In 1998, Congress updated the laws on field of membership with the passage of the Credit Union Membership Access Act (“CUMAA”). On August 31, 1998, the NCUA Board issued a proposed rule that revised and updated NCUA's chartering and field of membership policies. 62 FR 49164 (September 14, 1998). On December 17, 1998, the NCUA Board issued a final rule with an effective date of January 1, 1999. When the NCUA Board issued its final rule it instructed the Field of Membership Taskforce to coordinate and monitor implementation of the new chartering policies and make necessary recommendations for policy clarifications and amendments to IRPS 99-1.

Shortly after the effective date of the rule, the American Bankers Association (American Bankers) sought a preliminary injunction from the United States District Court for the District of Columbia (the Court) against NCUA to enjoin the final rule. On March 10, 2000, the Court denied the American Bankers' motion. After the Court denied the American Bankers' motion for a preliminary injunction, the American Bankers along with the Independent Community Bankers of America (Community Bankers), filed an amended complaint consisting of seventeen counts. On March 30, 2000, the Court dismissed all of the challenges by the American Bankers and Community Bankers to IRPS 99-1.

Over the past eighteen months, NCUA's Field of Membership Taskforce has monitored and reviewed the implementation of IRPS 99-1 in an effort to improve consistency and provide a basis, if necessary, for further clarifications and modifications. In response to this continued oversight, the Field of Membership Taskforce provided a report to the Board this year. The findings and recommendations are in response to issues that either arose during the past eighteen months or were identified by the NCUA Board as issues that needed clarification.

Independent Contractors. Chapter 2, Section II.A of the Chartering Manual states:

63 FR 73022 (December 30, 1998). It was the NCUA Board's intent that companies with a strong dependency relationship should be specifically named in the credit union's charter in order to monitor overlaps. However, in some cases, such as when the group possessing the dependency relationship is comprised of numerous sole proprietors or independent contractors, it would be burdensome to list each contractor, and any overlap would be immaterial. For example, there may be hundreds of independent drivers for any particular cab company. Therefore, the NCUA Board is proposing to amend the language in the section on occupational common bonds so that in situations where multiple contractors, who qualify based on a strong dependency relationship, are sole proprietors, the regional director may determine that more generalized wording is acceptable.

Students Groups. Under IRPS 99-1, students are considered occupational groups. This permits single occupational common bond credit unions to serve persons employed or attending the same school. However, it does not allow single associational charters, such as faith-based groups that operate schools, to include students in their charters. While a single common bond church credit union can serve the church's employees, including faculty and staff, it cannot serve the students unless the credit union changes its charter type to multiple common bond. This policy restriction is confusing and causes undue problems for some credit unions. To remedy this situation, the NCUA Board believes that student groups should be considered as either associational or occupational, depending on the circumstances.

Given the history of student groups, there is a basis and precedent for re-defining this common bond to allow greater flexibility. For example, over the years, student groups have been treated differently.

As early as 1967, students could be included in the field of membership of a federal credit union chartered primarily to serve faculty and other employees of a college or university. That policy re-stated the earlier position that it did not appear economically advisable to charter a credit union with a field of membership limited to students.

In IRPS 89-1 as well as IRPS 94-1, it was determined that student groups could constitute a valid associational common bond and could qualify for a charter. In IRPS 99-1, however, students again became part of an occupational common bond. This change addressed the problem of adding students to occupational school based credit unions, but it created an unanticipated problem with associational based faith credit unions. For example, many churches sponsor and operate schools. The resulting issue with this change was whether students at church schools could be added without changing the common bond type of the credit union (faith based credit unions have an associational common bond).

There is no question that the students of church schools share a common bond with the church, but by policy, the students could not be added without going through the expansion procedures and changing the nature of the credit union. The NCUA Board does not believe this is desired or equitable. The NCUA Board believes that students are a unique group that can be considered either occupational or associational depending on the circumstances. That is, a student group, by itself or when combined with school employees, can be or constitute part of an occupational common bond. When part of a church group, the student group can be treated as part of an associational common bond. Therefore the NCUA Board is proposing to amend Chapter 2, Section III A.1. of IRPS 99-1 to reflect this view.

While not requiring a policy change, several other issues involving students have arisen in the last eighteen months that require clarification. NCUA, by policy, will not consider a student group below the elementary level, in and of itself, as constituting a valid group (employees and students of an elementary school would still be a valid group). Additionally, students of martial arts, sports camps, and other similar social/recreational training programs do not constitute a valid associational group simply because they are enrolled in the program. It is the intent of IRPS 99-1 and these amendments that students must be tied to some academic endeavor or occupational based training program ( i.e. , college, trade school). Finally, student associational groups must also provide evidence of a valid organization. This can be in the form of bylaws, charter or other equivalent documentation. It is important that the existence of a valid association be determined.

Tiered Voting. In determining whether a group qualifies as an associational group, one of the criteria NCUA considers is whether the members of the group have voting rights. While NCUA will evaluate the totality of circumstances in reaching its decision, a member's ability to vote is a significant factor, especially when differentiating between bona fide associations and client-customer relationships.

Questions have arisen whether this criterion requires each member of the group to vote directly for an official of the association. NCUA has found that some large associations have adopted voting procedures where members vote for delegates who, in turn, cast their votes for officials. This voting structure constructively meets the intent of the field of membership policy. Examples of this may include churches where the lay persons elect delegates who attend the regional or national meetings to elect the national officers and labor unions that may be similarly structured. Therefore, where such voting structures exist, the association will be considered to have met the voting requirement criterion.

Generally, IRPS 99-1 requires that an association provide documentation that it is a valid association. In addressing this issue in IRPS 99-1, language was included that indicated that the best method to demonstrate an organization was a valid association was through a charter or bylaws, or other equivalent documentation. The NCUA Board has found that in some cases, particularly at the local level, some faith based associations may not possess bylaws or a charter. In those cases, it is not necessary to have a copy of a charter or bylaws, but it is necessary to be able to document in some way, i.e. , other equivalent documentation, that it is a valid association. For example, a church may not have bylaws or a charter, but it should be able to obtain some other documentation demonstrating it is a legally constituted church. Often, this can come from the presiding official of the church.

In the chartering process, as well as the addition of select groups to a multiple common bond credit union, economic advisability is critically important. NCUA has long taken the position that no charter should be granted unless a determination is made that the credit union “will be viable and that it will provide needed services to its members,” and will have a “reasonable opportunity to succeed.” To ignore these basic, yet very important, chartering requirements would create unnecessary and undue risks to the National Credit Union Share Insurance Fund (NCUSIF). Equally important is the fact that members of a credit union that has no reasonable chance of success are needlessly harmed. Therefore, it is the responsibility of NCUA to assure that if a credit union is chartered, it has, at a minimum, a reasonable opportunity to succeed in today's financial marketplace. This issue was thoroughly discussed in the preamble to IRPS 99-1.

The addition of groups to a multiple common bond credit union also takes into consideration economic advisability, as well as other criteria. CUMAA requires that before the addition of any group is approved, the NCUA Board must determine, in writing, that:

(1) The applicant credit union has not engaged in any material unsafe or unsound practices within the preceding 1-year period;

(2) The applicant credit union is adequately capitalized (this definition is legally different from the definition in Prompt Corrective Action);

(3) The applicant credit union has the administrative capability to serve the proposed membership;

(4) The benefit to the members outweighs any potential harm the expansion may have on another credit union; and

(5) The applicant credit union has met such additional requirements as the Board may prescribe.

An administrative process must be established to address these issues, particularly since the statute requires that the determination must be in writing.

The economic advisability of a group forming a separate credit union is also an essential element of consideration before a group can be added to a multiple common bond credit union. The statute clearly sets forth this standard. It states:

As set forth in the preamble to IRPS 99-1, it remains the intent of the Board that every group being added to a multiple common bond credit union should be analyzed to determine whether it has the capability and desire to support an independent operation. This requirement, however, must be balanced with operational feasibility. To overlook the complexities of providing financial services will only lead to future supervisory problems. The regulatory approach, therefore, should consider known economic factors and the likelihood of success in establishing and managing a new credit union in today's marketplace. To restate what was discussed in IRPS 99-1, it is the intent that a group desiring a separate charter should have every reasonable opportunity to form a new credit union, but this desire must be balanced against known economic hurdles and start-up operational requirements. Similarly, a larger group lacking the interest to charter and operate a separate credit union should be closely analyzed since desire and initiative are critical to its overall success.

In addressing these requirements in relation to the historical data related to chartering new credit unions, the NCUA Board established an expedited process in IRPS 99-1 for groups of 200 or less primary potential members. Although a written determination regarding the various statutory criteria is still required, the expedited process allowed for the streamlined processing of groups of 200 or less since the Board found that a group of 200 or less, in almost all cases, would not be economically advisable. Thus, this past year, applicant credit unions applying to add a group of 200 or less simply had to complete the Form 4015-EZ. Additionally, no overlap analysis was required for these small groups.

A review of the empirical data of the last eighteen months has convinced the NCUA Board that the expedited processing number should be raised. The data indicates that a substantial majority of the multiple group expansions approved, 91.3 percent, were groups of 200 or less. Further, 96.7 percent of the approved expansions constituted groups of 500 or less. Overall, only 2 percent of all applications for multiple group expansions were denied. In every case involving a group of 500 or less, NCUA found that the group could not reasonably establish an economically viable stand-alone credit union. In fact, the smallest federal credit union chartered in 1999 had a primary potential membership of 2,000. The smallest state credit union chartered in 1999 had a primary potential membership of 1,651.

The NCUA Board believes that based on the historical experience of 1999 and early 2000, plus other chartering data since 1990, that the expedited processing number for adding groups should be raised to 500.  1 In conjunction with this proposal, the NCUA Board is also proposing that the overlap analysis required of groups of 200 or more should be raised to 500.

In the preamble to the proposed rule and the preamble to IRPS 99-1 the NCUA Board addressed the issue of defining the statutory term “adequate capitalization” for the addition of select groups to multiple common bond credit unions. It was noted in the more extended discussion in the preamble to the final rule that a reason for the policy change in 1982 allowing select group expansions was to assist credit unions in diversifying their fields of membership for safety and soundness reasons. Since that rationale is also applicable today, the NCUA Board specifically included in the final rule for single common bond and community credit unions the possibility that an expansion could be approved notwithstanding the credit union's financial or operational problems. One of the statutory requirements for the addition of select groups for a multiple common bond credit union, however, is that the credit union be adequately capitalized. However, adequate capitalization was not defined by the statute. Consequently, the Board provided its rationale in the preamble to IRPS 99-1 why 6 percent capitalization for a credit union in existence more than 10 years should be considered adequate for field of membership purposes. In particular, the Board stated:

In further addressing this issue, the Board stated that:

In addressing the issue of reasonable proximity and the addition of a select group, the question was raised how NCUA would respond if a select group was located a considerable distance from the credit union, but no other credit unions are within closer proximity that could or are willing to serve the group. In this situation, the nonavailability of other credit unions is a factor that should be considered in determining whether the group is within reasonable proximity. This interpretation does not require a change in the chartering manual.

A second issue was also raised regarding the policies affecting the addition of groups that are within reasonable proximity of a service facility (this term includes a service center, branch or shared branch or any offsite credit union location that meets the definition of a service facility). This issue is particularly important in view of the networking system of state and national shared service centers, most of which technically meet NCUA's service facility definition. These shared service centers permit participation by credit unions without requiring, in many cases, an ownership interest. The identical or near identical nature of the shared service centers in the state and national networking system with the definition of a service facility in IRPS 99-1 has created confusion and, therefore, must be clarified.

Although IRPS 99-1 states that a credit union can expand around a shared service facility, it was never the intent that a credit union that was simply part of a service center networking system should be permitted to add groups around any of the numerous shared service center locations without an ownership interest. Consequently, the current policy guidance has been that expansions around shared service facilities would not be permitted unless the shared service facility was locally owned by a credit union. The rationale for this position is statutory.

CUMAA requires that NCUA shall first encourage the formation of separately chartered credit unions. If the formation of a separate credit union is not practicable or consistent with the standards set forth in the statute, then a select group can be included in the “field of membership of a credit union that is within reasonable proximity to the location of the group.” 12 USC 1759 (f)(1)(B). The statute then delineates a number of approval criteria that must be satisfied before a select group can be added.

In defining reasonable proximity, the Board stated that the group to be added must be within the “service area” of a “service facility” of the credit union. Service facility was defined to mean a place where shares are accepted for members' accounts, loan applications are accepted, and loans are disbursed. This definition includes a credit union owned branch, a shared branch, a mobile branch, an office operated on a regularly scheduled weekly basis, or a credit union owned electronic facility that meets, at a minimum, these requirements. This definition does not include an ATM.

While not entirely clear in the preamble to IRPS 99-1 or in the policy itself, it was the Board's intent that expansions would be limited to select groups that were within reasonable proximity to a credit union, as it was ultimately defined.

The state and national networking service center system, if used to allow the addition of groups, generally would not conform to the statutory requirements. For example, a credit union in Texas could add groups within reasonable proximity to a service center in Georgia or the hundreds of other service centers located in the United States, even though there was no ownership interest in the service centers, by virtue of its membership or participation in the service center network.

The issue is, can credit unions that are linked to service centers through a state or national network use that linkage, without ownership, to expand their fields of membership by adding select groups located within the service area of those service centers? It is the Board's belief that to allow a credit union to expand around any service center not local to or not having an ownership interest by that credit union would be inconsistent with the statute. However, it is the Board's view that the current policy is overly restrictive and that the threshold for allowing the addition of groups around a shared service facility should be modified.

The Board is amending Chapter 2, Section 4.A.1 of the Chartering Manual to permit the addition of groups around shared service facilities if the credit union either (1) owns directly or through a CUSO or similar organization, at least a 5 percent interest in the service facility or (2) the service facility is local to the credit union and the credit union is an authorized participant in the service center.

During 1999, there were a number of questions and issues related to the documentation requirements that must be satisfied to add select groups. The most questioned requirement related to what information the groups needed to provide relative to why the formation of a separate credit union for the group is not practical or consistent with safety and soundness standards. While this information is found on Form 4015, IRPS 99-1 did not specifically delineate that the letter from the group must include information on its ability to form a separate credit union. To clarify this issue, the NCUA Board is proposing additional clarifying language be added to Chapter II, IV.B.3 as follows:

Why the formation of a separate credit union for the group is not practical or consistent with safety and soundness standards. Some of the areas the credit union may consider include:

• Member location—whether the membership is widely dispersed or concentrated in a central location.

• Demographics—the employee turnover rate, economic status of the group's members, and whether the group is more apt to consist of savers and/or borrowers.

• Market competition—the availability of other financial services.

• Desired services and products—the type of services the group desires in comparison to the type of services a new credit union could offer.

• Sponsor subsidies—the availability of operating subsidies.

• Employee interest—the extent of the employees' interest in obtaining a credit union charter.

• Evidence of past failure—whether the group previously had its own credit union or previously filed for a credit union charter.

• Administrative capacity to provide services—will the group have the management expertise to provide the services requested.

A credit union need not address every item on this list, simply those issues that are relevant to its particular request. As stated in the proposed language, a credit union is responsible for obtaining from groups over 500 primary potential members information regarding the factors NCUA will evaluate to determine whether a group can form its own credit union. NCUA reserves the right to contact the groups directly to discuss economic advisability criteria. Direct contact often expedites the process.

Consistent with current policy, two single common bond credit unions that share the same common bond (same field of membership) can voluntarily merge. For example, corporation A is nationally based. As a result of being nationally based, it has several credit unions that are not geographically restricted serving its employees. These single common bond credit unions share the same common bond and field of membership. Accordingly, by policy, no analysis of the groups are required to determine if they can stand on their own and the credit unions can voluntarily merge.

Similarly, if corporation A is served by a single common bond credit union and corporation B is served by a single common bond credit union, the two single common bond credit unions can merge if one corporation is acquired by the other. In other words, if corporation A purchases corporation B, then the two single common bond credit unions share the same common bond and there is no restriction on the two credit unions voluntarily merging. Again, no analysis is required, other than to determine they share the same common bond.

The two situations described above have not presented a problem this past year. However, if in the examples provided above, one of the credit unions is a healthy multiple common bond credit union, the result can be entirely different. In some cases this places an undue burden on the credit unions and often presents potential long term supervisory concerns. For example, if in the second example the credit union serving corporation B is a multiple common bond credit union, and corporation A purchases corporation B, under current policy, if the primary field of membership in corporation B's credit union has more than 3,000 primary potential members and every other group is less than 3,000 primary potential members, then NCUA still must analyze each group of 3,000 or more potential members to determine whether the formation of a separate credit union is practical. This is a harsh result when both credit unions essentially share the same common bond.

The NCUA Board believes that if there is an intervening event, such as a corporate acquisition or restructuring, and the two credit unions have a substantial overlap of their fields of membership (in other words, the field of membership of both credit unions that results from the restructuring corporations), then the two credit unions should be allowed to voluntarily merge without analyzing that group's ability to form its own credit union.

Using the examples above, if corporation A, served by a single common bond credit union, purchases corporation B, served by a multiple common bond credit union, then employees of B can join credit union A if credit union A's field of membership already includes all employees of A. That is, corporation B employees are now corporation A employees and therefore are a part of credit union A's common bond. Further, even if credit union A were a multiple common bond credit union, policy would permit the addition of the employees of corporation B. It would be treated as an expansion, but processed as a housekeeping amendment. The only restriction is that credit union A cannot serve the other groups in credit union B without satisfying the select group expansion requirements. In many cases, the end result is almost a total overlap of the field of membership of both credit unions.

The almost total overlap is critical to this issue since, in reality, no new select groups that do not already have credit union service are being added. The criteria for multiple common bond expansions includes the statutory guidance that the NCUA Board must encourage the formation of separately chartered credit unions. This language assumes that the group does not already have credit union service available to it, and before adding the select group to another credit union, the agency must first encourage, if reasonable, a separate charter, and then make the determination whether the group can stand on its own as a separate entity. This analysis is relevant to new unaffiliated groups, not groups already included in the field of membership.

In addressing this issue, some credit unions decide to voluntarily merge since they essentially share the same field of membership. In other words, what was once two separate groups being served by two separate credit unions is now one group being served by two separate credit unions. In this situation, particularly if they apply to voluntarily merge, there is no interest in sustaining two credit unions. Consequently, merger is often the best alternative.

If the remaining groups are less than 3,000 primary potential members, they are incidental to the field of membership and should not be the basis for jeopardizing what otherwise is a sound business decision in the interests of the members and the NCUSIF.

Finally, in some instances, the acquiring corporation wants only one credit union serving its employees—not two. How does a healthy credit union dissolve? Obviously, it can voluntarily liquidate, but that is hardly the logical alternative. Allowing a merger in this situation is appropriate and supportable.

Therefore, in light of the reasons stated above, the NCUA Board is proposing a modification to its merger policy to permit the voluntary merger of credit unions with fields of membership that substantially overlap. That is, if the two credit unions share the same primary field of membership, and each of the remaining select groups have primary potential members less than 3,000, then the remaining groups will be considered incidental and the credit unions should be allowed to merge. However, non-primary groups greater than 3,000 would not be considered incidental.

When safety and soundness concerns are present, NCUA may approve the merger of any federally insured credit union. The NCUA Board is proposing to amend Chapter II, Section IV.D.2 of the Chartering Manual to clarify that abandonment by the management and/or officials and an inability to find replacements, loss of sponsor support, serious and persistent record keeping problems, sustained material decline in financial condition, or other serious or persistent circumstances are examples that may constitute grounds for merging a credit union due to supervisory concerns. This amendment is consistent with the guidance provided this past year in evaluating whether a merger was voluntary or supervisory.

Chapter 2 Section IV.F of the Chartering Manual states that:

Although this section is rather straightforward it can have unintended consequences. This past year a multiple common bond credit union divested itself of its select groups so that it could expand its primary potential membership strictly in conformance with single common bond policies. Shortly after converting to a single common bond, the sponsor restructured and sold what had been a major part of the potential single common bond. While the credit union can continue to serve the members of record from this group, it cannot take in new members from the group without converting back to a multiple common bond. Present field of membership policy does not allow for this unless there are safety and soundness concerns.

As has been previously noted, corporate reorganizations and restructuring have increased dramatically this past year, and it is expected that the pace of last year will continue. This type of problem was not anticipated. The intent of the restrictive language in current policy is to prevent credit unions from circumventing the statute by dropping its select groups, becoming a single common bond credit union and adding other single common bond groups (a single common bond credit union can add groups within its common bond without regard to location or size), and then converting back by adding new groups or the groups it dropped when it became a single common bond credit union.

In the situation described above, circumstances beyond the credit union's control entirely altered the primary reason the credit union converted to a single common bond credit union. To eliminate this deleterious result from unexpected corporate reorganizations/restructuring, the NCUA Board is proposing to permit a credit union to continue to serve any group included in or added to its single common bond field of membership at the time of conversion to a single common bond credit union for a period of three years from the date of conversion, even if the group is later sold, spun-off or otherwise divested as a result of a corporate reorganization/restructuring. If the credit union elects to continue to serve any sold, spun-off or otherwise divested group, then it must convert back to a multiple common bond credit union on the third anniversary of the date of conversion. During this three-year period, it will continue to be treated as a single common bond credit union.

The NCUA Board is proposing that Chapter IV, Section II. be amended to clarify that a state chartered multiple common bond credit union that converts to a federal charter may retain in its field of membership any group that it was serving at the time of conversion. Any subsequent additions or amendments to the field of membership must comply with federal field of membership policies. Additionally, the NCUA Board is clarifying that if any state chartered credit union that was considered under state law to be a single common bond credit union, but under federal rules would be classified a multiple common bond credit union, converts to a federal charter, the charter type must be changed to reflect federal policy.

The NCUA Board is also proposing an amendment to Chapter IV, Section III.A of the Chartering Manual to clarify that a federal credit union converting to state charter remains responsible for the operating fee for the year in which it converts. Currently, this fee is not pro rated.

This past year, the most challenging and complex field of membership issues involved the loss or dilution of a field of membership as a result of corporate reorganization or restructuring. This issue was addressed in IRPS 99-1, however, the current policy does not completely set forth the resolution of various, and sometime numerous, consequences of a corporate restructuring/reorganization, particularly when the credit unions involved are reluctant, and in some cases refuse, to mutually address the problem.

Corporate restructuring, under previous field of membership policies, could be more easily resolved since those policies allowed greater flexibility when a credit union added a new group, or continued service to a group that no longer was in its field of membership.

CUMAA, however, placed new restrictions on the addition of new groups relative to size and reasonable proximity. What was previously a relatively simple process became more problematic because of the requirement to determine if the change could be handled as a housekeeping amendment, or whether it required the credit union to apply for an expansion. If it was considered an expansion, then all the requirements relative to adding a new group applied. To illustrate this problem, consider the following example:

Often, one of the credit unions is significantly smaller than the other. In this instance, should credit union A, if it is the smaller of the two, receive a field of membership windfall and credit union B be left without a viable field of membership. In other words, should either credit union A or B be advantaged or adversely impacted by a corporate restructuring/reorganization over which they have no control. Lastly, what happens if the new corporation chooses to only allow one credit union to serve its employees? What is NCUA's responsibility in trying to determine who should serve whom?

This example, while relatively simple factually, is occurring with greater frequency, and there are no simple answers. It is further complicated if one of the credit unions is a multiple common bond charter. In fact, experience has demonstrated that the variations on this example are endless. Most often, the corporate change results in a significant hardship for one of the credit unions. It is anticipated that the number of corporate reorganizations and acquisitions will continue to climb thus impacting a larger number of credit unions.

Current written policy is not clear on how to resolve these type of issues. Further, in the development of current policy, all the ramifications of the problems resulting from corporate restructuring and acquisitions were not fully considered. Consequently, after considerable review of this issue, the NCUA Board believes that the current policy must be clarified in order to provide credit unions affected by this common occurrence, and over which they have no control, more equitable treatment. The NCUA Board does not believe that Congress intended that credit unions should be forced to liquidate because of a corporate reorganization/restructuring. Consequently, the NCUA Board is of the view that in a corporate restructuring situation, greater flexibility must be allowed so that both credit unions can serve the same field of membership.

For single common bond credit unions, the NCUA Board is proposing an amendment to clarify actual practice that if the group comprising the single common bond of a credit union merges with, or is acquired by, another group, the credit unions originally serving both groups can serve the new group resulting from the merger or acquisition after receiving a housekeeping amendment. In other words, it will be permissible for both credit unions to serve the same single common bond group. However, the credit unions may agree to divide the field of membership in some way. To clarify this practice, additional language is proposed to state that unless an agreement is reached limiting the overlap resulting from the corporate restructuring, NCUA will permit a complete overlap of the credit unions' fields of membership.

For multiple common bond credit unions, the NCUA Board is proposing a clarifying amendment to reflect that when two groups merge, or one group is acquired by the other, and each is in the field of membership of a credit union, then both (or all affected) credit unions can serve the resulting merged or acquired group, subject to any existing geographic limitation and without regard to any overlap provisions by a housekeeping amendment to its charter. As with single common bond credit unions, both credit unions will be allowed to serve the new group resulting from the merger, buyout or acquisition, and the credit unions can mutually divide the new field of membership. If they do not agree to a division of the field of membership, then a total overlap will be permitted. The NCUA Board believes this to be in the best interests of the credit unions and the members and the safety and soundness concerns that evolve when a credit union loses its field of membership.

Finally, it is important to note that the NCUA Board does not believe this policy clarification is in violation of CUMAA or its intent since new unaffiliated groups are not being added. Rather, the same potential membership, in terms of numbers, have the ability to choose to join one or both credit unions.

These changes do no alter the current policy that a multiple common bond credit union can, by a housekeeping amendment, continue to maintain in its field of membership groups that have been sold, spun-off, or merged.

Chapter 2, Section V.A.2 of the Chartering Manual states that an “ethnic neighborhood, a rural area, a city, and a county with 300,000 or less residents will generally have sufficient interaction and/or common interests to meet community charter requirements.” Chapter 2, Section V.A.2 of the Chartering Manual further states that:

The NCUA Board included this statement in the final rule to define those situations based on historical data that generally meet the community requirements. As a consequence of the historical data, which is further supported by NCUA's experience in 1999 for presumptive community charters, NCUA only requires a letter describing how the particular area meets the standards for community interaction or common interests. This was not intended to suggest that geographical areas with populations larger than 300,000, for example, would not qualify for a community charter. There is no negative presumption for larger geographical areas. Simply, more detailed documentation will be necessary to support that the proposed area is a well-defined community. In fact, the NCUA Board has approved six community charters with a population in excess of 300,000 under IRPS 99-1.

Currently, credit unions are required to submit both a business and marketing plan with any proposed, converting or expanding community charter application. A business and marketing plan is also critical in evaluating the application for a newly chartered community credit union. It is anticipated that the marketing plan for either an expansion, conversion or chartering of a community charter will address how the credit union intends to serve the entire community.

However, very often, this aspect of the marketing plan may be very general and not specific to low-income or underserved areas.

The development of the marketing plan is solely within the purview of the credit union and is important in that it provides the strategy to achieve the objectives set forth in the business plan. NCUA has not previously required that the marketing plan be specific as to any one issue, but IRPS 99-1 does require that it address how the entire community will be served.

One of the goals of the Federal Credit Union Act is to make credit available to people of small means. Therefore, the NCUA Board is proposing that the chartering manual be revised to require that any type of application related to expanding, converting or chartering a community credit union include not only the required business and marketing plan, but also a community action plan (CAP) that will be periodically updated by the board of directors of the credit union and reviewed periodically by NCUA. There is no evidence to support that community credit unions have failed to fulfill their responsibility to serve the entire community. However, since service to the entire community is an essential consideration for community charters, it is appropriate that NCUA set forth its regulatory expectations in this regard. Existing community credit unions will also be expected to review their business and marketing plans and develop a CAP, which if approved in a final rule, should be in place no later than December 31, 2001.

The business plan would continue to address the documentation requirements set forth in Chapter 1 of the Chartering and Field of Membership Manual; however, the CAP would supplement the marketing plan by specifically addressing the credit union's plan to market its services to the entire community, including underserved or low-income areas (if applicable). This may include current or future delivery systems, such as ATMs, 24 hour voice response system, internet web sites, current or future customized programs to assist community residents such as credit counseling and budgeting, and current or future service facility locations. An important component of CAP is that it will specifically focus on providing services to the entire community consistent with sound business principles, and in particular less advantaged economic groups or groups with historically less access to financial services within its community field of membership.

Internal guidelines to examiners would require them to periodically review a community credit union's CAP and its overall effectiveness in meeting the goals outlined in the plan. In the event a community credit union failed to reasonably follow its CAP, the regional director would have discretion to pursue appropriate supervisory actions.

The addition of underserved areas, as defined in Chapter 3 of IRPS 99-1, to the field of memberships of operating credit unions has been identified as a priority by the Board. Additionally, some credit unions have pointed out that the requirements for adding an underserved area are difficult to document. Consequently, the Board believes that the current policies on adding underserved areas should be modified in order to more easily achieve the statutory intent of providing service to the greatest number of people of small means.

Three criteria must be met before an underserved area can be added to any federal credit union's field of membership. First, the area must be a local community. Second, the area must also be classified as an investment area as defined in section 103(16) of the Community Development Banking and Financial Institutions Act of 1994 (12 U.S.C. 4703 (16)) and meet any additional requirements the Board may impose (the Board has not imposed any additional requirements). Third, the credit union adding the underserved area must establish and maintain an office or facility in the local community, neighborhood, or rural district.

After reviewing the statutory intent of service to underserved areas and the overall goal of improving credit union service to these areas, the NCUA Board proposes to modify the current polices relating to each of the three criteria in order to encourage further development of credit union activities in underserved areas and thereby improve financial services to those most in need.

IRPS 99-1 articulates a presumption policy for communities within a single political jurisdiction if the population does not exceed 300,000, or, if within multiple contiguous political jurisdictions, the population does not exceed 200,000. Under IRPS 99-1, however, interaction or common interests still must be demonstrated. The NCUA Board believes an impediment to facilitating service to underserved areas is the current policy requiring the applicant credit union to establish that there is interaction or common interests in the underserved area.

In previous policies, the NCUA Board has determined that an area where a majority of residents meeting NCUA's definition of low-income could in and of itself be the basis for a common bond. Similarly, the NCUA Board believes that in certain cases, if an area otherwise meets the requirements of an underserved area, then additional documentation will not be necessary to establish that it is a local community where the residents have common interests or interact.

Accordingly, if the area meets the requirements for an investment area, and the size of the investment area, whether contained wholly or in part of a single political jurisdiction or multiple political jurisdictions, meets the presumptive criteria established in IRPS 99-1, then the credit union will not have to demonstrate common interests or interaction among the residents. Accordingly, Chapter III, Section III, should be amended to state that the “well-defined local community, neighborhood, or rural district” requirement will be met if:

(1) The underserved area to be served is in a recognized single political jurisdiction, i.e. , a county or its political equivalent or any contiguous political subdivisions contained therein, and if the population of the requested well-defined area does not exceed 300,000, or

(2) The underserved area to be served is in multiple contiguous political jurisdictions, i.e., a county or its political equivalent or any political subdivisions contained therein and if the population of the requested well-defined area does not exceed 200,000.

However, should the underserved area exceed these limits, the credit union must document the area meets the local community criteria outlined in Chapter 2, Section V.A.2, Documentation Requirements of IRPS 99-1.

The statute further requires that the local community, neighborhood, or rural district must be an investment area that is underserved. The Community Development Banking and Financial Institutions Act of 1994 delineates seven criteria, any one of which is sufficient to establish an area as an investment area. In six of those criteria, there is the requirement that there must be “significant unmet needs for loans or equity investments.” The Board has the authority to determine what constitutes significant unmet needs for loans or equity investments. In this instance, if the proposed area meets the poverty, median family income, unemployment, distressed housing, or population loss criteria as set forth in the Community Development Banking and Financial Institutions Act of 1994, then the Board will presume that there are significant unmet needs for loans or equity investments.

Finally, the third potential problem area in providing service to an underserved area is the statutory requirement that the “credit union establishes and maintains an office or facility in the local community, neighborhood, or rural district at which credit union services are available.” NCUA has determined that this statutory test will be met if one of two requirements is met.

First, at the time the underserved area is added to the credit union's field of membership, a plan must be in place to establish and maintain an office or facility within two years. In addition to a permanent office or facility, this requirement may also be satisfied through periodic service to the underserved area through the use of a mobile office, an office open at select times each week, a service facility or shared branches or shared service facilities. A credit union that has multiple underserved areas in its field of membership must meet the statutory requirement for each underserved area unless the underserved areas are contiguous.

Second, if a credit union has a preexisting office within close proximity to the underserved area(s), then it will not be required to maintain an office or facility within the underserved area. Close proximity will be determined on a case-by-case basis, but the office must be readily accessible to the residents and the distance from the underserved area will not be an impediment to a majority of the residents to transact credit union business.

In addition to the amendments discussed above, the Board desires to provide incentives to further encourage the addition of underserved areas. In this regard, the NCUA Board is considering one or more incentives for credit unions adding underserved communities if the underserved community is a minimum population size. Comments are specifically requested on what the population size of the underserved area should be in order for the credit union to qualify for one or more of the following incentives:

• The asset base used to compute the credit union's operating fee will be frozen for a two-year period.

• The operating fee will be reduced by ten percent or more per year until the total reduction equals $20,000 over a maximum five-year period.

• The assets of the underserved area will not be included in the calculation of the credit union's operating fee for 5 years.

• Fixed assets in the underserved area will not be counted toward the fixed asset limitation of § 701.35 of NCUA's Rules and Regulations. In addition, the credit union would be exempt from the charitable donation regulation, § 701.25 and would be allowed to increase the dollar threshold from $100,000 to $250,000 when an appraisal is required, § 722.3(a)(1).

It is the Board's intent that the final amendments include some form of incentives. The NCUA Board is requesting comments on these proposed incentives and any others that would increase service to underserved areas.

There has been a lingering question relative to the status of single common bond credit unions as of the date of enactment of CUMAA if the corporate sponsor subsequently reorganizes/restructures. For example, if corporation A is served by a single common bond credit union as of the date of enactment of CUMAA, but subsequent to the date of enactment corporation A restructures and spins off a division, can the single common bond credit union continue to serve the spun off division (no longer a part of corporation A) without converting to a multiple common bond credit union?

The position consistently followed by NCUA was that the credit union would have to convert to a multiple common bond credit union in order to continue to serve the spun off group. This was consistent with the statute because members of the group could still be served, even though they may not have been members of the credit union at the time of CUMAA's enactment.

This position has created unnecessary hardships for several credit unions. As a result, the NCUA Board has revisited this issue and believes that the previous position should be modified. The rationale for this modification is two-fold. First, the statute states:

The above statutory provisions make it clear that groups within a credit union's field of membership as of the date of enactment can continue to be served. The only question is, must the status of the credit union change in light of the statutory definition of the types of credit unions? Upon further review, the NCUA Board is modifying its position on this issue since no new non single common bond groups are being added. Therefore, the NCUA Board is classifying any credit union that was a single common bond credit union as of the date of enactment of the statute as a single common bond credit union provided it does not add any new groups to its field of membership after the date of enactment. That is, to remain a single common bond credit union, it can only serve those groups that constituted part of the single common bond at the time CUMAA was enacted.

IRPS 94-1 permitted any credit union to include in its field of membership, without regard to location, communities and associational groups satisfying the low-income definition. 2 The purpose of this policy was to facilitate the making of credit union service available to persons in low-income communities. The only other requirement for the addition of a low-income community was that the area so designated in fact met community standards. Although the courts did not address this particular issue or overturn any polices related to service to low-income communities, CUMAA affirmatively provided authority for federal credit unions to add any person within a local community, neighborhood, or rural district if the local community, neighborhood or rural district is (1) an investment area that is underserved and (2) the credit union establishes and maintains an office or facility in the designated investment or underserved area. 12 U.S.C. 1759(c)(2).

There are seven tests for an underserved investment area, any one of which will satisfy the requirement. The authority granted in CUMAA for federal credit unions is a broader standard than the low-income requirement definition in IRPS 94-1 in that it encompasses a significantly larger low-income base. One of the tests for an underserved investment area is that the “median family income is at or below 80 percent of the Metropolitan Area median family income or the national Metropolitan Area median family income; and the area has significant unmet needs for loans or equity investments.”  3 In many instances, this one test can be less stringent than the previous requirement under IRPS 94-1.

As has been repeatedly noted and even referenced in CUMAA, credit unions have the specified mission of meeting the credit and savings needs of consumers, especially persons of modest means. This is reflected in the statutory authority to serve underserved investment areas. Throughout IRPS 99-1, the Board took note of this statutory mandate and adopted policies that encourage and promote credit union services to low-income groups and communities. This continues to be the NCUA Board's approach.

This discussion is necessary in light of the fact IRPS 99-1 does not directly address the status of low-income communities added under IRPS 94-1 since that term was essentially subsumed in the definition of an underserved area in IRPS 99-1. In other words, if the low-income community added under IRPS 94-1 meets the definition of an underserved investment area, and the credit union maintains an office in the low-income community, then it meets the requirements of IRPS 99-1.

The problem that has arisen relates to the continued service to the low-income community added under IRPS 94-1, which is no longer recognized under IRPS 99-1, if the credit union converts to a different charter type.  4 Current policy is that the grandfather provision no longer applies once the charter type is converted. However, this policy, as it relates to low-income communities and underserved investment areas, is overly restrictive in view of the broad mandate of the statute to provide credit union services to people of modest means.

Based on the authority provided by CUMAA, the ability to serve people of modest means was expanded, not restricted. As previously mentioned, any number of other criteria were provided to broaden the “modest means” base. The primary limiting factor was the establishment and maintenance of an office in the area to be served. The NCUA Board has determined that any low-income community added under IRPS 94-1 will qualify as an underserved investment area. If, however, the credit union does not maintain an office in the low-income community, before it can expand that portion of its field of membership, it must come into compliance with IRPS 99-1.

For many groups, obtaining NCUA's approval for a federal credit union charter is a time-consuming process that generally takes many months, sometimes as long as two years. It has been NCUA's experience that organizers have encountered difficulties in developing comprehensive business plans, operating policies and reasonable financial projections. To help achieve the agency's goals of encouraging the formation of credit unions and to make quality credit union service available to all eligible persons, the chartering procedures were reviewed by staff to determine if the application process could be modified to:

(1) Expedite the chartering process, and

(2) Achieve the agency's goal, as set forth in the Strategic Plan, of facilitating the formation of new credit unions.

After review of the current policy and procedures (IRPS 99-1), and considering the overall fail/success ratio of new charters,  5 the NCUA Board has determined that the chartering process can be streamlined without creating any undue risks to the National Credit Union Share Insurance Fund provided reasonable safeguards are implemented. To accomplish this goal, Express Chartering Procedures (ECP) are being implemented. To implement ECP, it is not necessary to amend IRPS 99-1. As faster approval of charter applications will result from standardized policies and business plans, and documentation of member and sponsor support. While the level of service of a new charter will initially be limited under ECP, credit union officials can enhance business plans and policies to increase services as they gain experience operating the credit union. Furthermore, with the addition of Economic Development Specialists in each region, more direct assistance, in conjunction with other organizations, can be provided to newly chartered credit unions. This assistance should provide increased opportunities to expand credit unions services in newly chartered credit unions.

In order to charter a federal credit union, a group must possess:

(1) An appropriate common bond or be a well-defined local community, neighborhood, or rural district;

(2) The subscribers must be of good character and fit to represent the credit union; and

(3) The establishment of the credit union must be economically advisable.

Each of these legal requirements were examined by NCUA to determine where changes could be made to expedite the chartering process. The NCUA Board's analysis of each requirement is addressed below:

The inability of the charter applicant to establish the existence of an acceptable common bond type or community often contributes to the length of time it takes to process a new charter application. This basic requirement in the chartering process is statutory and must be satisfied. For single and multiple common bond credit unions, the existence of an association or employer generally satisfies the field of membership requirement, and, therefore, is not problematic. Conversely, a community charter applicant is more likely to encounter delay in its effort to establish that the proposed geographic boundaries constitute a “local community.” With the implementation of IRPS 99-1, and its streamlined procedures for certain communities, it is believed that this particular problem has been adequately addressed; therefore, the NCUA Board is not making any changes to this requirement.

In order to determine management's fitness to serve, NCUA performs both background criminal and credit checks on the proposed credit union's prospective officials and subscribers. (12 U.S.C. 1790a and 12 CFR 701.14) It often takes up to two months before receiving the results of background criminal investigations. However, rarely is adverse information uncovered during this process. Furthermore, the regions can and will approve a charter subject to receipt of the background review information. If adverse information is uncovered, the officials are charged with finding a suitable replacement. If the charter has already been granted, it is not suspended or canceled.

In some cases, the applicant group will be required to replace one or more of the proposed officials because of adverse credit checks. This also can result in a processing delay, but, generally, the delay is not extended. Additionally, and most importantly, due to safety and soundness concerns, it is important that credit checks be performed.

Because of the importance of background checks and NCUA's overall statutory responsibility to ensure the fitness of officials, the NCUA Board is not making any changes to this requirement.

To determine whether a proposed credit union would be economically viable, the group must submit a detailed business plan, as outlined in IRPS 99-1. The plan must contain a number of elements, including evidence of member support, proposed policies, evidence of subsidies, and pro forma financial projections.

Most often, delays in chartering a new credit union result from deficiencies in the group's business plan. For example, projections may not be reasonable, or policies may be incomplete or unacceptable. For new subscribers this is a particularly burdensome process and often requires the assistance of consultants and/or NCUA staff. It is also the one area that procedural modifications can be made without undermining the overall goal of obtaining an acceptable business plan.

It is during the development of the business plan that many groups decide that they do not have the expertise to run a credit union. In other words, the development of a business plan acts as a check and balance for those who mistakenly believe that chartering and running a credit union is an easy task. This accounts for the low percentage of groups that actually complete the chartering process. Although this has some safety and soundness benefits, the NCUA Board believes that if procedures can be put in place that allow applicant groups to maintain their initial momentum, more credit unions will be chartered and the entire process of developing a meaningful business plan will be better understood and appreciated. Accordingly, the NCUA Board believes that those requirements relating to the development of a business plan can be modified to allow for expeditious charter approval, but restrict services offered until the credit union completes a more thorough business plan. The more thorough business plan is now required before the charter can be approved.

The NCUA Board has given the Office of Examination and Insurance the responsibility to implement ECP. The ECP procedures will utilize standardized forms, NCUA on-site assistance, and certain restrictions on the initial services that may be offered. The ECP will be reviewed on an annual basis, by the Office of Examination and Insurance, to determine whether it is achieving its intended purpose without creating additional risks to the National Credit Unions Share Insurance Fund.

The ECP will use, to the greatest extent possible, standardized forms to facilitate the issuance of a charter early during the chartering process. They include:

• Standard business plan for limited services;

• Standard member survey format—this will include all applicable data needed to analyze the group's initial financial projections (initial pledge, systematic savings, etc. );

• Standard policies (shares, lending, investments, etc. ); and

• Standard forms for sponsor support, grants, and nonmember deposits (where applicable). Often, letters of support are inconclusive or the terms are unclear. Standard forms should help to eliminate this problem.

Initially, credit unions using ECP will only be able to offer regular shares and signature loans not exceeding predetermined amounts. This will enable the officials to familiarize themselves with basic credit union operations and cash management skills. The Letter of Understanding and Agreement (LUA) that always accompanies a new charter will include this restriction. An applicant credit union can elect not to use ECP.

Once a credit union demonstrates it can manage these limited responsibilities, the officials can submit a new credit union prepared business plan to expand services ( e.g. , share drafts, credit cards, etc. ). This further refinement of the business plan can be accomplished in stages with increased responsibilities and services offered commensurate with the approved business plan.

The advantage of the early ECP is that once the credit union is chartered, some services can be offered, and the officials will gain experience and knowledge in the operation of a credit union as they prepare a more detailed business plan. It is also believed that the importance of a business plan will be better appreciated if the officials are actually engaged in operating the credit union.

While NCUA's resources are limited, judicious use of NCUA staff to work with qualifying groups would be beneficial. The ECP will make use of the regional EDSs to guide the group through the application process. Once the group is chartered, the EDS and examiner will work with the credit union, as they do now.

The NCUA Board has given the Field of Membership Taskforce the oversight responsibility for the development of an Internet select group expansion process. This process would allow credit unions to submit requests for occupational groups of 500 or less online with an expedited approval by NCUA. When these proposed amendments are finalized the Board will provide more details.

The Board is proposing to change the titles of Chapter 2, Section II.H, Chapter II, Section III.H. and Chapter II, Section IV. H. to “Other Person's Eligible for Credit Union Membership.” This proposed technical amendment is appropriate to accurately conform the title to the policy contained in that section.

The Regulatory Flexibility Act requires NCUA to prepare an analysis to describe any significant economic impact a regulation may have on a substantial number of small credit unions (primarily those under $1 million in assets). The proposed amendments will not have a significant economic impact on a substantial number of small credit unions and therefore, a regulatory flexibility analysis is not required.

The NCUA Board has determined that the proposed community action plan requirements in IRPS 00-1 are covered under the Paperwork Reduction Act. NCUA is submitting a copy of this proposed rule to the Office of Management and Budget (OMB) for its review.

The proposed amendment would require community federal credit unions to develop a community action plan to serve their members, including low-income members and low-income areas. The NCUA Board estimates that it will take an average of two hours for a federal credit union to comply with this community action plan requirement. The NCUA Board also estimates that 625 credit unions will have to develop this plan so the cumulative total annual paperwork burden is estimated to be approximately 1250 hours.

The Paperwork Reduction Act of 1995 and OMB regulations require that the public be provided an opportunity to comment on paperwork requirements, including an agency's estimate of the burden of the paperwork requirements. The NCUA Board invites comment on: (1) Whether the paperwork requirements is necessary; (2) the accuracy of NCUA's estimate of the burden of the paperwork requirements; (3) ways to enhance the quality, utility, and clarity of the paperwork requirements; and (4) ways to minimize the burden of the paperwork requirements. Comments should be sent to: OMB Reports Management Branch, New Executive Office Building, Room 10202, Washington, D.C. 20503; Attention: Alex T. Hunt, Desk Officer for NCUA. Please send NCUA a copy of any comments you submit to OMB.

Executive Order 12612 requires NCUA to consider the effect of its actions on state interests. These proposed amendments make no significant changes with respect to state credit unions and therefore, will not materially affect state interests.

NCUA's goal is clear, understandable regulations that impose a minimal regulatory burden. We request your comments on whether the proposed amendments are understandable and minimally intrusive if implemented as proposed.

Accordingly, NCUA proposes to amend 12 CFR part 701 as follows:

Interested persons are invited to participate in the making of the proposed rule by submitting such written data, views, or arguments as they may desire. Communications shall identify the Rules Docket number and be submitted in triplicate to the address specified above. All communications received on or before the closing date for comments, specified above, will be considered before taking action on the proposed rule. The proposals contained in this notice may be changed in light of the comments received.

Comments are specifically invited on the overall regulatory, economic, environmental, and energy aspects of the proposed rule. All comments submitted will be available, both before and after the closing date for comments, in the Rules Docket for examination by interested persons. A report summarizing each FAA-public contact concerned with the substance of this proposal will be filed in the Rules Docket.

Commenters wishing the FAA to acknowledge receipt of their comments submitted in response to this notice must submit a self-addressed, stamped postcard on which the following statement is made: “Comments to Docket Number 2000-NM-96-AD.” The postcard will be date stamped and returned to the commenter.

Any person may obtain a copy of this NPRM by submitting a request to the FAA, Transport Airplane Directorate, ANM-114, Attention: Rules Docket No. 2000-NM-96-AD, 1601 Lind Avenue, SW., Renton, Washington 98055-4056.

The Direction Ge ne rale de l'Aviation Civile (DGAC), which is the airworthiness authority for France, notified the FAA that an unsafe condition may exist on certain Airbus Model A300 and A300-600 series airplanes. The DGAC advises that maintenance personnel found a chafed harness (cable) in the outer wing fuel tank. The harness is routed to the surge tank high-level sensor. Investigation revealed that clipping and routing of the cable (wiring) coupled with excessive slack of the cable between the “P” clips allows the cable to chafe against the support canister for the magnetic level indicator. Such chafing, if not corrected, could result in a short circuit and consequent fuel ignition source inside the outer wing fuel tank.

The manufacturer has issued Airbus Service Bulletins A300-28-0077 (for Model A300 series airplanes), and A300-28-6062 (for Model A300-600 series airplanes), each dated July 19, 1999. These service bulletins describe procedures for repetitive inspections to detect chafing and the existence of repairs of the harness of the high-level sensor of the fuel surge tanks, and to detect chafe marks on the support canisters of the magnetic level indicators; and follow-on corrective actions, if necessary. The follow-on corrective actions involve removing original repairs, if necessary, and accomplishing a splice repair and installing sleeves to the inner and outer cable coverings. The service bulletins categorize the repairs as either temporary or permanent depending upon the location of the repair and whether certain previous repairs were accomplished. In addition, the follow-on corrective actions include a repetitive visual inspection of the harness to ensure the integrity of the repair. This inspection would be performed if certain conditions ( e.g., any temporary repairs) exist.

The manufacturer also has issued Airbus Service Bulletins A300-28-0058, Revision 02 (for Model A300 series airplanes), and A300-28-6020, Revision 01 (for Model A300-600 series airplanes), each dated September 28, 1999. These service bulletins describe procedures for modification of the harness for the high-level sensor in the outer wing fuel tanks. The modification involves re-routing the cables and installing longer cleats and reversing the “P” clips that support the cables. This modification will prevent the cables from sagging and ensure adequate clearance between the cables and the support canisters of the magnetic level indicators. Accomplishment of the modification eliminates the need for certain repetitive inspections of the harness of the high-level sensor of the fuel surge tanks. However, the modification does not eliminate the need for the 10,000-flight-hour detailed visual inspections specified in the follow-on corrective actions, following the accomplishment of any temporary repairs.

The DGAC classified Airbus Service Bulletins A300-28-0077 and A300-28-6062 as mandatory and issued French airworthiness directive 1999-404-293(B), dated October 6, 1999, in order to assure the continued airworthiness of these airplanes in France.

These airplane models are manufactured in France and are type certificated for operation in the United States under the provisions of § 21.29 of the Federal Aviation Regulations (14 CFR 21.29) and the applicable bilateral airworthiness agreement. Pursuant to this bilateral airworthiness agreement, the DGAC has kept the FAA informed of the situation described above. The FAA has examined the findings of the DGAC, reviewed all available information, and determined that AD action is necessary for products of this type design that are certificated for operation in the United States.

Since an unsafe condition has been identified that is likely to exist or develop on other airplanes of the same type design registered in the United States, the proposed AD would require repetitive inspections to detect chafing and the existence of repairs of the wire harnesses of the high-level sensors; and to detect chafe marks on the support canisters of the magnetic level indicators; and follow-on corrective actions, if necessary. This proposal also would require modification of the harness for the high-level sensor of the outer wing fuel tanks, which would terminate certain repetitive inspections. The actions would be required to be accomplished in accordance with the service bulletins described previously, except as discussed below.

Operators should note that this AD proposes to mandate, within 18 months, the modification of the harness of the high-level sensor of the outer wing fuel tanks described in Airbus Service Bulletin A300-28-0058, Revision 02, or A300-28-6020, as terminating action for certain repetitive inspections. [Incorporation of the terminating action is optional in French airworthiness directive 1999-404-293(B).]

The FAA has determined that long-term continued operational safety will be better assured by design changes to remove the source of the problem, rather than by repetitive inspections. Long-term inspections may not provide the degree of safety assurance necessary for the transport airplane fleet. This, coupled with a better understanding of the human factors associated with numerous continual inspections, has led the FAA to consider placing less emphasis on inspections and more emphasis on design improvements. The proposed modification requirement is consistent with these conditions.

The FAA estimates that 37 series airplanes of U.S. registry would be affected by this proposed AD, that it would take approximately 1 work hour per airplane to accomplish the proposed repetitive detailed visual inspections, and that the average labor rate is $60 per work hour. Based on these figures, the cost impact of the proposed AD on U.S. operators is estimated to be $2,220, or $60 per airplane, per inspection cycle.

It would take approximately 1 work hour per airplane to accomplish the proposed modification, at an average labor rate of $60 per work hour. Based on these figures, the cost impact of the proposed AD on U.S. operators is estimated to be $2,220, or $60 per airplane.

The cost impact figures discussed above are based on assumptions that no operator has yet accomplished any of the proposed requirements of this AD action, and that no operator would accomplish those actions in the future if this AD were not adopted.

The regulations proposed herein would not have a substantial direct effect 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. Therefore, it is determined that this proposal would not have federalism implications under Executive Order 13132.

For the reasons discussed above, I certify that this proposed regulation (1) is not a “significant regulatory action” under Executive Order 12866; (2) is not a “significant rule” under the DOT Regulatory Policies and Procedures (44 FR 11034, February 26, 1979); and (3) if promulgated, will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act. A copy of the draft regulatory evaluation prepared for this action is contained in the Rules Docket. A copy of it may be obtained by contacting the Rules Docket at the location provided under the caption ADDRESSES.

Accordingly, pursuant to the authority delegated to me by the Administrator, the Federal Aviation Administration proposes to amend part 39 of the Federal Aviation Regulations (14 CFR part 39) as follows:

Interested persons are invited to participate in the making of the proposed rule by submitting such written data, views, or arguments as they may desire. Communications shall identify the Rules Docket number and be submitted in triplicate to the address specified above. All communications received on or before the closing date for comments, specified above, will be considered before taking action on the proposed rule. The proposals contained in this notice may be changed in light of the comments received.

Submit comments using the following format:

• Organize comments issue-by-issue. For example, discuss a request to change the compliance time and a request to change the service bulletin reference as two separate issues.

• For each issue, state what specific change to the proposed AD is being requested.

• Include justification ( e.g., reasons or data) for each request.

Comments are specifically invited on the overall regulatory, economic, environmental, and energy aspects of the proposed rule. All comments submitted will be available, both before and after the closing date for comments, in the Rules Docket for examination by interested persons. A report summarizing each FAA-public contact concerned with the substance of this proposal will be filed in the Rules Docket.

Commenters wishing the FAA to acknowledge receipt of their comments submitted in response to this notice must submit a self-addressed, stamped postcard on which the following statement is made: “Comments to Docket Number 99-NM-354-AD.” The postcard will be date stamped and returned to the commenter.

Any person may obtain a copy of this NPRM by submitting a request to the FAA, Transport Airplane Directorate, ANM-114, Attention: Rules Docket No. 99-NM-354-AD, 1601 Lind Avenue, SW., Renton, Washington 98055-4056.

A proposal to amend part 39 of the Federal Aviation Regulations (14 CFR part 39) to add an airworthiness directive (AD), applicable to certain Saab Model SAAB 340B and SAAB 2000 series airplanes, was published as a notice of proposed rulemaking (NPRM) in the Federal Register on March 27, 2000 (65 FR 16154). That NPRM proposed to supersede AD 97-13-06, amendment 39-10052 (62 FR 33545, June 20, 1997), which is applicable to certain Saab Model SAAB 340B and SAAB 2000 series airplanes. That NPRM would have continued to require the actions specified in AD 97-13-06. That NPRM would have added a requirement for replacement of the electronic light ballasts with improved ballasts, which would terminate the requirement for reinspections of the lamps. That NPRM would also have expanded the applicability of the existing AD to include additional Model SAAB 340B and SAAB 2000 series airplanes that are also subject to the identified unsafe condition. That NPRM was prompted by issuance of mandatory continuing airworthiness information by a foreign civil airworthiness authority, advising that a terminating modification is available, and that additional airplanes may be subject to fluorescent lampholder charring due to the incorrect installation of the lamps in their holders. That condition, if not corrected, could burn the surrounding area and lead to smoke and fumes in the passenger compartment or lavatory area.

Since the issuance of that NPRM, the FAA has been advised that Saab has issued Service Bulletin 340-33-049, Revision 01, dated November 15, 1999, and Revision 02, dated February 2, 2000. The original issue of this service bulletin, dated January 21, 1999, was referenced as an appropriate source of service information in paragraph (d)(1) of the proposed AD, and describes procedures for modification of the ballasts to ensure sufficient clearance between the ballast and Passenger Service Unit (PSU) transistors. Revision 01 and Revision 02 of the service bulletin describe similar modification procedures, but include additional procedures for replacement of certain PSU circuit boards with different PSU circuit boards. The manufacturer advises that replacement of these PSU circuit boards is necessary in order to obtain adequate clearance between the ballast and transistors.

The FAA has determined that modification of the ballasts must be accomplished in accordance with Revision 02 of the service bulletin, and has revised paragraph (d)(1) of the AD accordingly. Additionally, a “NOTE 3” has been added to the proposed AD to give credit to operators that may have previously accomplished the modification in accordance with Revision 01 of the service bulletin, dated November 15, 1999.

Since this change expands the scope of the originally proposed rule, the FAA has determined that it is necessary to reopen the comment period to provide additional opportunity for public comment.

There are approximately 78 airplanes of U.S. registry that would be affected by this proposed AD.

The actions that are currently required by AD 97-13-06 take approximately 7 work hours per airplane to accomplish, at an average labor rate of $60 per work hour. Based on these figures, the cost impact of the currently required actions on U.S. operators is estimated to be $420 per airplane.

The new actions that are proposed in this AD action would take as much as 9 work hours per airplane to accomplish, at an average labor rate of $60 per work hour. Required parts would be provided free of charge by the manufacturer. Based on these figures, the cost impact of the proposed requirements of this AD on U.S. operators is estimated to be as much as $42,120, or $540 per airplane.

The cost impact figures discussed above are based on assumptions that no operator has yet accomplished any of the proposed requirements of this AD action, and that no operator would accomplish those actions in the future if this AD were not adopted.

The regulations proposed herein would not have a substantial direct effect 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. Therefore, it is determined that this proposal would not have federalism implications under Executive Order 13132.

For the reasons discussed above, I certify that this proposed regulation (1) is not a “significant regulatory action” under Executive Order 12866; (2) is not a “significant rule” under the DOT Regulatory Policies and Procedures (44 FR 11034, February 26, 1979); and (3) if promulgated, will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act. A copy of the draft regulatory evaluation prepared for this action is contained in the Rules Docket. A copy of it may be obtained by contacting the Rules Docket at the location provided under the caption ADDRESSES.

Accordingly, pursuant to the authority delegated to me by the Administrator, the Federal Aviation Administration proposes to amend part 39 of the Federal Aviation Regulations (14 CFR part 39) as follows:

Interested parties are invited to participate in this proposed rulemaking by submitting such written data, views, or arguments as they may desire. Comments that provide the factual basis supporting the views and suggestions presented are particularly helpful in developing reasoned regulatory decisions on the proposal. Comments are specifically invited on the overall regulatory, aeronautical, economic, environmental, and energy-related aspects of the proposal. Communications should identify the airspace docket number and be submitted in triplicate to the address listed above. Commenters wishing the FAA to acknowledge receipt of their comments on this action must submit with those comments a self-addressed, stamped postcard on which the following statement is made: “Comments to Airspace Docket No. 00-AAL-4.” The postcard will be date/time stamped and returned to the commenter. All communications received on or before the specified closing date for comments will be considered before taking action on the proposed rule. The proposal contained in this action may be changed in light of comments received. All comments submitted will be available for examination in the Operations Branch, Air Traffic Division, Federal Aviation Administration, 222 West 7th Avenue, Box 14, Anchorage, AK, both before and after the closing date for comments. A report summarizing each substantive public contact with FAA personnel concerned with this rulemaking will be filed in the docket.

An electronic copy of this document may be downloaded, using a modem and suitable communications software, from the FAA regulations section of the Fedworld electronic bulletin board service (telephone: 703-321-3339) or the Federal Register's electronic bulletin board service (telephone: 202-512-1661).

Internet users may reach the Federal Register's web page for access to recently published rulemaking documents at http://www.access.gpo.gov/su_docs/aces/aces140.html.

Any person may obtain a copy of this NPRM by submitting a request to the Operations Branch, AAL-530, Federal Aviation Administration, 222 West 7th Avenue, Box 14, Anchorage, AK 99513-7587. Communications must identify the docket number of this NPRM. Persons interested in being placed on a mailing list for future NPRM's should contact the individual(s) identified in the FOR FURTHER INFORMATION CONTACT section.

The FAA proposes to amend 14 CFR part 71 by revising Class E airspace at Ambler, AK, due to the establishment of a new GPS instrument approach procedure to RWY 36. The intended effect of this proposal is to provide additional controlled airspace for IFR operations at Ambler, AK.

The area would be depicted on aeronautical charts for pilot reference. The coordinates for this airspace docket are based on North American Datum 83. The Class E airspace areas designated as 700/1200 foot transition areas are published in paragraph 6005 in FAA Order 7400.9G, Airspace Designations and Reporting Points, dated September 1, 1999, and effective September 16, 1999, which is incorporated by reference in 14 CFR 71.1. The Class E airspace designations listed in this document would be published subsequently in the Order.

The FAA has determined that this proposed regulation only involves an established body of technical regulations for which frequent and routine amendments are necessary to keep them operationally current. It, therefore—(1) is not a “significant regulatory action” under Executive Order 12866; (2) is not a “significant rule” under DOT Regulatory Policies and Procedures (44 FR 11034; February 26, 1979); and (3) does not warrant preparation of a regulatory evaluation as the anticipated impact is so minimal. Since this is a routine matter that will only affect air traffic procedures and air navigation, it is certified that this rule, when promulgated, will not have a significant economic impact on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

In consideration of the foregoing, the Federal Aviation Administration proposes to amend 14 CFR part 71 as follows:

You may view this document, as well as all other Department of Education documents published in the Federal Register , in text or Adobe Portable Document Format (PDF) on the Internet at any of the following sites:

See the information provided in the direct final rule, of the same title, which is located in the rules section of the Federal Register .

See the information provided in the Direct Final rule of the same title which is located in the Rules section of this Federal Register .

The reopened comment period for the proposed rulemaking now ends July 13, 2000. All comments submitted in accordance with the instructions in the Notice of Proposed Rulemaking will be considered and incorporated into the Record.

Please submit an original and three copies of your comments and enclosures (including references). Comments must be received by July 13, 2000.

Commenters who want EPA to acknowledge receipt of their comments should enclose a self-addressed, stamped envelope. Electronic comments must be submitted as a WP5/6/7/8 file or an ASCII File, avoiding the use of special characters and form and encryption. Electronic comments must be identified by the docket number W-99-11.

This is a summary of a Further Notice of Proposed Rule Making ( Further Notice ) adopted on May 31, 2000, and released on June 7, 2000. The complete text of this Further Notice, including attachments, is available for inspection and copying during normal business hours in the FCC Reference Center (Room CY-A257), 445 12th Street, SW, Washington, DC. It may also be purchased from the Commission's copy contractor, International Transcription Services, Inc. (ITS, Inc.), 1231 20th Street, NW, Washington, DC 20036, (202) 857-3800. It is also available on the Commission's web site at http://www.fcc.gov/wtb/auctions.

1. On January 12, 2000, the Wireless Telecommunications Bureau (“Bureau”) announced that a broadband Personal Communications Services (“PCS”) C and F block auction—Auction No. 35—would begin on July 26, 2000. Under the Commission's current rules, applicants for C and F block auctions must meet specified financial size requirements to qualify as “entrepreneurs” and to be eligible to compete in the auction. Following the announcement of Auction No. 35, the Commission received several formal requests to waive, modify, or eliminate the C and F block auction and service rules. These requests seek, among other things, modification of the various C and F block eligibility requirements for the upcoming auction, reconfiguration of available 30 MHz C block licenses, and adoption of an alternative bidding plan.

2. As justification for the proposed changes, the petitioners point to the relatively small percentage of C and F block licensees that have begun providing service in the years since the initial entrepreneurs' block auctions were held. They also note the increasing trend in the wireless marketplace toward nationwide service, their need for additional spectrum in order to ease spectrum capacity constraints, and their financial readiness to construct and operate C and F block systems should they win licenses in the upcoming auction. Numerous parties have filed opposing and supportive pleadings in response to these petitions. Opponents argue that businesses that qualify as “entrepreneurs” under our rules are more likely than larger companies to provide innovative and niche services and to serve rural areas; that the Commission's previous C and F block installment payment program was largely responsible for the dearth of build-out among C and F block licensees; and that changing the eligibility criteria at this juncture would be detrimental to the existing business plans of current C and F block “entrepreneur” licensees developed based upon these rules, and to the ability of small businesses to secure needed financing to provide valuable wireless services.

3. Several parties have also asked that we consider whether we should revise, waive, or forbear from applying the Commercial Mobile Radio Service (“CMRS”) spectrum cap for Auction 35. In support of these requests, the petitioners assert that the demand for CMRS services has significantly increased and created substantial spectrum constraints over the last few years. Further, petitioners contend that lifting the spectrum cap would better enable them to roll out Third Generation (“3G”) and other advanced services, as well as otherwise help ensure the rapid and efficient development of the C and F block spectrum. Those opposing these requests claim that the current spectrum cap allows sufficient spectrum in local geographic markets to roll out 3G services in the foreseeable future and that petitioners failed to establish any basis for waiving the spectrum cap.

4. Upon consideration of the petitions and responsive pleadings received to date, we have tentatively concluded that it is in the public interest to revise certain aspects of the C and F block rules. Accordingly, we seek comment in this Further Notice on the following specific proposals to:

• Reconfigure C Block Spectrum License Size

We tentatively conclude that we will reconfigure each 30 MHz C block license available in future broadband PCS auctions into three 10 MHz C block licenses.

• Apply a Tiered Approach to Basic Trading Areas (BTAs)

We tentatively conclude that we will divide BTAs into two tiers according to the population size of the BTA. Under this proposal, “Tier 1” would comprise BTAs at and above a 2.5 million population threshold; and “Tier 2” would comprise BTAs below that population threshold.

• Eliminate Eligibility Restrictions For Certain Licenses In Tiers

We further propose to remove the auction eligibility restrictions for certain of the newly reconfigured 10 MHz C block licenses, thereby establishing “open” bidding for these licenses. We tentatively conclude that we will allow “open” bidding ( i.e., remove the eligibility restrictions) for two of the three 10 MHz C Block licenses in Tier 1, and one of the three 10 MHz C Block licenses in Tier 2. We also invite comment on whether to allow “open” bidding for all three of the 10 MHz C Block licenses in Tier 1, and two of the three 10 MHz C Block licenses in Tier 2.

We tentatively conclude that we will allow “open” bidding for all available 15 MHz C block licenses, which have previously been auctioned but not sold.

We seek comment on whether to allow “open” bidding for all available F block licenses. We also seek comment on whether, instead, to adopt a tiered approach to eligibility for F block licenses or to retain existing F block eligibility requirements.

• Retain Our Current License Grouping for Bidding in the Auction

We tentatively conclude that we will retain BTA service areas and a license-by-license bidding design for Auction No. 35.

• Clarify the Grandfather Exception

We invite comment in this proceeding on a number of issues raised by parties seeking reconsideration of the grandfather exception to the eligibility rules, which is provided in § 24.709(b)(9)(i) of the Commission's rules. On the issue of how the exception applies in a merger situation, we tentatively conclude that when each of the merging entities is eligible for the “grandfather” exception, the exception extends to the resulting entity, but that when one (or more) of the merging entities is not eligible for the “grandfather” exception, the exception does not extend to the resulting entity.

We seek comment on whether to retain existing small and very small business bidding credits (15 percent and 25 percent, respectively) for licenses subject to “open” bidding or whether to increase them to 25 percent and 40 percent, respectively. We also seek comment on whether we should change the bidding credits for licenses subject to “closed” bidding, i.e., bidding where eligibility restrictions apply.

Licenses Won in “Open” Bidding: We tentatively conclude that we will eliminate the § 24.839 eligibility requirements for the assignment or transfer of control of C and F block licenses won in Auction No. 35 “open” bidding.

Licenses Won in “Closed” Bidding: We seek comment on allowing a licensee to assign or transfer its license to any qualified entity, entrepreneur or not, upon the licensee's completion of its first construction benchmark, whether or not it takes the full five years allowed under our rules.

Licenses Held by Incumbent Licensees: We seek comment on allowing an incumbent licensee to assign or transfer its license to any qualified entity, entrepreneur or not, upon the licensee's completion of its first construction benchmark, whether or not it takes the full five years allowed under our rules. We also seek comment on whether we should allow some flexibility for incumbent licensees to transfer certain licenses where the carrier can demonstrate “substantial service” throughout its system, rather than on a market-by-market basis.

We tentatively conclude that we will eliminate the § 24.710 cap on the number of C and F block licenses a single entity may win at auction.

We tentatively conclude that we will retain the current spectrum cap.

5. In the Omnibus Budget Reconciliation Act of 1993, Congress authorized the Commission to use systems of competitive bidding to award licenses for rights to use the radio spectrum. This authorization is codified as section 309(j) of the Communications Act. Section 309(j)(3) directs the Commission to “seek to promote” a number of objectives, including:

• The development and rapid deployment of new services for the benefit of the public, including those residing in rural areas;

• Promoting economic opportunity and competition and ensuring that new and innovating technologies are readily accessible to the public by avoiding excessive concentration of licenses and by disseminating licenses among a wide variety of applicants, including small businesses, rural telephone companies, and businesses owned by members of minority groups and women, i.e., “designated entities;”

• Recovery for the public of a portion of the value of the public spectrum resource made available for commercial use;

• Avoidance of unjust enrichment through the methods employed to award uses of that resource; and

• Efficient and intensive use of the electromagnetic spectrum.

6. Section 309(j)(4) directs the Commission, in prescribing regulations to implement the objectives of section 309(j)(3), to, inter alia, (i) establish performance requirements to ensure prompt delivery of service to rural areas and prevent warehousing of spectrum by licensees; (ii) prescribe area designations and bandwidth assignments that promote an equitable geographic distribution of licenses and services, economic opportunity for a wide variety of applicants, including designated entities, and rapid deployment of services; and (iii) ensure that designated entities are given the opportunity to participate in the provision of spectrum-based services, and, for such purposes, consider using bidding preferences and other procedures.

7. The Commission outlined the original framework for C and F block auctions in 1994, establishing the C and F blocks as “set-aside” blocks for “entrepreneurs” in which eligibility would be restricted to entities below a specified financial threshold. The Commission concluded that if it was to meet the Congressional goals of promoting economic opportunity and competition by dissemination of licenses among a wide variety of providers, it should take certain affirmative steps to mitigate barriers to entry faced by smaller businesses. The Commission also stated its intention to take steps to assure that designated entities that win licenses have the opportunity to become strong competitors in providing service. Thus, in attempting to address the imbalance between small businesses' and large businesses' relative abilities to access capital, the Commission established two set-aside blocks (C and F) in which large companies (those over the financial thresholds) would be prohibited from bidding or holding licenses for a period of time.

8. The initial C block licenses were awarded through two auctions, Auction No. 5, which ended on May 6, 1996, and Auction No. 10, which concluded on July 16, 1996. Auction No. 11, the initial F block auction, ended on January 14, 1997, and also included D and E block licenses. Auction No. 22, which concluded on April 15, 1999, made available C and F block licenses that had been returned to, or reclaimed by, the Commission. Since the establishment of C and F block rules in 1994, no auctions, other than the C and F block auctions, have been conducted on a closed basis due to eligibility restrictions. Instead, in the other 23 auctions held by the Commission, we have typically provided opportunities for small businesses through bidding credits without a set-aside.

9. Since adoption of the original rules for auctions of C and F block licenses, these rules have steadily evolved in response to legislative changes, judicial decisions, the needs of licensees striving to succeed in a rapidly developing wireless market, and the demand of the public for greater access to wireless services. Two-and-a-half years ago, in this docket, the Commission responded to requests from some C block auction winners to revise the auction rules and procedures for the C and F blocks. In the 1997 C Block Second Report and Order, as modified by the 1998 C Block Reconsideration Order, the Commission created a package of financial restructuring options to be offered to C block licensees experiencing financial difficulties in the wake of Auctions No. 5 and No. 10. See Amendment of the Commission's Rules Regarding Installment Payment Financing for Personal Communications Services (PCS) Licenses Second Report and Order, ( C Block Second Report and Order) 62 FR 55348 (October 24, 1997) and (C Block Reconsideration Order) 63 FR 17111 (April 8, 1998). The Commission also decided in the C Block Second Report and Order, as modified by the 1998 C Block Fourth Report and Order, to allow, for a period of two years from the beginning of the first post-restructuring C block auction (Auction No. 22), participation in bidding for C block licenses by entities that had participated in Auctions No. 5 and 10, even if such entities had since become too large to qualify as entrepreneurs under the Commission's rules. See Amendment of the Commission's Rules Regarding Installment Payment Financing for Personal Communications Services (PCS) Licenses Fourth Report and Order, (C Block Fourth Report and Order), 65 FR 14213 (March 16, 2000).

10. Prior to the start of Auction No. 22, three C block licensees filed for bankruptcy protection. Other C block licensees defaulted on payments owed for their licenses. Bankruptcy filings and payment defaults by other C block licensees followed the auction; and, to date, a total of 232 C and F block licenses, covering a population (“pops”) of approximately 191 million, have been involved in bankruptcy proceedings and/or defaulted on license payments. It appears that the vast majority of the defaulted licenses have never been placed into service.

11. The Bureau, pursuant to its delegated authority, announced that we would be holding a C and F block auction on July 26, 2000. The current inventory for this auction includes 93 30-MHz C block licenses, 21 15-MHz C block licenses and 40 10-MHz F block licenses for operation on frequencies for which previous licenses have automatically cancelled, see 47 CFR 1.2110(f)(4)(iii) and (iv) or have been returned to the Commission. The announcement of Auction No. 35 prompted petitions from SBC Communications Inc. (“SBC”), Nextel Communications, Inc. (“Nextel”), and other parties asking that we waive, modify, or eliminate our entrepreneur eligibility requirements for participation in the auction. In response to those filings, a number of parties also proposed that we make other modifications to our C and F block rules. Additionally, US WEST Wireless, LLC (“US West”) and Sprint Spectrum L.P. dba Sprint PCS (“Sprint”) filed a joint petition for reconsideration of our, Order on Reconsideration of the Fourth Report and Order in WT Docket No. 97-82. The C Block Fourth Report and Order addressed certain of the rules governing auctions of C block licenses. Sprint and US West request that the Commission eliminate its eligibility restrictions for participation in the upcoming auction as well as modify other C block rules. In addition, Verizon Wireless (“Verizon”) petitioned the Commission for clarification or reconsideration of our two-year C block auction eligibility “grandfather” rule, § 24.709(b)(9)(i). The SBC, Nextel, and US West/Sprint petitions were placed on public notice, prompting more than 210 comments and other pleadings in response. A number of parties argue that all, or at least some portion, of the C and F block spectrum should be open to all participants in order to satisfy the Commission's obligations under section 309(j)(4). Other parties oppose these arguments.

12. We have also received petitions from three parties that, under our proposed revisions to the C block rules, would become eligible to bid for licenses in the upcoming C and F block auction. These parties request that the Commission waive, or forbear from applying, the CMRS spectrum cap with regard to the spectrum available in Auction No. 35. We placed these petitions on public notice and received comments from 23 parties and reply comments from 14 parties.

13. Based upon the extensive record before us, and our continuing obligation to weigh important spectrum policy management considerations in addressing the public interest, we have tentatively concluded that we will revise our rules for C and F block spectrum. We set forth our proposals and tentative conclusions concerning possible revisions in the rules in this Further Notice.

14. Background. In 1994, the Commission established a band plan for broadband PCS that provides for 30 MHz “C block” licenses and 10 MHz “F block” licenses. Each C and F block license covers a specific geographic service area known a Basic Trading Area (“BTA”). BTAs fall within still larger geographic service areas known as Major Trading Areas (“MTAs”). BTA and MTA service areas are based on the Rand McNally 1992 Commercial Atlas Marketing Guide. As noted, in 1997 the Commission created a package of financial restructuring options designed to provide limited relief to C block licensees experiencing financial difficulties in the wake of Auction No. 5. Under one of the available options, licensees were allowed to disaggregate 15 MHz of each of their 30 MHz C block licenses in an MTA. In disaggregating a 30 MHz C block license, a licensee would retain a 15 MHz C block license and would return the remaining 15 MHz of C block spectrum to the Commission for inclusion in the next C block auction, Auction No. 22. Because several of the available 15 MHz C block licenses were not won in Auction No. 22, the license inventory for Auction No. 35 includes both 15 and 30 MHz C block licenses, as well as 10 MHz F block licenses.

15. A number of parties have suggested various proposals to alter the Commission's current band plan. Several parties propose that we subdivide each available 30 MHz C block license into three 10 MHz licenses. Others suggest that we subdivide each available 30 MHz C block license into a 20 MHz and a 10 MHz license. Other parties argue against subdividing the C block license spectrum size.

16. Discussion. We tentatively conclude that each 30 MHz C block license available in Auction No. 35 should be reconfigured into three 10 MHz C block licenses. We believe that by increasing the number of available licenses through this reconfiguration, taken together with our proposals to lift certain of our eligibility requirements, we will promote wider auction participation and license distribution in accordance with the goals of section 309(j) of the Communications Act. Small bidders should find bidding for 10 MHz licenses more affordable, while large bidders should enjoy greater flexibility in tailoring their bidding to their business plans without running afoul of the spectrum cap. We further tentatively conclude that a 10 MHz C block license is a viable minimum size for voice and some data services including Internet access and provides an appropriate building block for bidders that wish to acquire a larger amount of spectrum. Accordingly, we propose to permit bidders to aggregate the 10 MHz C block licenses, subject only to the overall 45 MHz CMRS spectrum cap, and the relevant remaining eligibility restrictions for these licenses. We seek comment on this proposal and our tentative conclusions. We also seek comment on whether a different configuration, including adoption of blocks of 20 MHz where possible, would be more appropriate to provide meaningful opportunities for potential bidders, including new entrants into particular geographic markets.

17. Finally, with respect to aggregation of 10 MHz licenses, we note that the Wireless Telecommunications Bureau recently sought comment on procedures for implementing a combinatorial (“package”) bidding design for the auction of licenses in the 700 MHz bands, which would facilitate aggregations of complementary licenses into larger blocks. See Auction of Licensees in the 747-762 and 777-792 MHz Bands Scheduled for September 6, 2000; Comment Sought on Modifying the Simultaneous Multiple Round Auction Design to Allow Combinatorial (Package) Bidding, 65 FR 35636 (June 5, 2000). While given the much larger number of licenses in this auction, true combinatorial bidding would be more complex and perhaps impractical to implement in the near term, we invite parties to suggest ways in which bidders could efficiently aggregate licenses in the auction process.

18. Background. Under the Commission's current rules, only qualified “entrepreneurs” are permitted to participate in auctions of C and F block licenses. To be considered an entrepreneur eligible for C and F block auction participation, an applicant (together with its affiliates and persons or entities that hold interests in the applicant and their affiliates) must have had gross revenues of less than $125 million in each of the last two years and must have total assets of less than $500 million. See 47 CFR 24.709.

19. We seek comment on proposals to lift the entrepreneur eligibility restrictions for some, but not all, licenses available in Auction No. 35 and in future C and F block auctions. Our proposals take into account the contention of many entrepreneurs and their representatives that argue that fairness requires the Commission to continue to maintain the present eligibility requirements. These parties contend that entrepreneurs developed business plans in the expectation that the C and F block licenses would remain set aside for them and that any auctions of reclaimed C and F block licenses would be subject to the same eligibility restrictions that applied in the original auctions of those licenses. These parties also point out that successful entrepreneurs have achieved substantial public interest benefits by providing types of services and service packages not offered by larger providers, and extending service to rural markets. These parties also argue that the continuation of the eligibility restrictions will better serve their ability to expand their service area as a competing carrier and to enter roaming relationships with other regional carriers.

20. Our proposals also take into account some of the arguments of several CMRS providers seeking to participate in the upcoming auction that currently do not qualify for entrepreneur eligibility. Such providers argue that opening up the entire auction to all bidders would be pro-competitive because it would allow them to acquire additional spectrum to meet capacity concerns, provide advanced services, and increase the size of their subscriber “footprints.” They contend that they, unlike many entrepreneurs, possess the operational expertise and substantial resources necessary to construct and successfully operate PCS systems in already highly competitive markets. These commenters also point to evidence that suggests that the set-aside of C and F Block spectrum has not been successful in encouraging entrepreneurs to participate in the provision of spectrum-based services, particularly in large markets.

21. We note that, in apparent recognition of the Commission's obligation to balance a number of spectrum policy considerations, many parties have offered compromise suggestions as alternatives to the current C block rules should the Commission choose not to adopt their preferred approaches. Some commenters, including a number of entrepreneurs, have suggested compromise alternatives that would eliminate the set-aside (in whole or in part) for markets with populations in excess of certain specified amounts ranging from 700,000 to five million. According to these commenters, such compromise alternatives to the current C block rules would provide companies with greater financial resources access to licenses for markets with larger populations, without foreclosing the opportunity for entrepreneurs to bid for those licenses. The suggested alternatives would also maintain the eligibility restrictions in markets where entrepreneurs might have a reasonable chance of success.

22. Some commenters suggest compromises that would not use tiers, but would disaggregate the 30 MHz C block licenses into three 10 MHz blocks and would open up the bidding on one or two of the three 10 MHz licenses in all markets.

23. While most of the commenters have focused on the Commission's treatment of the C block spectrum, as a general matter, current entrepreneurs argue in favor of keeping the 10 MHz F block licenses as restricted. On the other hand, companies currently ineligible to participate in Auction 35 argue in favor of open eligibility for those licenses.

24. Discussion. As the expert agency charged with the management of the nation's radio spectrum, the Commission must continually evaluate the provision of service to the American public, weigh a variety of public interest considerations, and assess the changing needs of the industry. In doing so, we must always remain cognizant of our statutory obligations. These obligations often require that we balance a number of different, and at times competing, spectrum policy goals. In discharging these responsibilities, we seek to provide meaningful opportunities to small businesses, to speed the deployment and development of new services to the public to encourage the efficient use of spectrum, and to recover for the public a portion of the value of spectrum.

25. When we adopted the original rules for C and F block spectrum in 1994, PCS was in its infancy. Since 1994, circumstances in the industry have changed. In light of significant technology developments and increased demand for spectrum, it is appropriate for the Commission to consider reassessing the proper balance of its spectrum policies including whether its current C and F block rules continue to serve the public interest in all respects. In crafting rules for the upcoming auction, we recognize that we cannot overlook the difficulties that followed the original C block spectrum auction and our commitment, to promote opportunities for designated entities. We maintain our commitment to provide meaningful opportunities for entrepreneurs, including those that participated in our most recent auction of C block spectrum. We also recognize that some qualifying entrepreneurs have been successful innovators, providing service to rural markets and niche services in other markets. Our desire to promote the continued success of such entities, as they seek to fill in gaps in their service areas or otherwise strive to expand their service offerings, also factor into our decision regarding the extent to which we should revise our current rules.

26. Thus, we believe that entrepreneurs raise legitimate issues about preserving the eligibility restrictions on at least a portion of the spectrum that will be awarded in the upcoming auction. However, based on the demand for spectrum to satisfy congestion, new technology and competitive needs, we tentatively conclude that it would serve the public interest to make some additional spectrum available to all interested bidders. In balancing these factors, we believe parties on both sides of this debate have suggested a number of possible compromises that better advance the public interest than either maintaining the status quo or, conversely, eliminating the eligibility restrictions entirely. In particular, we think the parties suggesting tiering approaches have proposed creative solutions to balancing the competing interests by recognizing both that the need for additional unrestricted spectrum is greatest in the larger markets and that the track record for success for smaller entities is strongest in mid-sized and smaller markets.

27. With these factors in mind, we seek comment on the following proposals to lift the entrepreneur eligibility requirements for some of the licenses available in Auction No. 35 and future auctions. Consistent with several of the recommendations we have received, these proposals vary in the amount of spectrum that would remain set-aside according to the size of both the available licenses and the markets.

28. Available 30 MHz C block licenses: For markets with available 30 MHz C block licenses, we seek comment on a proposal based on our tentative conclusion to reconfigure these licenses into three 10 MHz licenses. Our proposal is further based on dividing the available BTAs into two tiers: “Tier 1” would comprise BTAs with populations at or above a certain threshold, and “Tier 2” would comprise BTAs below that population threshold. We tentatively conclude that we should allow “open” bidding (i.e. remove eligibility requirements) for two of the three 10 MHz C block licenses in Tier 1, and one of the three 10 MHz C block licenses in Tier 2. We seek comment on this tentative conclusion.

29. We recognize that in balancing the interests served by preserving meaningful opportunities for designated entities and those served by opening up the spectrum to bidding by all entities, there may be other proposals we should consider. Thus, we also seek comment on whether we should allow “open” bidding for all three of the 10 MHz C block licenses in Tier 1, and two of the three 10 MHz C block licenses in Tier 2.

30. Tiers: We also seek comment on what population threshold we should use to divide the Tier 1 and Tier 2 BTAs. As discussed, the record provides some indication that designated entities have had greater success in markets with smaller populations, particularly below the top twenty markets. Markets with larger populations inevitably require more capital to build out and provide service. Moreover, as noted by commenters, there is evidence that spectrum is needed by incumbents to provide new generation wireless services and to alleviate congestion or by new entrants to fill out service footprints. Accordingly, we tentatively conclude that a population of 2.5 million or greater is the proper cut-off for Tier 1 BTAs (the 17 largest markets); however, we also seek comment on establishing the threshold for Tier 1 at those BTAs with populations at or greater than either 2 million (the 23 largest markets) or 1.5 million (the 32 largest markets). We recognize that other alternatives might also make sense. For example, we might also create a “Tier 3” for BTAs with populations below 700,000, the demarcation line that SBC recommends, establishing in this tier a larger set-aside for entrepreneurs. We also might instead decline to adopt a tiered approach at all, instead applying changes in eligibility restrictions to all BTAs, regardless of size. We seek comment on these alternatives, as well as on other possible tier divisions and other options for opening the bidding for some of the available C block licenses.

31. Available F block licenses: We seek comment on eliminating the eligibility requirements for all of the 10 MHz F block licenses available in Auction No. 35. We note that from a historical perspective, F block did not face the same types of problems and difficulties as C block. This difference is evidenced by the fact that the Commission did not see the need to allow F block licensees to restructure their spectrum holdings, nor did it provide for the grandfathering of eligibility for entrepreneur entities in future F block auctions. Thus, we have consistently treated the F block spectrum differently than C block in recognition of the fact that the history of these spectrum blocks evolved in divergent manners. Accordingly, we may not be faced with the same equity considerations in maintaining a set-aside of F block spectrum as we are for C block. Moreover, we note that in virtually all markets where there is an available F block license, there is a 30 MHz license held by a current C block entrepreneur. Thus, there is already significant set-aside spectrum in each of these markets. Further, despite the lack of historical controversy regarding the F block spectrum, build out of these licenses has not progressed as quickly as we may have anticipated, especially in larger markets. Allowing open eligibility for all 10 MHz F block licenses might lead to more expeditious provision of service to American consumers. Alternatively, we recognize that we could adopt a tiered approach similar to the proposals for C block licenses discussed, or we could retain the existing F block eligibility requirements. We seek comment on these alternatives.

32. 15 MHz C block licenses: Finally, we propose, and seek comment on, eliminating the eligibility requirements for all 15 MHz C block licenses that will be available in Auction No. 35 and in future C block auctions. As noted previously, all of the 15 MHz licenses available in Auction No. 35 were available in restricted Auction No. 22, yet remained unsold. Accordingly, we believe that it is appropriate to make these licenses, located principally in rural markets, immediately available to any interested bidder.

33. Unsold C and F block licenses: We also seek comment on whether we should establish a rule that lifts eligibility restrictions on any C or F block licenses that remain unsold after Auction No. 35 or in other future auctions. Such licenses could then promptly be put up for auction under open bidding.

34. Background. In past C and F block auctions (as well as D and E block auctions), participants have bid separately for each license. Nextel proposes that all available 30 MHz licenses be reconfigured into 20 MHz and 10 MHz licenses and that the newly created 20 MHz C block licenses and the available 15 MHz C block licenses be offered together on a “bulk bid” ( i.e., winner take all) basis in an expedited auction.

35. Discussion. We tentatively conclude that we will take bids separately on each license in Auction No. 35 on a simultaneous multiple round basis as we have done in the past. We are persuaded by commenters that the massive scale of Nextel's bulk bid proposal (or something similar based upon a 10 MHz C block license configuration) would exclude all but a very few competitors. Small entities would be hard pressed to obtain the financing necessary to win and pay for the licenses and construct the systems included in the bulk bid proposal. Many other carriers would be constrained from participating by the CMRS spectrum cap. While we agree with Nextel that bidding for individual licenses will make it somewhat more challenging for it to win the very broad aggregation of licenses it seeks to acquire, we do not think this requires us to resort to its bulk bid proposal. Experience in our auctions to date demonstrates that significant aggregations of licenses through the auction process are feasible. For this reason, we believe that bidding for each license separately is unlikely to preclude carriers from aggregating licenses on a nationwide or regional basis, and at the same time provides carriers who have intense spectrum needs in a particular market the opportunity to compete for licenses as well.

36. Background: In the C Block Second Report and Order , the Commission established in § 24.709(b)(9)(i) a “grandfather” exception to the entrepreneur eligibility requirement for participation in C block auctions. Under that exception, all entities that had been eligible for and had participated in Auction No. 5 or Auction No. 10 would be eligible to bid on C block licenses in Auction No. 22, regardless of their financial size at the time of the auction. We declined to apply the “grandfather” exception to bidding on F block licenses, based on our belief that F block licensees did not have the same need for financial relief. In the C Block Fourth Report and Order , we decided, in fairness to other future bidders, to limit the grandfather exception to a two-year period beginning on the start date of Auction No. 22, i.e., through March 23, 2001. In the C Block Fourth Report and Order , we denied a petition by Omnipoint asking that we extend the grandfather exception indefinitely.

37. Discussion : In a petition for reconsideration or clarification of the C Block Fourth Report and Order , Verizon asks us to reexamine the grandfather exception and limit resulting eligibility to those Auction No. 5 and 10 participants that won licenses in the auctions and then returned spectrum pursuant to the Commission's C block restructuring options. We seek comment on the issues raised in the Verizon petition and, more generally, on whether the grandfather exception should be revised or clarified in light of current circumstances.

38. We note that Nextel makes arguments similar to Verizon's in response to the US West/Sprint petition and also objects to the fact that the grandfather exception in that it does not extend to Auction No. 11 and Auction No. 22 participants. We have received notice that currently “grandfathered” companies intend to combine with other carriers, some of which are also eligible for the grandfather exception. We believe that the eligibility of successor entities for participation in “closed” bidding is a subject that may also be ripe for clarification in our upcoming order. Accordingly, we seek comment on our tentative conclusion that upon the merger of two entities, each of which is eligible for the “grandfather” exception, the exception extends to the resulting entity, but that, upon the merger of two entities, only one of which is eligible for the “grandfather” exception, the exception does not extend to the resulting entity. We recognize that our tentative conclusion is based upon simplified examples, and we encourage comment on how to determine C and F block eligibility when faced with more complex transactions.

39. Under current rules, a winning C or F block bidder that qualifies as a small business ( i.e., a business that, together with its affiliates and persons or entities that hold interests in such entity and their affiliates, has had average annual gross revenues that are not more than $40 million for the preceding three years) or a small business consortium may use a bidding credit of 15 percent. See 47 CFR 24.712(a); 24.717(a); id ., 1.2110(e)(2)(iii). A winning bidder that qualifies as a very small business ( i.e., a business that, together with its affiliates and persons or entities that hold interests in such entity and their affiliates, has had average annual gross revenues that are not more than $15 million for the preceding three years) or a very small business consortium may use a bidding credit of 25 percent. See 47 CFR 24.712(b); 24.717(b); id., 1.2110(e)(2)(ii).

40. Since the Commission first established the entrepreneurs' block set-aside and C and F block bidding credits, its experience has demonstrated that bidding credits without a set-aside enable small businesses to compete effectively in open auctions, even auctions of broadband PCS licenses.

41. Discussion . A number of entrepreneurial firms have argued that if we open eligibility for some portion of the C block spectrum, we should increase the bidding credits applicable to those licenses. We seek comment on whether we should retain existing small and very small business bidding credits (15 percent and 25 percent, respectively) for licenses subject to “open” bidding or whether we should increase them to 25 percent and 40 percent, respectively.

42. We also seek comment on whether we should change the bidding credits for licenses subject to “closed” bidding, i.e., bidding where eligibility restrictions apply. For example, we could increase the bidding credits for these licenses, or we could keep them at their current level since the rationale for increasing the credits in open auctions—to provide additional assistance for small companies bidding against major wireless providers—does not apply to restricted auctions. Finally, we could eliminate bidding credits altogether on the ground that they are unnecessary and perhaps even counterproductive in ensuring opportunities for small business in the set-aside auctions. In this regard, we recognize that among those eligible to participate in the closed, entrepreneurs' auctions, some well capitalized new entities with small gross revenues qualify for bidding credits, while some older companies with small total assets and net revenues but high gross revenues do not. We seek comment on these various proposals.

43. To ensure that C and F block licensees did not take advantage of the eligibility set-aside by immediately assigning or transferring control of their licenses to entities that do not meet the eligibility requirements, the Commission established a holding rule for these licenses as well as unjust enrichment provisions. Under the current holding rule, C and F block licensees may, for the first five years from the date of their initial license grant, assign or transfer control of their C and F block licenses only to entities that meet the eligibility requirements or to other C and F block licensees that obtained their licenses while meeting the requirements. See 47 CFR 24.839. The Commission set the current holding period at five years to guarantee that a C or F block licensee would hold and build out the license until the first construction benchmark, which currently occurs five years after the date of licensing.

44. Discussion. We propose to modify our transfer requirements to correspond to our proposed changes in the eligibility requirements and to encourage rapid construction of C and F block systems. Specifically, we tentatively conclude that C and F block licenses won pursuant to open bidding at Auction No. 35, or any future open auction for such spectrum, would not be subject to a transfer holding rule. For licenses won in closed bidding in any C or F block auction, past or future, we seek comment on tying the holding period to completion of build-out requirements. Under this proposal, a licensee would be able to assign or transfer its license to any qualified entity, entrepreneur or not, upon the licensee's completion of its first construction benchmark, whether or not it takes the full five years allowed by our rules. In this way, we can continue to minimize the trafficking of C and F block licenses won pursuant to closed bidding, while enhancing the likelihood of early build-out. We seek comment on these proposals.

45. Additionally, we seek comment on whether to allow some further flexibility for incumbent licensees that may not have fully satisfied their construction requirements for all their licenses. We wish to examine whether we should, under certain circumstances, evaluate a licensee's compliance with construction requirements on a system-wide basis. For example, we seek comment on whether we should allow a carrier to exchange and transfer licenses if the carrier can demonstrate “substantial service” throughout its system, rather than in that particular market. We also seek comment on any other modifications to our transfer restrictions that would provide incumbent licensees with the flexibility to restructure their business plans without decreasing their incentive to rapidly construct systems and place them in operation.

46. Background . Section 24.710 of the Commission's rules prohibits an auction applicant from winning more than 98 C and F block licenses. The rule requires an applicant that is the high bidder for more than 98 C and F block licenses to withdraw its bids for a sufficient number of licenses to comply with the 98-license limit. The limit applies only to licenses won at auction, not to the total number of licenses that may be obtained post auction. When established in 1994, the license cap was intended to facilitate a fair distribution of licenses within the two blocks by preventing an entity from winning more than approximately 10 percent of the then-total of 986 C and F block licenses.

47. Discussion . We tentatively conclude that we will remove § 24.710 from the Commission's rules. In 1994, when the rule was implemented, the Commission anticipated holding only one C block and one F block auction. To date, however, four C and F block auctions have been held, with the fifth, Auction No. 35, scheduled and one or more additional auctions anticipated. Many different entrepreneurs have won C and F block licenses at auction, and substantial diversity among C and F block licensees continues to exist. The Commission has achieved its initial objective of a fair distribution C and F block licenses. Moreover, our proposal to reconfigure available 30 MHz C block licenses, if implemented, would create an additional 186 C block licenses, while adoption of our proposal to eliminate the eligibility restrictions for many of the available C and F block licenses would significantly enhance the likelihood that these licenses would be won by a variety of entities. Accordingly, we seek comment on this tentative conclusion.

48. Background. The CMRS spectrum cap, set forth in § 20.6 of the Commission's rules, limits the amount of cellular, broadband PCS, and digital Specialized Mobile Radio (“SMR”) spectrum in which any entity may have an attributable interest in any geographic area. As discussed, we received petitions from three parties that request that the Commission waive, or forbear from applying, the CMRS spectrum cap with regard to any spectrum awarded in the upcoming C and F blocks auction.

49. Discussion . We tentatively conclude that we should not grant the petitions seeking waiver of or forbearance from, the CMRS spectrum cap rules and, accordingly, we will apply the cap to licenses of PCS C and F block spectrum to be auctioned in Auction No. 35. In September 1999, after extensive analysis of spectrum allocation and competitive market conditions, we determined in our Biennial CMRS Spectrum Cap Order that the CMRS spectrum cap, with some modification, continued to be a necessary and efficient means to promote competition and protect the public interest. Specifically, we concluded that a cap on this spectrum serves the public interest by promoting competition, preventing excessive concentration of licenses, providing incentives for licensees to make more efficient use of their spectrum, encouraging innovation, and promoting dissemination of licenses to a wide variety of applicants. We also concluded that the “bright-line” test afforded by the CMRS spectrum cap rule efficiently promoted regulatory certainty and regulatory efficiency. For any carrier with a demonstrable need for additional spectrum in a particular geographic area, we established and clarified a process by which it could obtain a waiver of the spectrum cap rule.

50. On the basis of the petitions and the record filed in response, we propose not to revise the CMRS spectrum cap in light of the upcoming auction and our proposed rule changes described herein. Since its inception in 1994, the cap on the 180 MHz of CMRS spectrum ( i.e., cellular A and B blocks, PCS A through F blocks, and digital SMR) has limited the amount of spectrum any carrier could aggregate from any part of the CMRS spectrum, including spectrum in the PCS C and F blocks, so as to ensure the many benefits of competition. The pleadings filed in connection with the upcoming auction contain no new material information regarding the costs and benefits of the spectrum cap and do not purport to make a waiver showing under the standard set forth in the Biennial CMRS Spectrum Cap Order. See 1998 Biennial Regulatory Review, Report and Order 64 FR 54564 (October 7, 1999). Our proposal to revise the rules pertaining to the PCS C and F block spectrum helps ease the impact of the cap in this auction, and thereby renders cap relief unnecessary. By proposing to divide the 30 MHz blocks of C block spectrum into 10 MHz blocks in the upcoming auction, we would better enable carriers to obtain additional spectrum without the need to exceed the CMRS spectrum cap. Carriers currently have accumulated spectrum up to the CMRS spectrum cap limits, either the general 45 MHz cap or the 55 MHz cap that applies to rural areas, in only a few locations. With regard to the C and F block spectrum to be auctioned, in every market almost all carriers could obtain additional spectrum in blocks of 10 MHz (or 15 MHz where applicable) and still comply with the spectrum cap without any need for disaggregation. As discussed, for those carriers that require more than 45 MHz of spectrum in the near term, we have established a process for granting waiver of the spectrum cap. We stated that we would consider granting a waiver of the spectrum cap in a particular geographic area to the extent a carrier could credibly demonstrate that the spectrum cap was having a significantly adverse effect on its ability to provide 3G or other advanced services. We also note that our year 2000 biennial review of the spectrum cap rule commences later this year. This proceeding will provide us another opportunity to revisit, in a more comprehensive manner than the pleadings before us, issues pertaining to the CMRS spectrum cap and whether it should be retained, modified, or eliminated. We seek comment on our tentative conclusion to retain the CMRS spectrum cap on the PCS C and F block spectrum scheduled for auction.

51. Based on the foregoing, we seek comment on overall changes to the C and F block rules that take into account our competing statutory objectives to manage spectrum in the public interest. We conclude that this Further Notice will provide us with an opportunity to develop a record on the specific proposals to open eligibility for this spectrum and otherwise revise the C and F block rules for the benefit of consumers and the economy.

52. This is a permit-but-disclose notice and comment rulemaking proceeding. Ex parte presentations are permitted, except during the Sunshine Agenda period, provided they are disclosed pursuant to the Commission's rules. See generally 47 CFR 1.1202, 1.1203, and 1.1206.

53. As required by the Regulatory Flexibility Act (RFA), the Commission has prepared an Initial Regulatory Flexibility Analysis (IRFA) of the possible impact on small entities of the proposals and tentative conclusions set forth in the Further Notice in WT Docket No. 97-82. Written public comments are requested on the IRFA. Comments on the IRFA must have a separate and distinct heading designating them as responses to the IRFA and must be filed by the deadlines for comments on the Further Notice . In accordance with the RFA, the Commission will send a copy of this Further Notice , including the IRFA, to the Chief Counsel for Advocacy of the Small Business Administration.

54. This Further Notice contains neither a new nor a modified information collection.

55. Pursuant to §§ 1.415 and 1.419 of the Commission's rules, interested parties may file comments on or before June 22, 2000, and reply comments on or before June 30, 2000. 47 CFR 1.415, 1.419. Comments may be filed using the Commission's Electronic Comment Filing System (ECFS) or by filing paper copies. See Electronic Filing of Documents in Rulemaking Proceedings, 63 FR 24121 (May 1, 1998).

56. Comments filed through ECFS may be sent as an electronic file via the Internet to http://www.fcc.gov/e-file/ecfs.html. Comments filed through the ECFS may be sent as an electronic file via the Internet to http://www.fcc.gov/e-file/ecfs.html. Generally, only one copy of an electronic submission must be filed; however, if multiple docket or rulemaking numbers appear in the caption of this proceeding, commenters must transmit one electronic copy of the comments to each docket or rulemaking number referenced in the caption. When completing the transmittal screen, commenters should include their full name, Postal Service mailing address, and the applicable docket or rulemaking number. Parties may also submit an electronic comment by Internet e-mail. To receive filing instructions for e-mail comments, commenters should send an e-mail to ecfs@fcc.gov, and should include the following words in the body of the message, “get form <your e-mail address>.” A sample form and directions will be sent in reply.

57. Parties who choose to file by paper must file an original and four copies of each filing. If participants want each Commissioner to receive a personal copy of their comments, an original plus nine copies must be filed. If more than one docket or rulemaking number appears in the caption of this proceeding, commenters must submit two additional copies for each additional docket or rulemaking number. All filings must be sent to the Commission's Secretary, Magalie Roman Salas, Office of the Secretary, Federal Communications Commission, 445 12th Street, SW, Room TW-A325, Washington, DC 20554. A courtesy copy should be delivered to Audrey Bashkin, Auctions and Industry Analysis Division, Wireless Telecommunications Bureau, Federal Communications Commission, 445 12th Street, SW, Room 4A-665, Washington, DC 20554. Parties should reference WT Docket No. 97-82 in their comments. Pursuant to § 1.1200(a) of the Commission's rules, presentations on issues in this proceeding will be prohibited after 7 p.m., July 12, 2000, until release of the Commission's order dealing with those issues. 47 CFR 1.1200(a) and 1.1202(a). All relevant and timely comments will be considered by the Commission before final action is taken in this proceeding. Comments and reply comments will be available for public inspection during regular business hours in the FCC Reference Information Center of the Federal Communications Commission, 445 12th Street, SW, Washington, DC 20554.

58. Authority for issuance of this Further Notice is contained in sections 4(i), 309(r), and 309(j) of the Communications Act of 1934, as amended, 47 U.S.C. 154(i), 303(r), and 309(j).

59. As required by the Regulatory Flexibility Act (RFA), the Commission has prepared an Initial Regulatory Flexibility Analysis (IRFA) of the possible economic impact on small entities of the rules proposed in this Further Notice in WT Docket No. 97-82. Written public comments are requested on the IRFA. Comments on the IRFA must have a separate and distinct heading designating them as responses to the IRFA and must be filed by the deadlines for comments on the Notice. The Commission will send a copy of the Further Notice, including this IRFA, to the Chief Counsel for Advocacy of the Small Business Administration. See 5 U.S.C. 603(a).

60. Section 309(j) of the Communications Act directs the Commission to disseminate licenses among a wide variety of applicants, including small businesses and other designated entities. Section 309(j) also requires that the Commission ensure the development and rapid deployment of new technologies, products, and services for the benefit of the public, and recover for the public a portion of the value of the public spectrum resource made available for commercial use. To date, the Commission has received numerous requests to waive, modify, or eliminate certain of the C and F block auction and service rules for C and F block broadband Personal Communications Services (“PCS”) licenses. As discussed more fully in section E of this IRFA, infra , these requests seek, among other things, modification of the C and F block entrepreneur eligibility requirements for the upcoming C and F block auction, reconfiguration of available 30 MHz C block licenses, and adoption of an alternative bidding plan. Upon consideration of these numerous requests, the Commission has tentatively concluded that it is in the public interest to revise certain aspects of the C and F block rules. This Further Notice sets forth the Commission's proposals and tentative conclusions concerning possible revisions to the rules governing the C and F block spectrum. The Commission believes that this Further Notice will provide the Commission with an opportunity to develop a record on the specific proposals to open eligibility for this spectrum and otherwise revise the C and F block rules for the benefit of consumers and the economy. In addition, the Commission believes that the tentative conclusions and proposals set forth in this Further Notice help meet the goals and objectives of section 309(j), and promote competition while maintaining the fair and efficient implementation of the auctions program. Accordingly, the Commission seeks comment on all proposals, alternatives, tentative conclusions, and other issues described in the Further Notice; and the impact that such proposals, alternatives, tentative conclusions, and other issues may have on small entities.

61. This action is authorized under sections 4(i), 303(r), and 309(j) of the Communications Act of 1934, as amended, 47 U.S.C. 154(i), 303(r), and 309(j).

62. The RFA directs agencies to provide a description of and, where feasible, an estimate of the number of small entities that will be affected by the proposed rules, if adopted. Generally, the RFA defines the term “small entity” as having the same meaning as the terms “small business,” “small organization,” and “small governmental jurisdiction.” The term “small business” has the same meaning as the term “small business concern” under the Small Business Act, unless the Commission has developed one or more definitions that are appropriate for its activities. Under the Small Business Act, a “small business concern” is one which: (i) Is independently owned and operated; (ii) is not dominant in its field of operation; and (iii) meets any additional criteria established by the Small Business Administration (SBA). A small organization is generally “any not-for-profit enterprise which is independently owned and operated and is not dominant in its field.” Nationwide, as of 1992, there were approximately 275,801 small organizations.” “Small governmental jurisdiction” generally means “governments of cities, counties, towns, townships, villages, school districts, or special districts, with a population of less than 50,000.” As of 1992, there were approximately 85,006 local governments in the United States. This number includes 38,978 counties, cities, and towns; of these, 37,566, or 96 percent, have populations of fewer than 50,000. The Census Bureau estimates that this ratio is approximately accurate for all governmental entities. Thus, of the 85,006 governmental entities, we estimate that 81,600 (91 percent) are small entities.

63. The possible rule changes described in the Further Notice affect all small entities that choose to participate in the upcoming auction of C and F block spectrum and other future auctions of C and F block spectrum, including small businesses currently holding C and F block licenses and other small businesses that may acquire licenses through the auction. The broadband PCS spectrum is divided into six frequency blocks designated A through F, and the Commission has auctioned licenses in each block. Frequency blocks C and F have been designated by the Commission as “entrepreneurs’ blocks,” and participation in auctions of C and F block licenses is limited to entities qualifying under the Commission's rules as entrepreneurs. The Commission's rules define an entrepreneur as an entity, together with its affiliates, having gross revenues of less than $125 million and total assets of less than $500 million at the time the FCC Form 175 application is filed. For blocks C and F, the Commission has defined “small business” as a firm, together with its affiliates, that had average gross revenues of not more than $40 million in the three previous calendar years, and “very small business” has been defined as an entity that, together with its affiliates, has average gross revenues of not more than $15 million for the preceding three calendar years. These definitions have been approved by the SBA.

64. On May 6, 1996, the Commission concluded the first broadband PCS C block auction. On July 16, 1996, the second C block auction closed. On January 14, 1997, the broadband PCS D, E, and F block auction closed. Ninety bidders (prior to any defaults by winning bidders) won 493 C block licenses and 88 bidders won 491 F block licenses. Small businesses, placing high bids in these C and F block auctions were eligible for bidding credits and installment payment plans. On April 15, 1999, Auction No. 22, which included 347 C and F block licenses, closed. On January 12, 2000, the Wireless Telecommunications Bureau announced the Commission's intention to auction C and F block PCS licenses on July 26, 2000. The auction is currently scheduled to include ninety-three 30 MHz C block licenses, twenty-one 15 MHz C block licenses, and forty 10 MHz F block licenses. For purposes of our evaluations and conclusions in this IRFA, we assume that all of the original 90 C block broadband PCS licensees and 88 F block broadband PCS licensees, a total of 178 licensees potentially affected by this Further Notice, are small entities. In addition to the 178 original small business licensees that may participate in the auction of the C block licenses, a number of additional small business entities may seek to acquire licenses through auction; thus, these business entities would be affected by these rules.

65. At this time, the Commission does not anticipate the imposition of new reporting, recordkeeping, or other compliance requirements as a result of this Notice. We seek comment on this tentative conclusion. Auction participants will need to follow the standard procedural rules used for broadband PCS spectrum auctions, including application and payment rules.

66. The RFA requires an agency to describe any significant alternatives that it has considered in reaching its proposed approach, which may include the following four alternatives (among others): (i) The establishment of differing compliance or reporting requirements or timetables that take into account the resources available to small entities; (ii) the clarification, consolidation, or simplification of compliance or reporting requirements under the rule for small entities; (iii) the use of performance, rather than design, standards; and (iv) an exemption from coverage of the rule, or any part thereof, for small entities. 5 U.S.C. 603.

67. The Commission tentatively concludes that it is in the public interest to revise certain aspects of the C and F block rules to encourage participation by small businesses while at the same time helping to ensure the best use of spectrum through the competitive bidding process.

68. Reconfigure C Block Spectrum Size: The Commission tentatively concludes it will reconfigure each 30 MHz C block license available in future broadband PCS auctions into three 10 MHz C block licenses. The Commission believes that by increasing the number of available licenses through this reconfiguration, taken together with the Commission's proposals to lift certain of our eligibility requirements, the Commission will promote wider auction participation and license distribution in accordance with the goals of section 309(j) of the Communications Act. Small bidders should find bidding for 10 MHz licenses more affordable, while large bidders should enjoy greater flexibility in tailoring their bidding to their business plans without running afoul of the spectrum cap. The Commission also seeks comment on whether a different configuration would be more appropriate to provide meaningful opportunities for potential bidders, including new entrants into particular markets.

69. Eliminate Eligibility Restrictions for Certain Licenses in Tiers: The Commission proposes to remove the entrepreneur eligibility restrictions for some, but not all, licenses available in Auction No. 35 and in future C and F block auctions. Based on the demand for spectrum to satisfy congestion, new technology and competitive needs, the Commission tentatively concludes that it would serve the public interest to make some additional spectrum available to all interested bidders. In light of the Commission's commitment to providing meaningful opportunities for entrepreneurs, the Commission seeks comment on proposals to lift the entrepreneur eligibility requirements for some of the licenses available in Auction No. 35 and future auctions, which vary in the amount of spectrum that would remain set-aside according to the size of both the available licenses and the markets. The Commission tentatively concludes that it will divide BTAs into two tiers according to population size of the BTA. “Tier 1” would comprise BTAs at and above a 2.5 million population threshold; “Tier 2” would comprise BTAs below that population threshold. For available 30 MHz C block licenses, the Commission tentatively concludes to allow “open” bidding for two of the three 10 MHz C block licenses in Tier 1, and one of the three 10 MHz C block licenses in Tier 2. The Commission also seeks comment on whether there should be “open” bidding for all three of the 10 MHz licenses in Tier 1, and two of the three in Tier 2. With respect to available F block licenses, the Commission seeks comment on eliminating the eligibility requirements, or, alternatively, applying a tiered approach or retaining the existing eligibility rules. Finally, the Commission also tentatively concludes it will allow “open” bidding for all available 15 MHz C block licenses, which have previously been auctioned but not sold. These alternatives would affect the configuration and set-aside of spectrum. We seek comment on the impact of these alternatives on small businesses.

70. Retain Current License Grouping for Bidding in Auction: The Commission tentatively concludes to take bids on each license separately in Auction No. 35 on a simultaneous multiple round basis as the Commission has previously done in the past. The Commission believes that bidding for each license separately is unlikely to preclude carriers from aggregating licenses on a nationwide or regional basis, and at the same time will provide carriers that have intense spectrum needs in a particular market the opportunity to compete for licenses as well.

71. Grandfather Exception: The Commission seeks comment on whether the grandfather eligibility exception should be revised or clarified. The Commission also tentatively concludes that upon the merger of two entities, each of which is eligible for the “grandfather” exception, the exception extends to the resulting entity; but that, upon the merger of two entities, only one of which is eligible for the “grandfather” exception, the exception does not extend to the resulting entity.

72. Revise the Bidding Credits Available for Auction No. 35: For those licenses that are not subject to eligibility restrictions, the Commission seeks comment on whether to increase bidding credits for small and very small businesses, and consortia thereof, to 25 and 40 percent, respectively, or to retain existing bidding credit levels. We expect that this departure from previous procedure will provide small businesses with a meaningful opportunity to compete in an open auction.

73. Alter the Transfer Requirements for Certain Licenses: The Commission proposes to modify the Commission's transfer requirements to correspond to the Commission's proposed changes in the eligibility requirements, and to encourage rapid construction of C and F block systems. Specifically, the Commission tentatively concludes that C and F block licenses won pursuant to open bidding at Auction No. 35, or any future open auction for such spectrum, would not be subject to a transfer holding rule. For licenses won in closed bidding in any C or F block auction, the Commission seeks comment on a proposal that will allow a licensee to assign or transfer its license to any qualified entity, entrepreneur or not, upon the licensee's completion of its first construction benchmark, whether or not it takes the full five years allowed by the rules. The Commission also seeks comment on whether it should evaluate a licensee's compliance with construction requirements on a system-wide basis.

74. Eliminate the License Cap: The Commission proposes to remove § 24.710 from the Commission's rules which prohibits an auction applicant from winning more than 98 C and F block licenses. When this rule was established, the license cap was intended to facilitate a fair distribution of licenses within the C and F blocks. The Commission has achieved this objective; moreover, the Commission's proposal to reconfigure the available 30 MHz C block licenses would create additional C block licenses, while the Commission's proposal to eliminate the eligibility restrictions would increase the chances of C and F block licenses being won by a variety of entities.

75. Retain the Spectrum Cap: The Commission tentatively concludes that it should not grant the petitions seeking waiver of, or forbearance from, the CMRS spectrum cap rules and, accordingly, it would apply the spectrum cap to licenses of PCS C and F block spectrum to be auctioned in Auction 35. The Commission's proposal to revise the rules pertaining to the PCS C and F block spectrum helps ease the impact of the cap in this auction, and thereby renders cap relief unnecessary.

76. Section 309(j) of the Communications Act directs the Commission to disseminate licenses among a wide variety of applicants, including small businesses and other designated entities. Section 309(j) also requires that the Commission ensure the development and rapid deployment of new technologies, products, and services for the benefit of the public, and recover for the public a portion of the value of the public spectrum resource made available for commercial use. The Commission believes that the proposals, alternatives, and tentative conclusions described in this Notice promote these goals while maintaining the fair and efficient execution of the auctions program. The Commission, therefore, seeks comment on all issues, proposals, tentative conclusions, and alternatives described in the Notice, and the impact they may have on small entities.

77. None.

We have proposed this policy in order to ensure consistent and adequate evaluation of formalized conservation efforts (conservation efforts identified in conservation agreements, conservation plans, management plans, and similar documents) when making listing decisions under the Act. We have also proposed this policy to facilitate the development of conservation efforts that sufficiently improve a species' status so as to make listing the species as threatened or endangered unnecessary.

This policy applies to our evaluation of all formalized conservation efforts when making listing decisions for species not listed, including findings on petitions to list species and decisions on whether to assign candidate status, to remove candidate status, to issue proposed listing rules, and to finalize or withdraw proposed listing rules. This policy applies to formal conservation efforts developed with or without a specific intent to influence a listing decision and with or without the involvement of the Services. This policy identifies criteria we will use to evaluate the certainty of implementation and effectiveness of formalized conservation efforts that have not yet been implemented or have been recently implemented and have not yet demonstrated effectiveness at the time of a listing decision. The criteria will be used to determine whether a formalized conservation effort contributes to making listing a species unnecessary or contributes to forming a basis for listing a species as threatened rather than endangered.

In many cases, conservation efforts affecting a particular species will have been implemented and will have shown results well before the time of a listing decision. In those cases, development of an agreement or plan, and an evaluation of its certainty of implementation and effectiveness, would not be necessary, because the results of the implemented conservation efforts will be considered when we make a listing decision.

The policy does not provide guidance for determining the level of conservation or the types of conservation efforts needed to make listing unnecessary. Also, the policy does not provide guidance for determining when parties should enter into agreements or when a conservation effort should be included in an agreement or plan. The policy provides guidance only for evaluating the certainty of implementation and effectiveness of formalized conservation efforts. Although the certainty of implementation and effectiveness of a conservation effort may be considered in determining the appropriateness of including the effort in an agreement or plan, no particular level of certainty must be provided in order to include the effort in an agreement or plan.

“Adaptive management is the process of monitoring the results of implemented conservation efforts, then adjusting those efforts according to what was learned.

“Agreements and plans” include conservation agreements, conservation plans, management plans, or similar documents approved by Federal agencies, State and local governments, Tribal governments, businesses, organizations, or individuals.

“Candidate species,” as defined by regulations at 50 CFR 424.02(b), means any species being considered for listing as an endangered or a threatened species, but not yet the subject of a proposed rule. However, the FWS includes as candidate species those species for which the FWS has sufficient information on file relative to status and threats to support issuance of proposed listing rules. The NMFS includes as candidate species those species for which it has information indicating that listing may be warranted but for which sufficient information to support actual proposed listing rules may be lacking. The term “candidate species” used in this policy refers to those species designated as candidates by either of the Services.

“Conservation efforts,” for the purpose of this policy, are specific actions, activities, or programs designed to eliminate or reduce threats or otherwise improve the status of a species. Conservation efforts may involve restoration, enhancement, maintenance, or protection of habitat; reduction of mortality or injury; or other beneficial actions.

“Formalized conservation efforts” are conservation efforts identified in a conservation agreement, conservation plan, management plan, or similar document.

Section 4(a)(1) of the Endangered Species Act of 1973, as amended (16 U.S.C. 1533(a)(1)), states that we must determine whether a species is threatened or endangered because of any of the following five factors:

(A) The present or threatened destruction, modification, or curtailment of its habitat or range;

(B) Overutilization for commercial, recreational, scientific, or educational purposes;

(C) Disease or predation;

(D) The inadequacy of existing regulatory mechanisms; and

(E) Other natural or manmade factors affecting its continued existence.

Although this language focuses on impacts negatively affecting a species, section 4(b)(1)(A) requires us also to “tak[e] into account those efforts, if any, being made by any State or foreign nation, or any political subdivision of a State or foreign nation, to protect such species, whether by predator control, protection of habitat and food supply, or other conservation practices, within any area under its jurisdiction, or on the high seas.” Read together, sections 4(a)(1) and 4(b)(1)(A) and our regulations at 50 CFR section 424.11(f) require us to consider any State or local laws, regulations, ordinances, programs, or other specific conservation measures that either positively or negatively affect a species' status ( i.e. , efforts that create, exacerbate, reduce, or remove threats identified through the section 4(a)(1) analysis). The manner in which the section 4(a)(1) factors are framed supports this conclusion. Factor (D) for example—“the inadequacy of existing regulatory mechanisms”—indicates that we might find existing regulatory mechanisms adequate to justify a determination not to list a species.

In addition, we construe the analysis required under section 4(a)(1), in conjunction with the directive in section 4(b)(1)(A), to authorize and require us to consider whether the actions of any other entity, in addition to actions of State governments, create, exacerbate, reduce, or remove threats to the species. Factor (E) in particular —any “manmade factors affecting [the species'] continued existence”—requires us to consider the pertinent laws, regulations, programs, and other specific actions of any entity that either positively or negatively affect the species. Thus, the analysis outlined in section 4 requires us to consider any conservation efforts by State or local governments, Tribal governments, Federal agencies, businesses, organizations, or individuals that positively affect the species' status.

Conservation efforts are often informal, such as when a property owner implements conservation measures for a species simply because of concern for the species or interest in protecting its habitat, and without any specific intent to affect a listing decision. Conservation efforts are also often formalized in conservation agreements, conservation plans, management plans, or similar documents. The development and implementation of such agreements and plans have been an effective mechanism for conserving declining species and have, in some instances, made listing unnecessary. These efforts are consistent with the Act's finding that “encouraging the States and other interested parties * * * to develop and maintain conservation programs. * * * is a key * * * to better safeguarding, for the benefit of all citizens, the Nation's heritage in fish, wildlife, and plants' (16 U.S.C. 1531 (a)(5)).

In some situations, the listing process may be under way, and formalized conservation efforts have yet to be implemented. We may determine that a formalized conservation effort that has not yet been implemented reduces or removes a threat to a species when we have sufficient certainty that it will be implemented and effective.

Deciding or determining whether a species meets the definition of threatened or endangered requires us to make a prediction about the future persistence of a species. Central to this concept is a prediction of future conditions, including consideration of future negative effects of anticipated human actions. We cannot protect species without taking into account future threats that have a high likelihood of affecting a species. The Act does not require that, and species conservation would be compromised if, we wait until a threat is actually harming individuals before we list the species as threatened or endangered. Similarly, the magnitude and/or severity of a threat may be reduced as a result of future positive human actions. Common to the consideration of both the effects of future negative human actions and the effects of future positive human actions is a determination of the certainty that the actions will occur and that their effects on the species will be realized. We therefore consider both future negative and future positive human impacts when assessing the status of the species.

For example, if a State recently instituted a program to eliminate collection of a reptile being considered for listing, we must assess the predicted consequences of this program on the status of the species. For those parts of the program recently instituted, a record to determine the effect on the species may not yet exist. Therefore, we must base an assessment of the adequacy of the program on predicted compliance and effects. Such an assessment would reasonably include an evaluation of the State's ability to enforce new regulations, educate the public, monitor compliance, and monitor the effects of the program on the species. We would determine that the program reduces the threat of overutilization of the species through collecting if we found sufficient certainty that the program would be implemented and effective.

The language of the Act supports this approach. The definitions for both “endangered species” and “threatened species” connote future status, which indicates that consideration of whether a species should be listed depends in part on identification and evaluation of future actions that will reduce or remove, as well as create or exacerbate, threats to the species. In addition, the first factor in section 4(a)(1)—the present or threatened destruction, modification, or curtailment of [the species'] habitat or range—explicitly requires us to analyze both current actions affecting a species' habitat or range and those actions that are sufficiently certain to occur in the future and affect a species' habitat or range. However, future actions by Federal agencies, States, Tribes, and private entities that create, exacerbate, reduce, or remove threats are not limited to actions affecting a species' habitat or range. Congress did not intend for us to consider current and future actions affecting a species' habitat or range, yet ignore future actions that will influence overutilization, disease, predation, regulatory mechanisms, or other natural or manmade factors. Therefore, we construe Congress' intent, as reflected by the language of the Act, to require us to consider both current actions that are affecting a species' status and sufficiently certain future actions—either positive or negative—that will affect habitat, range, overutilization, disease, predation, regulatory mechanisms, or other natural or manmade factors.

The consideration of both positive and negative effects of human actions in making a prediction about the future persistence of a species also requires consideration of voluntary human actions. The threats to species that lead to listing as threatened or endangered are often the result of voluntary human actions. For example, decisions to develop property, harvest timber, or otherwise use or manage land or other natural resources in ways that pose a threat to a species are typically voluntary, as opposed to mandatory, actions. We must factor the effects of these voluntary detrimental actions into our assessment. Similarly, decisions to forego development or other changes in land use or management that would pose a threat to a species, as well as decisions to initiate conservation efforts that will have a positive effect on the species, are often voluntary, as opposed to mandatory, actions. Voluntary beneficial actions, whether initiated independently or through participation in a formalized conservation effort, must also be factored into our assessment.

For example, a State could have a voluntary incentive program for protection and restoration of riparian habitat that includes providing technical and financial assistance for fencing to exclude livestock. To assess the effectiveness of this voluntary program, we would evaluate the level of participation ( e.g. , number of participating landowners or number of stream-miles fenced), the length of the commitment by landowners, and effects of the program on the species. We would determine that the program reduces the threat of habitat loss and degradation if we find sufficient certainty that the program is effective.

Conservation agreements, conservation plans, management plans, and similar documents generally identify numerous conservation efforts ( i.e., actions, activities, or programs) to benefit the species. In determining whether a formalized conservation effort contributes to making listing a species as threatened or endangered unnecessary or contributes to forming a basis for listing as threatened rather than endangered, we must evaluate whether the conservation effort affects the status of the species. Two factors are key in that evaluation: (1) For those efforts yet to be implemented, the certainty that the conservation effort will be implemented and (2) the certainty that the conservation effort will be effective. Because the certainty of implementation and effectiveness of formalized conservation efforts may vary, we will evaluate each effort individually. In order for us to determine that a formalized conservation effort contributes to making listing a species unnecessary or contributes to forming a basis for listing a species as threatened rather than endangered, the conservation effort must meet the following criteria.

A. The certainty that the conservation effort will be implemented:

1. The conservation effort; the party(ies) to the agreement or plan that will implement the effort; and the staffing, funding level, funding source, and other resources necessary to implement the effort are identified.

2. The authority of the party(ies) to the agreement or plan to implement the conservation effort and the legal procedural requirements necessary to implement the effort are described.

3. Authorizations ( e.g., permits, landowner permission) necessary to implement the conservation effort are identified, and a high level of certainty that the party(ies) to the agreement or plan that will implement the effort will obtain these authorizations is provided.

4. The level of voluntary participation ( e.g., by private landowners) necessary to implement the conservation effort is identified, and a high level of certainty that the party(ies) to the agreement or plan that will implement the conservation effort will obtain that level of voluntary participation is provided ( e.g., an explanation of why incentives to be provided are expected to result in the necessary level of voluntary participation).

5. All regulatory mechanisms ( e.g., laws, regulations, ordinances) necessary to implement the conservation effort are in place.

6. A high level of certainty that the party(ies) to the agreement or plan that will implement the conservation effort will obtain the necessary funding is provided.

7. An implementation schedule (including completion dates) for the conservation effort is provided.

8. The conservation agreement or plan that includes the conservation effort is approved by all parties to the agreement or plan.

B. The certainty that the conservation effort will be effective:

1. The nature and extent of threats being addressed by the conservation effort are described.

2. Explicit objectives for the conservation effort and dates for achieving them are stated.

3. The steps necessary to implement the conservation effort are identified.

4. Quantifiable, scientifically valid parameters that will demonstrate achievement of objectives, and standards for these parameters by which progress will be measured, are identified.

5. Provisions for monitoring and reporting progress on implementation (based on compliance with the implementation schedule) and effectiveness (based on evaluation of quantifiable parameters) of the conservation effort are provided.

6. Principles of adaptive management are incorporated.

These criteria should not be considered comprehensive evaluation criteria. The certainty of implementation and effectiveness of a formalized conservation effort may also depend on species-specific, habitat-specific, location-specific, and action-specific factors. We will consider all appropriate factors in evaluating formalized conservation efforts. The specific circumstances will also determine the amount of information necessary to satisfy these criteria.

In addition, we will consider the estimated length of time that it will take for a formalized conservation effort to remove or reduce threats to the species. In some cases, the nature, severity, and/or imminence of threats to a species may be such that a conservation effort cannot be expected to remove or reduce threats quickly enough to make listing unnecessary.

An agreement or plan may contain numerous conservation efforts, not all of which are sufficiently certain to be implemented and effective. Those conservation efforts that are not sufficiently certain to be implemented and effective cannot contribute to a determination that listing is unnecessary or a determination to list as threatened rather than endangered. To determine that a formalized conservation effort contributes to making listing a species as threatened or endangered unnecessary, or contributes to forming a basis for listing as threatened rather than endangered, we must find that the conservation effort is sufficiently certain to be implemented and effective so as to contribute to the elimination or adequate reduction of one or more threats to the species identified through the section 4(a)(1) analysis. The elimination or adequate reduction of section 4(a)(1) threats may lead to a determination that the species does not meet the definition of threatened or endangered, or is threatened rather than endangered.

Federal agencies, State and local governments, Tribal governments, businesses, organizations, or individuals contemplating development of an agreement or plan should be aware that, because the Act mandates specific timeframes for making listing decisions, we cannot delay the listing process to allow additional time to complete the development of an agreement or plan. Nevertheless, we encourage the development of agreements and plans even if they will not be completed prior to a final listing decision. Such an agreement or plan could serve as the foundation for a special rule under section 4(d) of the Act, which would establish only those prohibitions necessary for the conservation of a threatened species, or for a recovery plan, and could lead to earlier recovery and delisting.

In addition, we encourage the development of agreements or plans even if they do not meet the criteria listed in this policy. We hope that efforts contained in such plans would be implemented by the time we must make a listing decision. If efforts have been, or will be, implemented by the time we must make a listing decision, there is no need to provide certainty of implementation. However, prior to making a listing decision, we would evaluate the certainty of effectiveness of any newly implemented efforts.

If we make a decision not to list a species or to list the species as threatened rather than endangered based in part on the contributions of a formalized conservation effort, we will monitor the status of the species and the progress in implementation of the conservation effort. If there is (1) A failure to implement the conservation effort in accordance with the implementation schedule; (2) a failure to achieve objectives; or (3) a failure to modify the conservation effort to adequately address an increase in the severity of a threat, we will reevaluate the status of the species and consider whether initiating the listing process is necessary. Initiating the listing process may consist of designating the species as a candidate species and assigning a listing priority, issuing a proposed rule to list, issuing a proposed rule to reclassify, or issuing an emergency listing rule.

We request comments on four aspects of this notice: (1) The content of the draft policy; (2) other related issues; (3) the clarity of this notice; and (4) the collection of information from the public expected to be associated with preparation and submission of conservation agreements and plans and with monitoring and reporting the implementation progress and effectiveness of conservation efforts, which requires Office of Management and Budget (OMB) approval under the Paperwork Reduction Act.

We solicit your comments on the content of this draft policy. We are especially interested in your comments on the criteria that we will use to evaluate the certainty that a formalized conservation effort will be implemented. For example, must all regulatory mechanisms ( e.g., laws, regulations, ordinances) necessary to implement a conservation effort actually be in place in order for us to determine that the effort contributes to making listing a species unnecessary or contributes to forming a basis for listing a species as threatened rather than endangered? Or is it sufficient that the conservation effort include a high level of certainty that the regulatory mechanisms will be adopted by a specified date? Similarly, should funding, authorizations, and voluntary participation be in place at the time a conservation effort is evaluated, or is it sufficient that the conservation effort include a high level of certainty that they be in place by a specified date? In addition, how might an entity demonstrate a high level of certainty of implementation of a conservation effort? In determining a final action on this draft policy, we will take into consideration all comments we receive during the comment period.

Also, we are interested in your comments on the timing of the development of conservation agreements or plans. We encourage early development of conservation agreements or plans, prior to the need to propose a species for listing, such as at or before the time a species is placed on the candidate list. However, agreements or plans often have been initiated or accelerated when one of the Services has proposed to list a species. Listing proposals generally provide a 60-day comment period. At the latest, we should receive conservation agreements or plans before the end of the comment period in order to be considered in a final listing decision. Beginning development of a conservation agreement or plan after the species is proposed for listing generally does not allow much time for implementation of any new conservation efforts identified as necessary in an agreement or plan. In that case, we must rely on our analysis of the certainty of implementation and effectiveness of those proposed efforts when making a listing decision. We hope that, by identifying specific criteria for evaluation of conservation efforts, this policy will encourage earlier development of conservation efforts such that many of the identified conservation efforts will be implemented by the time a final listing decision is made. Are there other ways to encourage earlier development of conservation efforts?

Executive Order 12866 requires agencies to write regulations that are easy to understand. We invite your comments on how to make this policy easier to understand, including answers to the following questions: (1) Is the discussion in the “Supplementary Information” section of the preamble helpful in understanding the policy? (2) Does the policy contain technical language or jargon that interferes with its clarity? (3) Does the format of the policy (grouping and order of sections, use of headings, paragraphing, etc.) aid or reduce its clarity? (4) What else could we do to make the policy easier to understand?

Send your comments concerning the content or clarity of this draft policy to the FWS (see ADDRESSES section).

The Paperwork Reduction Act of 1995 (Pub. L. 104-13; 44 U.S.C. 3501 et seq. ) requires Federal agencies to obtain OMB approval for certain collections of information from the public. We may not conduct or sponsor, and you are not required to respond to, a collection of information unless it displays a currently valid OMB control number. Simultaneous to publication of this notice, we are requesting OMB approval for information collection associated with this draft policy. The OMB regulations implementing provisions of the Paperwork Reduction Act require agencies to provide interested members of the public and other affected agencies an opportunity to comment on agency information collection and recordkeeping activities (see 5 CFR 1320.11). Our request for approval from OMB for a collection of information from the public must include an estimate of the information collection and recordkeeping burden that would result from our draft policy if made final.

The development of a conservation agreement, conservation plan, management plan, or similar document by a State or other entity is completely voluntary. While this policy applies to formal conservation efforts developed with or without a specific intent to influence a listing decision and with or without the involvement of the Services, only those agreements or plans developed to influence a listing decision, with the involvement of the Service, constitute a new information collection requiring OMB approval under the Paperwork Reduction Act. In addition, when a State or other entity develops such an agreement or plan with the specific intent of making listing of a species unnecessary, the criteria identified in our draft policy can be construed as requirements placed on the development of the agreement or plan. In other words, a State or other entity must satisfy these criteria in order to obtain and retain the benefit they are seeking, which is making listing of a species as threatened or endangered unnecessary.

In addition, one of the criteria identified in our draft policy is that a provision must be included that provides for monitoring and reporting the progress and results of implementation of a conservation effort. Conservation professionals have long considered monitoring and reporting to be an essential component of scientifically sound agreements and plans and routinely incorporate monitoring and reporting into these agreements and plans. We included a monitoring and reporting criterion in this policy to ensure consistency with sound biological and conservation principles and for completeness. Although monitoring and reporting provisions are already generally included in agreements and plans, this criterion also constitutes a new information collection requiring OMB approval under the Paperwork Reduction Act.

Estimating the amount of work associated with developing a conservation agreement or plan with the intent of making listing unnecessary and with monitoring and reporting the progress and results of implementation of conservation efforts is difficult because: (1) The development (and associated monitoring) of conservation efforts is completely voluntary, and we cannot predict who will decide to develop these efforts; (2) we cannot predict which species will become the subjects of conservation efforts and, therefore, cannot predict the nature and extent of conservation efforts and monitoring included in agreements and plans; and (3) many plans, such as agency land management plans, are developed to satisfy requirements of other laws or for other purposes, and we cannot predict whether, or the extent to which, some of these plans may be expanded to attempt to make listing unnecessary. For these reasons, we must base our estimate of the amount of work associated with developing conservation agreements or plans and monitoring and reporting of conservation efforts on information from conservation agreements developed in the past.

Since 1994, the FWS has entered into approximately 60 conservation agreements. About 14 of these agreements contributed to making listing the covered species as threatened or endangered unnecessary. Based on this information, we have entered into an average of about 15 agreements per year, 3 or 4 of which have made listing unnecessary. We expect that these averages will remain stable or increase. We will estimate that annually six agreements will be developed with the intent of making listing unnecessary, that four of these will be successful in making listing unnecessary, and, therefore, in four cases, the States or other entities who develop these agreements will carry through with their monitoring commitments in order to keep the covered species from being listed.

We estimate that each agreement developed with the intent of making listing unnecessary will require an average of 320 person-hours to complete. This estimate is a one-time burden for each plan developed. The burden to six States or other entities who choose to develop an agreement in a given year totals approximately 1,920 hours.

We estimate that, for each conservation effort, the State or other entity will spend annually an average of 160 person-hours to conduct the monitoring and 40 person-hours to prepare a report. Therefore, the annual burden to four States or other entities to complete monitoring and reporting totals approximately 800 hours.

Since 1997, NMFS has entered into three conservation agreements, all of which we determined at the time contributed to making it unnecessary to list the covered species as threatened or endangered. We are assuming that at least one agreement will be developed annually with the intent of making listing unnecessary, and that about half of these will be successful in making listing unnecessary. We estimate that each agreement developed with the intent of making listing unnecessary will require an average of 320 person-hours to complete. This is a one-time burden for each plan developed. Therefore, the burden to one State or another entity that chooses to develop an agreement in a given year totals about 320 hours.

For each conservation effort, the State or other entity will spend an average of 160 hours to conduct the monitoring and 40 hours to prepare a report. Therefore, the annual burden to a State or another entity to complete monitoring and reporting totals about 200 hours. Over the next 3 to 5 years, we anticipate that two States or entities will have agreements in place that will require monitoring and reporting. Therefore, the monitoring and reporting requirement will total about 400 hours each year.

The Services will submit a request to OMB for approval of this collection of information concurrent with the proposed rulemaking action. We are also soliciting comments on this information collection approval request. We invite comments on: (1) Whether the collection of information is necessary for the proper performance of our functions, including whether the information will have practical utility; (2) the accuracy of our estimate of the information collection burden; (3) ways to enhance the quality, utility, and clarity of the information we would collect; and (4) ways to minimize the burden of the information collection on respondents, including the use of appropriate automated, electronic, mechanical, or other technological collection techniques or other forms of information technology.

Send your comments on specific information collection requirements to the Desk Officer for the Interior Department and Commerce Department, Office of Information and Regulatory Affairs, Office of Management and Budget, Washington, DC 20503.

OMB has up to 60 days to approve or disapprove information collection but may respond after 30 days. Therefore, to ensure consideration, you should submit your comments concerning information collection to OMB at the above address by July 13, 2000.

This draft policy will not have an annual economic effect of $100 million or adversely affect an economic sector, productivity, jobs, the environment, or other units of government. This draft policy will not materially affect entitlements, grants, user fees, loan programs, or the rights and obligations of their recipients. This draft policy will not raise novel legal or policy issues.

The Departments of the Interior and Commerce certify that this draft policy will not have a significant economic effect on a substantial number of small entities as defined under the Regulatory Flexibility Act (5 U.S.C. 601 et seq. ). The Services expect that this draft policy will not result in any significant additional expenditures by entities that develop formalized conservation efforts.

This policy identifies criteria that a conservation effort must satisfy to ensure certainty of implementation and effectiveness and for the Services to determine that the conservation effort contributes to making listing a species unnecessary or contributes to forming a basis for listing a species as threatened rather than endangered. The Services developed this draft policy to ensure consistent and adequate evaluation of agreements and plans when making listing decisions and to help States and other entities develop agreements and plans that will be adequate to make listing species unnecessary.

The criteria in this policy primarily describe elements that are already included in conservation efforts and that constitute sound conservation planning. For example, the criteria requiring identification of responsible parties, obtaining required authorizations, establishment of objectives, and inclusion of an implementation schedule and monitoring provisions are essential for directing the implementation and affirming the effectiveness of conservation efforts. These kinds of “planning” requirements are generally already included in conservation efforts and do not establish any new implementation burdens. Rather, these requirements will help to ensure that conservation efforts are well planned and, therefore, increase the likelihood that conservation efforts will ultimately be successful in making listing species unnecessary.

The development of an agreement or plan by a State or other entity is completely voluntary. However, when a State or other entity voluntarily decides to develop an agreement or plan with the specific intent of making listing a species unnecessary, the criteria identified in this policy can be construed as requirements placed on the development of such agreements or plans; the State or other entity must satisfy these criteria in order to obtain and retain the benefit they are seeking, which is making listing of a species as threatened or endangered unnecessary.

Other criteria require demonstrating certainty of implementation and effectiveness of conservation efforts. We have always considered the certainty of implementation and effectiveness of conservation efforts when making listing decisions. Although we have not had explicit evaluation criteria in the past, we believe the criteria in this policy are consistent with the requirements of the Endangered Species Act. Therefore, we believe that no economic effects on States and other entities will result from compliance with the criteria in this policy.

Furthermore, publication of this policy will have positive effects by informing States and other entities of the criteria we will use in evaluating formalized conservation efforts when making listing decisions, and thereby helping States and other entities develop voluntary formalized conservation efforts that will be successful in making listing unnecessary. Therefore, we believe that informational benefits will result from issuing this policy. We believe these benefits, although important, will be insignificant economically.

Unfunded Mandates Reform Act. In accordance with the Unfunded Mandates Reform Act (2 U.S.C. 1501, et seq. ):

a. The Services certify pursuant to the Unfunded Mandates Reform Act, 2 U.S.C. 1502 et seq. , that this rulemaking will not impose a cost of $100 million or more in any given year on local or State governments or private entities. The Services expect that this draft policy will not result in any significant additional expenditures by entities that develop formalized conservation efforts (see Discussion above).

b. This draft policy will not produce a Federal mandate of $100 million or greater in any year, that is, it is not a “significant regulatory action” under the Unfunded Mandates Reform Act.

Takings. In accordance with Executive Order 12630, this draft policy does not have significant takings implications. While State or local governments may choose to directly or indirectly implement actions that may have property implications, they would do so as a result of their own decisions, not as a result of this policy. This policy has no provision that would take private property rights.

Federalism. In accordance with Executive Order 13132, this draft policy does not have significant Federalism effects.

Civil Justice Reform. In accordance with Executive Order 12988, this draft policy does not unduly burden the judicial system and meets the requirements of sections 3(a) and 3(b)(2) of the Order. With the guidance provided in the draft policy, requirements under section 4 of the Endangered Species Act will be clarified to entities that voluntarily develop formalized conservation efforts.

National Environmental Policy Act. We have analyzed this draft policy in accordance with the criteria of the National Environmental Policy Act (NEPA) and the Department of the Interior Manual (318 DM 2.2(g) and 6.3(D)). This draft policy does not constitute a major Federal action significantly affecting the quality of the human environment. The Service has determined that the issuance of the draft policy is categorically excluded under the Department of the Interior's NEPA procedures in 516 DM 2, Appendix 1 and 516 DM 6, Appendix 1. The National Oceanic and Atmospheric Administration (NOAA) has determined that the issuance of this policy qualifies for a categorical exclusion as defined by NOAA 216-6 Administrative Order, Environmental Review Procedure.

Section 7 Consultation. The Service has determined that issuance of this draft policy will not affect species listed as threatened or endangered under the Endangered Species Act, and, therefore, a section 7 consultation on this draft policy is not required.

Government-to-Government Relationship With Tribes. In accordance with the President's memorandum of April 29, 1994, “Government-to-Government Relations with Native American Tribal Governments” (59 FR 22951) and 512 DM 2, this draft policy does not directly affect Tribal resources. The effect of this draft policy on Native American Tribes would be determined on a case-by-case basis with individual evaluations of formalized conservation efforts. Under Secretarial Order 3206, the Service will, at a minimum, share with the entity that developed the formalized conservation effort any information provided by the Tribes, through the public comment period or formal submissions, and advocate the incorporation of conservation efforts that will restore or enhance Tribal trust resources. After consultation with the Tribes and the entity that developed the formalized conservation effort and after careful consideration of the Tribe's concerns, the Service must clearly state the rationale for the recommended final decision and explain how the decision relates to the Service's trust responsibility. Accordingly:

a. We have not yet consulted with the affected Tribe(s). This requirement will be addressed with individual evaluations of formalized conservation efforts.

b. We have not yet treated Tribes on a government-to-government basis. This requirement will be addressed with individual evaluations of formalized conservation efforts.

c. We will consider Tribal views in individual evaluations of formalized conservation efforts.

d. We have not yet consulted with the appropriate bureaus and offices of the Department about the identified effects of this draft policy on Tribes. This requirement will be addressed with individual evaluations of formalized conservation efforts.

Section 4(b)(3)(A) of the Act (16 U.S.C. 1531 et seq. ) requires that we make a finding on whether a petition to list, delist, or reclassify a species, or to revise a critical habitat designation, presents substantial scientific or commercial information to demonstrate that the petitioned action may be warranted. To the maximum extent practicable, this finding is to be made within 90 days of the receipt of the petition, and we are to publish the finding promptly in the Federal Register . If the finding is that substantial information was presented, we are also required to promptly commence a review of the status of the involved species and to disclose its findings within 12 months (12-month finding).

We received two separate formal petitions from the Rogue Group Sierra Club of Ashland, Oregon, both dated September 9, 1999, to list Horkelia hendersonii (Henderson's horkelia) and Lupinus ariduse ssp. ashlandensis (Ashland lupine) as endangered or threatened throughout their ranges, and to designate critical habitat. Accompanying the petitions was supporting information relating to taxonomy, ecology, threats, and past and present distribution of H. hendersonii and L. aridus ssp. ashlandensis .

The processing of the petitions conforms with our Listing Priority Guidance published in the Federal Register on October 22, 1999 (64 FR57114). The guidance clarifies the order in which we will process rulemakings. Highest priority is processing emergency listing rules for any species determined to face a significant and imminent risk to its well-being (Priority 1). Second priority (Priority 2) is processing final determinations on proposed additions to the lists of endangered and threatened wildlife and plants. Third priority is processing new proposals to add species to the lists. The processing of administrative petition findings (petitions filed under section 4 of the Act) is the fourth priority. The processing of this petition finding is a Priority 4 action and is being completed in accordance with the current Listing Priority Guidance.

Horkelia hendersonii , a member of the rose family, is a perennial, mat-forming, rhizomatous herb with several stems arising from a branching, woody crown, approximately 10-15 centimeters (cm) (3.9-5.9 inches (in.)) high. Leaves are silky, 4-6 cm (1.6-3.3 in.) long with 11-19 leaflets arranged pinnately. Flowers are white to pink with petals 4 millimeters (mm) (0.16 in.) long in a somewhat clustered terminal inflorescence. The species occurs in alpine areas between 1,829-2,286 meters (m) (6,000 to 7,500 feet (ft)) elevation, in habitat that includes open granitic gravels, alpine forblands, and dwarf shrublands.

Lupinus aridus ssp. ashlandensis is an erect perennial herb forming clumps 15-20 cm (5.9-7.9 in.) in diameter and 7-12 cm (2.8-4.7 in.) tall. The leaves are palmately compound with 5 to 7 leaflets that are up to 3 cm (1.2 in.) long. Leaves are numerous and crowded from the basal crown, with pubescent (downy) undersurfaces and glabrous (smooth) upper sides. Flowers are blue with petals 10-12 mm (0.39-0.47 in.) long. The banner is glabrous and the keel ciliate (fringed with hairlike processes) on the margin. L. a. ssp. ashlandensis grows on gravelly, granitic soils on the south to southwest slopes near the summit at elevations from 2,100 m (6,900 ft) to 2,280 m (7,480 ft). The lupine will not grow in dense brush.

Federal action on Lupinus aridus ssp. ashlandensis began as a result of section 12 of the Act, which directed the Secretary of the Smithsonian Institution to prepare a report on those plants considered to be endangered, threatened, or extinct in the United States. This report (House Document No. 94-51) was presented to Congress on January 9, 1975, and included L. aridus ssp. ashlandensis as threatened. We published a notice in the July 1, 1975, Federal Register (40 FR 27823) of our acceptance of the Smithsonian Institution report as a petition within the context of section 4(c)(2) (petition provisions are now found in section 4(b)(3)) of the Act, and our intention to review the status of the reported plant species.

Both Horkelia hendersonii and Lupinus aridus ssp. ashlandensis were included as category 2 candidates in a Notice of Review (NOR) published on December 15, 1980 (45 FR 82510). Category 2 formerly included species for which information in our possession indicated that proposing to list as endangered or threatened was possibly appropriate, but for which sufficient data on biological vulnerability and threats were not available to support a proposed rule. The plant NOR was again revised on September 27, 1985 (50 FR 39526). In this notice, Horkelia hendersonii and L. aridus ssp. ashlandensis remained category 2 candidates. Another revision of the plant notice was published on February 21, 1990 (55 FR 6184), which again included H. hendersonii as a category 2 candidate. However, L. aridus ssp. ashlandensis was upgraded to category 1 status. Category 1 candidates were formerly defined as species for which we had on file substantial information on biological vulnerability and threats to support preparation of listing proposals, but issuance of proposed rules was precluded by other listing activities of higher priority. On February 28, 1996, we published an NOR in the Federal Register (61 FR 7596) that discontinued the designation of category 2 species as candidates. In response to the decision to discontinue the category 2 designation, H. hendersonii and other former category 2 candidates were not retained as candidates. In addition, L. aridus ssp. ashlandensis was dropped from the candidate list based on our interpretation of data supplied by the U.S. Forest Service (USFS) (Rolle 1993).

The petitions contained substantial amounts of information relating to the distribution of and threats to Horkelia hendersonii and Lupinus aridus ssp. ashlandensis . Both species occur within about 1.6 kilometers (1 mile) of the summit on the western slope of Mt. Ashland, Oregon, on the Rogue River and Klamath National Forests. In addition, H. hendersonii is found in both National Forests, along the Siskiyou Crest in the Dutchman Peak-Jackson Gap area, at Observation Peak, and on and near McDonald Peak in Oregon, and at Dry Lake Lookout in the Klamath National Forest in California. L. aridus ssp. ashlandensis occurs as a single population on the top and western ridge of Mount Ashland. Time-series monitoring studies were started by the Forest Service in 1995, but the results are not available to us at this time (Kagan 1995). Horkelia hendersonii has been found in 16 habitat patches, but population trends are not known.

The petitions provided information regarding effects of habitat alteration and development activities on Horkelia hendersonii and Lupinus aridus ssp. ashlandensis . According to the petitions, the Mount Ashland populations of both species are threatened by the expansion of the ski facilities, the communication facilities, and parking lot, road widening, and maintenance; development of a cross-country ski corridor; and erosion, compaction, and invasion of roadside weeds caused by off-road vehicle activities. The Mount Ashland Bowl patch of H. hendersonii, with 15 plants, is located on a proposed ski area expansion site (U.S. Department of Agriculture 1991). A proposed cross-country ski corridor would cut through a large portion of the eastern edge of the Mount Ashland habitat patch and could affect up to 5,000 individual H. hendersonii and up to 4,500 individual L. aridus ssp. ashlandensis (Kagan and Zika 1987a,b). In addition to the proposed ski area expansion, 8 individual H. hendersonii and 13 individual L. aridus ssp. ashlandensis are growing in areas of potential disturbance for the expansion of the U.S. Weather Bureau Radar Station (SRI International 1994, 1995). An existing four-wheel drive track, leading west from the summit access road at the first switchback, provides an avenue for the introduction of roadside weeds into the meadow and flat area that supports a sizeable population (4,900 plants) of H. hendersonii and a small population (350 plants) of L. aridus ssp. ashlandensis (Kagan and Zika 1987a,b; Zika 1987; Kagan 1995).

Although both species occur in open gravelly soils, including the gravelly margins of the access road, neither will colonize the compacted soils of existing roads (even if vehicle use was reduced or eliminated). Neither H. hendersonii nor L. aridus ssp. ashlandensis was found on the gravelly fill around the ski area lift towers or building, and both are apparently restricted to natural undisturbed substrates (Kagan and Zika 1987a,b; Zika 1987).

In the Dutchman Peak-Jackson Gap area, road maintenance and construction and widening of firebreaks threaten three of the habitat patches that support Horkelia hendersonii . Construction of firebreaks could also involve disturbance of the loose, granitic gravels on the ridges where H. hendersonii grows.

Livestock grazing has been observed in Horkelia hendersonii habitat at Observation Peak, south of McDonald Peak, and at Dry Lake. Cattle cause damage by trampling, and, although we have no direct evidence that cattle find H. hendersonii particularly palatable, some damage from foraging has been seen (Kagan and Zika 1987a). On the most northern habitat patch on McDonald Peak, 100 H. hendersonii plants were found in 1985, but only 22 in 1987 (Kagan and Zika 1987a). No cause was presented for the reduction in numbers.

In 1963, the passage of the Oregon Wildflower Law (ORS 564.010-564.040) established protection for Oregon's natural botanical resources. The law was designed to protect showy plants, such as lilies, shooting stars, orchids, and rhododendrons, from collection by horticulturists interested in these species' domestication. The law prohibits the collection of wildflowers from within 61 meters (200 feet) of a State highway. Although protective in spirit, the Oregon Wildflower Law carries minimal penalties and is rarely enforced. In addition, since there are no Horkelia hendersonii or Lupinus aridus ssp. ashlandensis populations close to State highways, this law provided very little protection for these species.

In 1987, Oregon Senate Bill 533 (ORS 564.100) was passed to augment the legislative actions available for the protection of the State's threatened and endangered species, both plant and animal. That bill, known as the Oregon Endangered Species Act (OESA), mandated responsibility for threatened and endangered plant species in Oregon to the Oregon Department of Agriculture (ODA). The OESA directs the ODA to maintain a strong program to conserve and protect native plant species threatened or endangered with extinction. Although the ODA is able to regulate the import, export, or trafficking of State-listed plant species (under ORS 564.120), their ability to protect plant populations is limited to State-owned or State-leased lands. Lupinus aridus ssp. ashlandensis is State-listed as endangered, receiving protection under OESA on State-managed lands. Horkelia hendersonii is a candidate for listing under OESA, but currently receives no protection on State-owned or State-leased lands. Currently, both species are considered sensitive species by the USFS, and may be afforded some protection during USFS project planning processes and implementation.

It is possible that Horkelia hendersonii and Lupinus aridus ssp. ashlandensis could be negatively affected by the expansion of brushfields and the establishment of trees onto open alpine on Mount Ashland due to fire suppression. The two species are not seen in dense herbaceous vegetation, brush, or the full shade of conifers (Zika 1987). The boundary of both populations on the southwest side of Mount Ashland corresponds closely to the brushfield boundary (Rolle 1993). Continued fragmentation of the populations by construction and widening of roads and other development can reduce genetic exchange between patches, reducing the viability of the populations.

Currently, we are working with the USFS to develop a conservation agreement for both species on Mount Ashland. The process was initiated in 1995 through a cooperative agreement with the Oregon Natural Heritage Program to develop conservation agreements for selected high-priority candidate species. On July 26, 1999, we provided a draft conservation agreement to the Klamath National Forest and Rogue River National Forest. The Rogue River National Forest is currently revising the draft conservation agreement to cover only Mount Ashland populations, but we have not received that draft for evaluation. If that draft conservation agreement is signed by all parties and implemented, it may remove some or all of the threats faced by H. hendersonii and L. aridus ssp. ashlandensis on Mount Ashland, but may not reduce threats faced by smaller, more isolated populations of H. hendersonii on McDonald Peak, an unnamed peak south of McDonald Peak, Dutchman's Peak, Observation Peak, and at Dry Lake Lookout.

We have reviewed the petitions, as well as other available information, including published and unpublished studies and reports, and agency files. Based on that information, we find that substantial information exists to indicate that listing of Horkelia hendersonii and Lupinus aridus ssp. ashlandensis as threatened or endangered throughout all of their ranges may be warranted. The petitions also requested designation of critical habitat for both species. However, designation of critical habitat is not petitionable under the Act. If the 12-month finding determines that listing H. hendersonii and L. aridus ssp. ashlandensis is warranted, then the designation of critical habitat would be addressed in the subsequent proposed rule.

When we make a positive 90-day finding, we are required to promptly commence a review of the status of the species. To ensure that the status review is complete and based on the best available scientific and commercial data, we are soliciting information on Horkelia hendersonii and Lupinus aridus ssp. ashlandensis concerning the following: (1) Historic and current distribution; (2) conditions in each habitat patch; (3) basic biology including age-frequency distribution of the population(s) in each habitat patch; (4) ongoing efforts to protect H. hendersonii and L. aridus ssp. ashlandensis and their habitat; and (5) threats to either species and their respective habitats in each occupied habitat patch. Section 4(b)(3)(B) of the Act requires that we make a finding within 1 year from the date the petitions were received as to whether listing H. hendersonii and L. aridus ssp. ashlandensis as threatened or endangered is warranted (12-month finding).