1993; however, the objectives of the 1993 survey were to establish optimal survey timing and conditions and to refine survey methods. The data collected in 1993 were insufficient for a reliable abundance estimate. Abundance estimates derived from their sighting data declined from 653 in 1994 to 347 in 1998 (Table 1). The 1999 abundance estimate was 357.

Under ideal conditions, NMFS would compare the current population estimate with the true K and MNPL to make a determination whether a stock is depleted. However, such conditions do not exist in this case, and NMFS must make the determination considering the uncertainty that exists in the available evidence. Therefore, NMFS considered whether the reliable information available from the standardized surveys from 1994 through 1998 indicated that the population had declined more than 40 percent during that period. If this limited series of abundance estimates indicated such a decline, the stock would clearly be below its MNPL and, thus, depleted.

Monte Carlo simulations indicate a 71-percent probability that a 40-percent decline occurred between the June 1994 abundance survey of the Cook Inlet beluga whales and the June 1998 survey. The support for a depleted determination is strengthened by the fact that K was assumed to be the highest of NMFS's abundance estimates, in this case the 1994 estimate of 653 animals. The actual K, as represented by the historical abundance, of Cook Inlet is probably higher than this number based on previous counts, discussions with local Native Alaskan hunters, and anecdotal estimates of 1,000 or more animals in the early 1980s. Native subsistence harvest occurred throughout the 1980s and 1990s, which suggests that the 1994 abundance estimate likely reflected a population that had already been significantly reduced. If the historical abundance, thus K, were above 1,000 beluga, then the decline would be even greater. If K for the stock is more than 1,000, which is likely the situation, the stock would be less than 35 percent of its historical abundance, which is far below the MNPL.

Calkins, D.G. 1984. Belukha whale. Vol. IX, in Susitna hydroelectric project; final report; big game studies. Alaska Department of Fish and Game. Doc. No. 2328.

Gehringer, J.W. and L.A. Greenwalt. 1978. Final Environmental Impact Statement: Consideration of a waiver of the moratorium and return of management of certain marine mammals to the State of Alaska, Vol. 1, summary and text. U.S. Dep0artment of Commerce, NOAA, NMFS and U.S. Department of the Interior, Fish and Wildlife Service, Washington, DC.

Hobbs, R.C., D.J. Rugh, and D.P. Demaster. In press. Abundance of beluga whales, Delphinapterus leucas , in Cook Inlet, Alaska. Marine Fisheries Review.

Laidre, K.L., K.E.W. Shelden, D.J. Rugh, and B.A. Mahoney. In press. Distribution of beluga whales and survey effort in the Gulf of Alaska. Marine Fisheries Review.

National Marine Fisheries Service. 1999. Synthesis of available information on the Cook Inlet stock of beluga whales. Processed Report 99-06, National Marine Mammal Laboratory, Alaska Fisheries Science Center, NMFS, December 1999. 22 pp.

O'Corry Crowe, G.M., R.S. Suydam, A. Rosenberg, K.J. Frost, and A.E. Dizon. 1997. Phylogeography, population structure and dispersal patterns of the beluga whale Delphinapterus leucas in the western Nearctic revealed by mitochondrial DNA. Molecular Ecology 6:955-970.

The Assistant Administrator for Fisheries, NOAA (AA) has determined that this is not a significant rule under E.O. 12866. The regulations are not likely to result in (1) an annual effect on the economy of $100 million or more; (2) a major increase in costs or prices for consumers, individual industries, Federal, state, or local government agencies, or geographic regions; or (3) a significant adverse effect on competition, employment, investment, productivity, innovation, or on the ability of U.S.-based enterprises to compete with foreign-based enterprises in domestic or export markets.

NMFS has determined that the depleted designation of this stock under the MMPA is excluded from the requirements of the National Environmental Policy Act of 1969 and that an Environmental Assessment or Environmental Impact Statement is not required. This rule does not contain a collection-of-information requirement for purposes of the Paperwork Reduction Act of 1980.

This rule does not contain policies with federalism implications sufficient to warrant preparation of a federalism assessment under E.O. 13132.