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

The Food Stamp Program is listed in the Catalog of Federal Domestic Assistance under No. 10.551. For the reasons set forth in the final rule and related Notice to 7 CFR part 3015 subpart V (48 FR 29115, June 24, 1983), this Program is excluded from the scope of the Executive Order 12372 which requires inter-governmental consultation with State and local officials.

This rule has been reviewed with regard to the requirements of the Regulatory Flexibility Act of 1980 (5 U.S.C. 601-612). Shirley R. Watkins, the Administrator of the Food and Nutrition Service (FNS), has certified that this rule will not have a significant economic impact on a substantial number of small businesses. Based on FNS data, less than 92,000 of the 157,000 (58%) firms not corporately owned or operated that are participating in the Food Stamp Program are estimated to be small businesses based on the Small Business Administration's (SBA) guidelines. Just over 13,400 (8.5%) are considered to be specialty stores that have self declared annual gross sales of $5 million or less. Slightly more than 78,000 are grocery stores and convenience stores that have self declared annual gross sales of $20 million or less. In applying the requisite SBA definition of these small stores, it is apparent that a large number of small businesses will be affected by this regulation. Although a large number of small businesses will be affected, the agency does not anticipate that the impact will be significant for reasons explained below. Throughout the development of this rule special consideration was given to its impact on small businesses; primarily small and medium grocery stores, convenience type stores, farmers' markets, rolling stores, and specialty stores. A requirement in the proposed rule that a firm have a minimum amount of wholesale purchases was not included in this final rule, because it might have unfairly impacted small rural businesses.

The final rule will allow the vast majority of small businesses interested in participating in the Food Stamp Program (FSP) to do so. It may, however, have a negative impact on a small number of firms that do not effectuate the purposes of the FSP or that do not meet the eligibility requirements. The final rule fully implements the statutory eligibility requirements. Criterion A requires that a firm must offer for sale on a continuous basis a variety of food items in each of four statutorily defined staple food groups, with perishable foods in at least two of those food groups. The rule defines several terms included in the statute—“continuous basis”, “perishable” and “variety”. The rule defines “continuous basis” as “* * * on any given day of operation”. It defines “perishable” as the term was described in the House Report accompanying the statute, except that it allows frozen foods to qualify as a perishable item specifically to help small businesses meet that requirement. And, although FNS initially considered requiring a number greater than three, the final rule defines “variety” as only three different types of food items in each of the four staple food categories. The rule implements Criterion B as the statute defines it.

The law has been in effect since late 1994. Firms may fail to be eligible to participate in the FSP for a variety of reasons. Some firms fail to be reauthorized because they are no longer open for business or have changed the nature of their business; it is not always due to failure to meet one part of the eligibility criteria. FSP authorization data covering Fiscal Years 1994-1998, illustrates that only 2,866 firms of the 168,078 firms evaluated, or 1.7%, failed to be eligible for program participation under Criterion A or B. During Fiscal Year 2000, only 166 or 0.7% of the 23,088 firms being reauthorized failed to meet either Criterion A or B. Moreover, once the final regulations go into effect, the number of firms that fail to be authorized or reauthorized may decline further since FNS field reviewers may have applied the current standards somewhat inconsistently. That is, some field reviewers may have interpreted the requirements for “variety of foods” in different ways than the regulation proposed here.

Before firms will be denied authorization under this rule for failing to meet the eligibility criteria, they will have the opportunity to provide documentation to prove they are eligible. Firms that are denied authorization by FNS have the right to appeal that determination through an administrative review and a judicial review. Authorized firms are allowed to continue participating in the FSP throughout the appeals process. A new store that is denied authorization by FNS also has the right to appeal, and should the appeals process overturn FNS' eligibility determination, the store is authorized immediately.

This rule has been reviewed under Executive Order 12988, Civil Justice Reform. This rule is intended to have preemptive effect with respect to any State or local laws, regulations or policies which conflict with its provisions, or which would otherwise impede its full implementation. This rule is not intended to have retroactive effect unless so specified in the Effective Date paragraph of this preamble. Prior to any judicial challenge to the provisions of this rule or the application of its provisions, all applicable administrative procedures must be exhausted. In the FSP, the administrative procedures are as follows: (1) For Program benefit recipients—State administrative procedures issued under to 7 U.S.C. 2020(e)(1) and 7 CFR 273.15; (2) for State agencies—administrative procedures issued pursuant to 7 U.S.C. 2023 set out at 7 CFR 276.7 for rules related to non-quality control (QC) liabilities or 7 CFR part 283 for rules related to QC liabilities; (3) for Program retailers and wholesalers—administrative procedures issued pursuant to 7 U.S.C. 2023 set out at 7 CFR 278.8.

Title II of the Unfunded Mandate Reform Act of 1995 (UMRA), Pub.L. 104-4, establishes requirements for Federal agencies to assess the effects of their regulatory actions on State, local and tribal governments and the private sector. Under section 202 of the UMRA, FNS generally must prepare a written statement, including a cost-benefit analysis, for proposed and final rules with “Federal mandates” that may result in expenditures to State, local or tribal governments, in the aggregate, or to the private sector, of $100 million or more in any one year. When such a statement is needed for a rule, section 205 of the UMRA generally requires FNS to identify and consider a reasonable number of regulatory alternatives and adopt the least costly, more cost-effective or least burdensome alternative that achieves the objectives of the rule. This rule contains no Federal mandates under the regulatory provision of Title II of the UMRA for State, local and tribal governments or the private sector of $100 million or more in any one year. Thus, this rule is not subject to the requirements of sections 202 and 205 of the UMRA.

FNS has analyzed this final rule in accordance with the principles set forth in Executive Order 13132. As such, FNS has determined that the rule does not contain policies that have federalism implications as defined in the order and, consequently, a federalism summary impact statement is not required.

In accordance with the Paperwork Reduction Act of 1995, this final rule includes information collection burdens imposed on retailers applying for participation in the FSP.

There are currently 3 forms approved under OMB No. 0584-0008. Together these forms are used by retailers, wholesalers, meal services, certain types of group homes, shelters, and state-contracted restaurants, to apply to FNS for authorization to accept and redeem food stamp benefits. Form FNS-252, Food Stamp application For Stores; Form FNS-252-2, Application to Participate in the Food Stamp Program for Communal Dining Facility/Others; and, Form FNS-252R, Food Stamp Program Application For Stores-Reauthorization. Section 9(c) of the Food Stamp Act of 1977 (FSA), as amended, 7 U.S.C. 2011-2036, provides the necessary authorization(s) to collect the information contained in these forms. (7 U.S.C. 2018(c)).

A provision in § 278.1(b)(1)(ii) of the proposed rule requiring certain stores to have at least $30,000 in annual staple food wholesale purchases in order to qualify for participation in the program is not included in the final rule. This requirement was intended to help measure whether or not a store offered a variety of staple foods on a continuous basis, as required by law, and would have been captured through a Yes/No check-box on the application. Under the proposed rule, most applicants would have simply checked the appropriate box which would not have increased burden time. However, a few stores would need to check their records to document sales or wholesale purchase information if their eligibility was not clear, and this would increase the hour burden estimates approved under OMB No. 0584-0008. Even though the $30,000 wholesale threshold requirement is not included in this final rule, a small number of stores will still need to document their sales or wholesale purchases in order to prove their eligibility. The burden estimates for this that were included in the proposed rule and approved by the Office of Management and Budget under OMB No. 0584-008, have not been changed in the final rule.

An estimated 5% of stores using Form FNS-252 and FNS-252R will incur an additional 10 minutes of completion time if required to provide documentation. Thus, it is estimated that the average completion time for the affected stores using Form FNS-252 will increase from 12 to 12.5 minutes. The average completion time for affected stores using Form FNS-252R will increase from 7 to 7.5 minutes. We estimated that the total burden for this will be an additional 766 hours annually. Interested parties should refer to the preamble of the proposed rule for details on the methodologies used to determine the averages.

The amount of the net decrease as approved by OMB is less than was proposed in the June 30 notice because the June 30 estimates were based on 1997 data. The estimates approved by OMB through June 30, 2002 are based on 1999 data and reflect a net decrease in overall burden hours from 15,777 to 14,812 hours; a decrease of 965 hours annually.

Comments were solicited for 60 days on the proposed decrease in burden hours. No comments were received on the information collection proposal and the estimates were submitted to OMB for approval. The burden estimates as currently approved by OMB under OMB No. 0584-0008 through June 30, 2002 are shown on the following chart:

Affected Public: Food Retail and Wholesale Firms, Meal Services Programs, certain types of Group Homes, Shelters, and state-contracted Restaurants.

Estimated Number of Respondents: 62,621.

Estimated Number of Responses per respondent: 1.

Estimated Time per Response: .236536.

Estimated Total Annual Burden: 14,812.

On June 30, 1999, the Department published a proposed rule (64 FR 35082) to implement sections 201 and 202 of the Food Stamp Program Improvements Act of 1994, Pub. L. 103-225, (hereinafter Pub. L. 103-225), enacted on March 25, 1994. We proposed to revise the eligibility requirements in sections 3(k)(1) and (u)(1) of the FSA for retail food store participation in the FSP. (7 U.S.C. 2012(k)(1) and 2012(u)(1)).

Under current regulations found at 7 CFR 271.2, a “retail food store” is defined as having more than 50 percent of its total eligible food sales in staple foods intended for home preparation and consumption. Provisions of Pub. L. 103-225 require that establishments: (1) Sell food intended for home preparation and consumption; and (2) meet one of two eligibility criteria (Criterion A or B) in order to participate in the FSP as a retail food store. A firm that meets the eligibility requirements of Criterion A (assuming compliance with other restrictions) is not required to also meet those of Criterion B, and vice versa.

This rule revises the definition of “retail food store” and “staple foods” to conform to the statutory changes. It also defines three new terms—“continuous basis,” “perishable,” and “variety of foods,” as well as clarifies the meaning of the term “total retail sales volume”—used in the revised statutory definition of a “retail food store.”

This rule reinserts language to 278.1(q) that was inadvertently dropped in a regulation published in the Federal Register at 61 FR 68119 on December 27, 1996, titled “Revisions in Use and Disclosure Rules Involving the Sharing of Information Provided by Retail and Wholesale Concerns with Other Federal and State Agencies.” It also makes technical changes, replacing two references to the Secretary of Health and Human Services in 278.1(q)(3)(iii) with references to the Commissioner of the Social Security Administration.

In addition, in §278.6, a change is being made to correct a technical error in current regulations that does not result in a substantive program change. The amendment made here corrects two incomplete citations in §278.6(a) and, correspondingly, §278.6(g)(3).

The Department encouraged all interested parties to comment on the provisions set forth in the proposed rule published. Comments were received from two retail trade/interest groups, one State government agency, and one Federal government agency. The major concerns raised by the commentors are discussed below. Revisions in Definitions and Eligibility Criteria Involving Retail Food Stores (7 CFR 271.2 and 7 CFR 278.1)

Section 3(k)(1)(A) of the FSA requires that to be eligible to accept food stamp benefits, an establishment or house-to-house trade route must sell food intended for home preparation and consumption and offer for sale on a continuous basis, a variety of staple foods in each of the four staple food categories, as specified in section 3(u)(1) of the FSA, including perishable foods in at least two of the four categories. The four staple food categories are: (1) Meat, poultry, or fish; (2) bread or cereals; (3) vegetables or fruits; and (4) dairy products. To implement this requirement, the proposed rule defined three new terms not defined by statute—“continuous basis,” “perishable” and “variety of foods”—that are used in the revised statutory definition of a retail food store under Criterion A. Comments were received on all three of these proposed definitions.

The law requires stores authorized to participate in the FSP under Criterion A to offer staple foods in the four required categories on a continuous basis. Because the Department cannot be expected to visit each authorized store on a regular basis to enforce this provision, an alternative way of measuring this, based on a store's annual wholesale purchases, was developed. The proposed rule established a minimum threshold of $30,000 in annual wholesale purchases which could be used to determine that a store offered a variety of staple foods on a continuous basis.

Comments were received from all four commentors on this provision, one in support of it, one recommending a much larger minimum requirement, and two in opposition to it. The commentor supporting this provision said the proposed threshold of $30,000 would ensure that participating stores have a sufficient depth of stock to achieve the goals of the FSP without eliminating legitimate grocers from program participation. However, this commentor did not believe all firms participating or applying to participate in the FSP should be routinely required to document annual wholesale purchases.

Another commentor suggested the threshold be increased to a minimum of $100,000 in annual wholesale purchases. The Department considered requiring a higher threshold and concluded that increasing the minimum threshold by such a large amount would have a negative impact on some small stores that provide food stamp recipients access to nutritious foods.

Two commentors opposed the proposed definition of “continuous basis.” One commentor said recipients might be hurt if stores are forced out of the FSP, and said Congress changed the law to expand the accessibility of food supplies. This commentor also said that “continuous basis” should be defined simply as uninterrupted or constant. The Department agrees that “continuous basis” should mean constant or uninterrupted. Accordingly, we have changed the proposal to require stores to have the required amount of staple foods “on any given day.”

The other commentor opposing the new threshold said the Department did not adequately address the impact of this threshold on small stores in the proposed rule and expressed concern that some small convenience-type stores would not be able to meet this requirement. The Department did analyze the impact of the proposed rule, and referred to the impact in the preamble of the proposed rule.

The law allows store eligibility determinations to be based on a variety of measures, including a review of sales and purchase records when necessary. Determining whether or not a store is able to offer the required foods on a continuous basis can be based on this information as well as on store visits. Meeting a minimum threshold is not an accurate measure of continuous basis. Therefore, the requirement under Criterion A that authorized stores have a minimum of $30,000 in annual wholesale purchases was removed from the final rule.

The statute requires stores eligible to participate in the FSP under Criterion A to stock perishable foods in at least two defined staple food categories. The Department did not establish a minimum number of perishable foods required. We proposed to define “perishable foods” as frozen, refrigerated or fresh foods that will spoil or deteriorate in quality within two to three weeks. This definition was based on language in H. Rep. No. 103-352, in the section titled “Purpose and Need” that stated “* * * most fresh foods spoil or suffer a significant deterioration in quality within two to three weeks.” The Department included frozen foods in its definition of perishable foods, even though they are typically not considered to be fresh, because some small stores with limited customers may not be able to afford to offer fresh or refrigerated foods that will spoil within a few days or weeks.

One comment opposing the definition of “perishable foods” was received by the Department. The commentor generally opposed the definitions of all new statutory terms that were not defined in the statute. The Department believes minimum regulatory standards are necessary to ensure that stores understand the program eligibility requirements and that eligibility determinations are evaluated in a uniform manner throughout the country. The Department believes the definition set forth in the rule is fair and reasonable; therefore, the proposed definition of perishable foods was not changed.

To be eligible to participate in the FSP under Criterion A, the law requires stores to have a variety of food items in each of the four staple food categories. H. Rep. No. 103-352 in the section titled “Purpose and Need” stated that authorized stores should “carry an ample supply of items in each category” to ensure that food stamp recipients can purchase an “ample selection of foods in each of the four (staple food) categories.” The rule defines “variety of foods” in such a way that will ensure that stores offer for sale a minimum selection of foods. The definition stipulates that a minimum of three different varieties of foods in each of the four defined staple food categories would be required to meet FSP eligibility guidelines under Criterion A.

One commentor opposed this minimum requirement because the proposed rule did not appear to explain or was unclear with regard to how it was derived. Another commentor opposing this requirement said it was arbitrary and will “* * * lead to bizarre and most likely unintended results.” The Department proposed the lowest number that could reasonably be considered to meet the requirement that a “variety” of food items be available to FSP recipients. The Department believes this reflects the intent of the law which is to ensure that food stamp recipients continue to have adequate access to an supply of nutritious foods.

The definition of “variety” also includes two additional clarifications to ensure that food stamp recipients would be able to select from an ample variety of staple foods. One clarification would not allow similar type foods to be counted as different varieties. For example, skim milk, whole milk and chocolate milk would not meet the definition of “variety” under the dairy category; however, milk, cheese and butter would meet the proposed definition of variety. The Department received three comments on this provision, one supporting and two opposing it. The commentor supporting this clarification noted that the proposed rule provides examples of what would not be considered “variety,” but did not provide examples of what “variety” would be and suggested the final rule include such examples. The Department agrees with this and has included examples of variety under this provision in the final rule.

The Department received two comments opposing this clarification of “variety.” One of the commentors suggested that “variety” should simply mean “having different forms or types.” The Department is concerned that such a definition would not allow FNS to make uniform eligibility determinations throughout the country, and would not provide stores a clear understanding of FSP eligibility requirements. The Department believes this clarification is reasonable and should not be difficult for stores to meet; therefore, the definition was not changed.

The rule also clarifies that different brands and packaging cannot be considered “variety” for the same reasons stated above. The Department received one comment opposing this provision. The Department believes this clarification is necessary because, without it, a store could, for example, meet the fruit or vegetable category requirements with canned peaches, frozen peaches, and fresh peaches, or it could satisfy the dairy category with three different brands of ice cream. The Department believes that judging variety based on packaging and brands could limit the selection of food stamp households to only one type of food item in each category, and that would not constitute an ample variety as envisioned in the law.

The Department proposed to further clarify that processed food items with multi-ingredients cannot qualify in more than one staple food category. Such foods will generally be counted in a staple food category based on their main ingredient. For example, when determining store eligibility, the Department will consider macaroni and cheese to be a pasta and, as such, will be included in the bread or cereals category; it will not be also counted in the dairy category.

One comment opposing this provision was received by the Department, which expressed the view that this clarification was a misinterpretation of the statute. The commentor suggested that it should be possible for a pepperoni pizza to count toward meeting all four staple food categories. The Department believes that without this clarification, a store having only three different food items could qualify under Criterion A, and such a small number of food items would not provide an ample variety as envisioned in the law. Therefore, the proposed clarifications were not changed.

The eligibility requirements under this criterion are found in section 3(k)(1)(B) of the FSA and require a store to sell food for home preparation and consumption and have more than 50 percent of its total sales volume in staple food sales. This is similar to current rules. However, rather than requiring a firm to have more than 50 percent of its total eligible food sales in staple foods, the new statutory provision requires that more than 50 percent of the firm's total sales be in staple food sales. The proposed rule made this change clear by defining total sales as “total gross retail sales,” which means all retail sales of the firm, including food and non-food merchandise, as well as services such as rental fees and entertainment income.

Two comments were received on this provision. Both commentors opposed the change from “total eligible food sales” to “total gross retail sales.” The Department believes the commentors are confused about the total sales requirement under Criterion B. This was a statutory change, not a regulatory change; therefore, this provision in the rule was not changed.

(A) Offer for sale and normally display in a public area, qualifying staple food items on a continuous basis, evidenced by having, on any given day of operation, no fewer than three different varieties of food items in each of the four staple food categories. Documentation to determine if a firm stocks a sufficient amount of required staple foods to offer them for sale on a continuous basis may be required in cases where it is not clear that the requirement has been met. Such documentation can be achieved through store visits and/or verifying information when requested. Failure to provide verifying information when requested or to cooperate with store visits shall result in the denial or withdrawal of authorization.

(B) Offer for sale perishable staple food items in at least two staple food categories. Perishable foods are items which are either frozen staple food items or fresh, unrefrigerated or refrigerated staple food items that will spoil or suffer significant deterioration in quality within 2-3 weeks; and

(C) Offer a variety of staple foods which means different types of foods, such as apples, cabbage, tomatoes, and squash in the fruit or vegetable staple food category, or milk, cheese, butter and yogurt in the dairy category. Variety of foods is not to be interpreted as different brands, different nutrient values, different varieties of packaging, or different package sizes. Similar processed food items with varying ingredients such as, but not limited to, sausages, breakfast cereals, milk, sliced breads, and cheeses, and similar unprocessed food items, such as, but not limited to, different varieties of apples, cabbage, tomatoes, or squash shall not each be considered as more than one staple food variety for the purpose of determining variety. Multiple ingredient food items intended for home preparation and consumption, such as, but not limited to, cold pizza, macaroni and cheese, soup, or frozen dinners, shall only be counted as one staple food variety each and will normally be included in the staple food category of the main ingredient as determined by the FNS.

(iii) Application of Criterion B. In order to qualify under this criterion, firms must have more than 50 percent of their total gross retail sales in staple food sales. Total gross retail sales must include all retail sales of a firm, including food and non-food merchandise, as well as services, such as rental fees, professional fees, and entertainment/sports/games income. However, a fee directly connected to the processing of staple foods, such as raw meat, poultry, or fish by the service provider, may be calculated as staple food sales under Criterion B.

(iv) Ineligible firms. Firms that do not meet the eligibility requirements in this section or that do not effectuate the purpose of the Food Stamp Program shall not be eligible for program participation. New applicant firms that are found to be ineligible will be denied authorization to participate in the program, and authorized retail food stores found to be ineligible will be withdrawn from program participation. Ineligible firms under this paragraph include, but are not limited to, stores selling only accessory foods, including spices, candy, soft drinks, tea, or coffee; ice cream vendors selling solely ice cream; and specialty doughnut shops or bakeries not selling bread. In addition, firms that are considered to be restaurants, that is, firms that have more than 50 percent of their total gross retail sales in hot and/or cold prepared foods not intended for home preparation and consumption, shall not qualify for participation as retail food stores under Criterion A or B. This includes firms that primarily sell prepared foods that are consumed on the premises or sold for carryout. Such firms may qualify, however, under the special restaurant programs that serve the elderly, disabled, and homeless populations, as set forth in paragraph (d) of this section.

(v) Wholesale food concerns. Wholesale food concerns, the primary business of which is the sale of eligible food at wholesale, and which meet the staple food requirements in paragraph (b) of this section, shall normally be considered to have adequate food business for the purposes of the program, provided such concerns meet the criteria specified in paragraph (c) of this section.

(vi) Co-located wholesale food concerns. * * *

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

The title and number of the Federal Assistance Program, as found in the Catalog of Federal Domestic Assistance, to which this rule applies are Dairy Indemnity Payments, Number 10.053.

It has been determined that the Regulatory Flexibility Act is not applicable to this final rule because the Farm Service Agency is not required by 5 U.S.C. 533 or any other provision of law to publish a notice of proposed rulemaking with respect to the subject matter of these determinations.

It has been determined by an environmental evaluation that this action will have no significant impact on the quality of the human environment. Therefore, neither an environmental assessment nor an Environmental Impact Statement is needed.

This program is not subject to the provisions of Executive Order 12372, which require intergovernmental consultation with State and local officials. See the Notice related to 7 CFR part 3015, subpart V, published at 48 FR 29115 (June 24, 1983).

This rule has been reviewed pursuant to Executive Order 12988. To the extent State and local laws are in conflict with these regulatory provisions, it is the intent of Commodity Credit Corporation that the terms of the regulations prevail. The provisions of this rule are not retroactive. Prior to any judicial action in a court of competent jurisdiction, administrative review under 7 CFR part 780 must be exhausted.

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

The amendment to 7 CFR part 760 set forth in this final rule does not contain additional information collections that require clearance by the Office of Management and Budget under the provisions of 44 U.S.C. chapter 35. Existing information collections were approved by OMB and assigned OMB Control Number 0560-0116.

The DIPP was originally authorized by section 331 of the Economic Opportunity Act of 1964. The statutory authority for the program was extended several times. Funds were appropriated for DIPP by the Agriculture, Rural Development, Food and Drug Administration, and Related Agencies Act, 1999, (the 1999 Act), Pub. L. 105-277, 112 Stat. 2681, and, more recently, the Agriculture, Rural Development, Food and Drug Administration, and Related Agencies Appropriations Act, 2000 (the 2000 Act), Pub. L. 106-78, 113 Stat. 1135, both of which authorized the program to be carried out until the funds appropriated were expended. Most recently, the Agriculture, Rural Development, Food and Drug Administration, and Related Agencies Appropriations Act, 2001 (the 2001 Act), Pub. L. 106-387, 114 Stat 1549 also appropriated funds and authorized the program to be carried out until the funds are expended. Not all the funds appropriated under the previous Acts have been expended and the remaining funds are still available in addition to the funds appropriated under the 2001 Act.

The objective of DIPP is to indemnify dairy farmers and manufacturers of dairy products who, through no fault of their own, suffer income losses with respect to milk or milk products removed from commercial markets because such milk or milk products contain certain harmful residues. In addition, dairy farmers can also be indemnified for income losses with respect to milk required to be removed from commercial markets due to residues of chemicals or toxic substances or contamination by nuclear radiation or fallout.

The regulations governing the program are set forth at 7 CFR Part 760. This rule makes no changes in the provisions of the regulations. Since the only purpose of this final rule is to revise the authority citation pursuant to the 2001 Act, it has been determined that no further public rulemaking is required. Therefore, this final rule shall become effective upon the date of publication in the Federal Register .

On September 11, 2000 a notice proposing to amend Part 71 of the Federal Aviation Regulations (14 CFR Part 71) by establishing Class E airspace extending upward from 700 feet Above Ground Level (AGL) at Clearview Airpark, Westminster, MD was published in the Federal Register (65 FR 54825). Interested parties were invited to participate in this rulemaking proceeding by submitting written comments on the proposal to the FAA. No comments to the proposal were received. The rule is adopted as proposed. The coordinates for this airspace docket are based on North American Datum 83. Class E airspace areas designations for airspace extending upward from the surface are published in paragraph 6005 of FAA Order 7400.9H, dated September 1, 2000 and effective September 16, 2000, which is incorporated by reference in 14 CFR 71.1. The Class E airspace designation listed in this document will be amended in the order.

This amendment to Part 71 of the Federal Aviation Regulations (14 CFR Part 71) provides controlled Class E airspace extending upward from 700 ft above the surface for aircraft conducting IFR operations at Clearview Airpark, Westminster, MD.

The FAA has determined that this regulation only involves an established body of technical regulations for which frequent and routine amendments are necessary to keep them operationally current. Therefore, this regulation: (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 will not have significant economic impact on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

This amendment to part 97 of the Federal Aviation Regulations (14 CFR part 97) establishes, amends, suspends, or revokes Standard Instrument Approach Procedures (SIAPs). The complete regulatory description of each SIAP is contained in official FAA form documents which are incorporated by reference in this amendment under 5 U.S.C. 552(a), 1 CFR part 51, and § 97.20 of the Federal Aviation Regulations (FAR). The applicable FAA Forms are identified as FAA Forms 8260-3, 8260-4, and 8260-5. Materials incorporated by reference are available for examination or purchase as stated above.

The large number of SIAPs, their complex nature, and the need for a special format make their verbatim publication in the Federal Register expensive and impractical. Further, airmen do not use the regulatory text of the SIAPs, but refer to their graphic depiction on charts printed by publishers of aeronautical materials. Thus, the advantages of incorporation by reference are realized and publication of the complete description of each SIAP contained in FAA form documents is unnecessary. The provisions of this amendment state the affected CFR (and FAR) sections, with the types and effective dates of the SIAPs. This amendment also identifies the airport, its location, the procedure identification and the amendment number.

This amendment to part 97 is effective upon publication of each separate SIAP as contained in the transmittal. Some SIAP amendments may have been previously issued by the FAA in a National Flight Data Center (NFDC) Notice to Airmen (NOTAM) as an emergency action of immediate flight safety relating directly to published aeronautical charts. The circumstances which created the need for some SIAP amendments may require making them effective in less than 30 days. For the remaining SIAPs, an effective date at least 30 days after publication is provided.

Further, the SIAPs contained in this amendment are based on the criteria contained in the U.S. Standard for Terminal Instrument Procedures (TERPS). In developing these SIAPs, the TERPs criteria were applied to the conditions existing or anticipated at the affected airports. Because of the close and immediate relationship between these SIAPs and safety in air commerce, I find that notice and public procedure before adopting these SIAPs are impracticable and contrary to the public interest and, where applicable, that good cause exists for making some SIAPs effective in less than 30 days.

The FAA has determined that this 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 rule” 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. For the same reason, the FAA certifies that this amendment will not have a significant economic impact on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

This amendment to part 97 of the Federal Aviation Regulations (14 CFR part 97) establishes, amends, suspends, or revokes Standard Instrument Approach Procedures (SIAPs). The complete regulatory description on each SIAP is contained in the appropriate FAA Form 8260 and the National Flight Data Center (FDC)/Permanent (P) Notices to Airmen (NOTAM) which are incorporated by reference in the amendment under 5 U.S.C. 552(a), 1 CFR part 51, and § 97.20 of the Federal Aviation's Regulations (FAR). Materials incorporated by reference are available for examination or purchase as stated above.

The large number of SIAPs, their complex nature, and the need for a special format make their verbatim publication in the Federal Register expensive and impractical. Further, airmen do not use the regulatory text of the SIAPs, but refer to their graphic depiction of charts printed by publishers of aeronautical materials. Thus, the advantages of incorporation by reference are realized and publication of the complete description of each SIAP contained in FAA form documents is unnecessary. The provisions of this amendment state the affected CFR (and FAR) sections, with the types and effective dates of the SIAPs. This amendment also identifies the airport, its location, the procedure identification and the amendment number.

This amendment to part 97 of the Federal Aviation Regulations (14 CFR part 97) establishes, amends, suspends, or revokes SIAPs. For safety and timeliness of change considerations, this amendment incorporates only specific changes contained in the content of the following FDC/P NOTAMs for each SIAP. The SIAP information in some previously designated FDC/Temporary (FDC/T) NOTAMs is of such duration as to be permanent. With conversion to FDC/P NOTAMs, the respective FDC/T NOTAMs have been canceled.

The FCD/P NOTAMs for the SIAPs contained in this amendment are based on the criteria contained in the U.S. Standard for Terminal Instrument Procedures (TERPS). In developing these chart changes to SIAPs by FDC/P NOTAMs, the TERPS criteria were applied to only these specific conditions existing at the affected airports. All SIAP amendments in this rule have been previously issued by the FAA in a National Flight Data Center (FDC) Notice to Airmen (NOTAM) as an emergency action of immediate flight safety relating directly to published aeronautical charts. The circumstances which created the need for all these SIAP amendments requires making them effective in less than 30 days.

Further, the SIAPs contained in this amendment are based on the criteria contained in the TERPS. Because of the close and immediate relationship between these SIAPs and safety in air commerce, I find that notice and public procedure before adopting these SIAPs are impracticable and contrary to the public interest and, where applicable, that good cause exists for making these SIAPs effective in less than 30 days.

The FAA has determined that this 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. For the same reason, the FAA certifies that this amendment will not have a significant economic impact on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

On May 10, 2000, SSA published in the Federal Register a notice of proposed rulemaking proposing to establish procedures governing testimony by SSA employees and the production of official records and information in legal proceedings to which SSA is not a party (65 FR 30037-30043). Prior to March 31, 1995, SSA was part of the Department of Health and Human Services (DHHS) and followed the DHHS regulations at 45 CFR part 2 regarding these matters. The Social Security Independence and Program Improvements Act of 1994 (SSIPIA), Pub. L. 103-296, established SSA as an independent agency in the executive branch of the Federal Government effective March 31, 1995, and vested general regulatory authority in the Commissioner of Social Security (the Commissioner). Under sec. 106(b) of the SSIPIA, DHHS regulations in effect immediately before March 31, 1995, that relate to functions vested in the Commissioner by reason of SSA's independence, continue to apply to SSA until the Commissioner modifies, suspends, terminates, or repeals them. This rule establishes a new Part 403 of our regulations, which sets forth the SSA rules for responding to requests for information, records, or testimony in legal proceedings. The DHHS regulations at 45 CFR part 2 will no longer apply to SSA.

This rule, issued under the authority of 5 U.S.C. 301, is similar to rules issued by numerous Government agencies and departments. Section 301 of Title 5, the “housekeeping statute,” authorizes the head of an executive agency to issue “regulations for the government of his department, the conduct of its employees, the distribution and performance of its business and the custody, use, and preservation of its records, papers, and property.” In United States ex rel. Touhy v. Ragen, 340 U.S. 462 (1951), the Supreme Court upheld the authority of Federal agencies to establish procedures pursuant to § 301 similar to those established here. Federal courts have consistently held that a person seeking testimony or records from an agency must comply with the agency's “Touhy regulation” before seeking judicial enforcement of a subpoena. In addition, under § 702(a)(5) of the Social Security Act, 42 U.S.C. § 902(a)(5), the Commissioner has authority to promulgate regulations necessary to the efficient administration of SSA functions.

In the notice of proposed rulemaking published in the Federal Register on May 10, 2000, SSA requested comments by July 10, 2000. SSA received three comments on the proposed rule.

One commenter raised several issues concerning health and safety in Social Security offices. He essentially recommended that we revise the rule to allow testimony from employees in every case involving the health and safety of our employees. We share the commenter's general concerns about the importance of workplace safety. However, we are not adopting his recommendation because we believe that the rule addresses his concerns.

The commenter first noted that United States Attorneys' Offices may decline prosecution in situations where an employee is threatened or assaulted at work. In such situations, the employee often files charges with the local police and the matter proceeds in state court. He recommended that we clarify that testimony of the employee and employee-witnesses requires no prior approval in such cases. However, section 403.115(b)(7) renders the procedural requirements established in this rule inapplicable to state or local law enforcement proceedings related to threats or acts against SSA or its employees. In such circumstances, our employees may be released to testify without requiring the prosecutor to make a request pursuant to this rule.

The commenter's next concern involves the situation where an employee is injured outside of work. In this situation, the employee's own testimony would be based on matters unrelated to his or her actual work activities; therefore, no request pursuant to this rule would be necessary for that employee's testimony. However, this rule is intended precisely for the situation where one of the parties to this private lawsuit seeks the testimony of another Social Security employee. If the testimony of the other employee depends on information obtained in the course of Social Security business, we believe it is appropriate for the party requesting such testimony to proceed under this rule.

The commenter also suggested that in situations where an employee is injured and required to go through a Federal workers compensation proceeding, we should routinely allow employee testimony. We believe that this concern is addressed by section 403.115(b)(7), which renders the procedural requirements established in this rule inapplicable in cases where Federal law or regulations require employees to provide testimony. In such cases, our employees can be released to testify without requiring the individual seeking such testimony to make a request pursuant to this rule.

The commenter's final concern was that employees should be allowed to provide testimony in a product liability lawsuit involving equipment used on the job for Social Security. We believe that it is particularly appropriate to apply the procedures established in these regulations to this kind of case. The Commissioner must consider the various factors articulated in this rule and the particular facts surrounding a request for testimony in a case such as this. Whether to provide testimony and the form of that testimony should be left to the Commissioner to decide on a case-by-case basis.

Another commenter, concerned about fraud and misinformation in domestic support cases, suggested that it would always be in SSA's interests to provide records and testimony in legal proceedings where doing so could prevent improper payments of public benefits or improper support payments. SSA places a high premium on preventing program fraud and safeguarding the trust funds. However, as noted in the preamble to the proposed rule, SSA must balance other important interests with the need for program integrity when assessing a request for testimony or records. Among these interests are minimizing the possibility of involving SSA in issues not related to its mission, maintaining SSA's impartiality, and protecting sensitive and confidential information and the deliberative processes of SSA. To the extent that the commenter is suggesting that SSA should consider fraud prevention and program integrity when it determines whether to release records or authorize testimony, we agree. Current disclosure regulations permit disclosures to law enforcement officials when necessary to investigate or prosecute fraud or other criminal activity involving the social security program. See 20 CFR 401.155(c). Moreover, this final rule already includes among the items the Commissioner will consider when evaluating whether to grant a request for testimony, “Whether you need the testimony to prevent fraud or similar misconduct.” 20 CFR 403.130(k). However, if the commenter is suggesting that a general exclusion from these rules should apply to all requests arising out of domestic support cases or any other cases where a party alleges fraud, we disagree. Such an exclusion could harm other important SSA interests, including those listed above. We, therefore, have not made any changes in the regulations to address this comment.

The third commenter noted that§ 403.110 includes State agency employees and consultative examiners (CEs) as persons subject to SSA jurisdiction and control and, therefore, covered by this rule. She expressed concern that the rule does not explain the procedures these individuals must follow when they receive a direct request for testimony and suggested that we include provisions directing State agency employees and CEs to forward all requests to SSA. As a general matter, we will provide procedures applicable to various parties affected by this rule through internal program instructions. However, we also note that, while all employees (including State agency personnel and CEs) will be forwarding applications submitted under this rule to SSA headquarters for a decision on whether to permit the testimony, neither SSA nor the Department of Justice can provide State or private personnel with legal representation.

SSA administers a wide variety of programs that affect almost 50 million beneficiaries and the general public. SSA maintains records on virtually every individual in the United States. The documents that SSA obtains or generates and our employees' expertise frequently are sought for use in legal proceedings in which SSA is neither involved nor has an interest. Each year, SSA receives thousands of requests for records and testimony. This rule establishes SSA policies and procedures applicable to requests for official Agency information, records, or testimony in legal proceedings.

With some limited exceptions, this rule applies to all requests arising out of a legal proceeding for:

(1) SSA information or records; or

(2) Testimony from SSA employees concerning information acquired while performing official duties or because of the employees' official capacity.

A request for both testimony and records or other information is treated as two separate requests—one for testimony and one for records or other information—because some procedures apply only to requests for testimony.

This rule applies to a broad range of legal proceedings. It adopts the definition of “record” found in SSA disclosure regulations; clarifies that “testimony” encompasses all types of sworn statements; and expands the definition of SSA “employee” to include past employees, persons acting on the Agency's behalf, and persons subject to the Agency's disclosure regulations.

This rule explains that SSA employees may disclose records or other information only as permitted under the Agency's disclosure regulations and explains that SSA employees may provide testimony (even testimony related to records that the Agency may disclose) only with the Commissioner's explicit approval. The Commissioner may delegate this authority.

This rule does not apply to requests for testimony:

• In an SSA administrative proceeding;

• Related to a case to which SSA is a party;

• From the United States Department of Justice;

• In a criminal proceeding to which the United States is a party;

• In a legal proceeding initiated by state or local authorities arising from an investigation or audit initiated by, or conducted in cooperation with, SSA's Office of the Inspector General;

• From either house of Congress;

• In a law enforcement proceeding related to threats or acts against SSA, its employees, or its operations; or

• Where Federal law or regulations expressly require a Federal employee to provide testimony.

These exceptions refine those listed in the DHHS regulations to focus more on specific SSA goals. For example, instead of the broad exceptions related to criminal or civil proceedings where the United States or any Federal agency is a party (45 CFR § 2.1(d)(1)), we provide more specific exceptions related to cases where SSA is a party, requests from the Department of Justice, and criminal proceedings to which the United States is a party. These changes address SSA's goals of full participation in cases when it is a party, and full cooperation and comity with the Agency's legal representatives (the Department of Justice). At the same time, the more narrowly tailored exceptions advance SSA goals of: (1) Not providing any unfair advantage to private litigants related to SSA testimony, and (2) making a full and fair evaluation of each applicant's need for testimony. Similarly, we have not included the exceptions found in the DHHS regulations that concern DHHS agencies and employees, and we have clarified the relationship between this rule and SSA's disclosure regulations (20 CFR parts 401 and 402) and added exceptions to enhance our ability to assist those protecting and furthering the interests of SSA.

Because we can certify copies of records in SSA's possession, the Commissioner generally will not authorize testimony intended only to authenticate those records. We have adopted certification rules different from those in the DHHS regulations to explain that SSA will not certify copies of records that have been released previously or have been otherwise outside SSA's control.

We charge a fee for production of records or information and certification. The fee schedules for these services are established in 20 CFR §§ 401.95, 402.155-185, as appropriate. We will also charge for testimony. These fees will be calculated to reimburse the Federal Government for the full cost of providing testimony, such as, but not limited to, salary or wages of the witness for time needed to prepare for testimony, any necessary travel time, and the cost of travel and attendance at the legal proceeding.

The DHHS regulations at 45 CFR part 2 do not apply to matters covered in the SSA disclosure regulations at 20 CFR part 401. See 45 CFR § 2.1(d)(6). Part 403 applies to such matters to the extent necessary to ensure that requests for testimony related to records receive the same treatment as other requests for testimony and to provide notice to requesters or courts when current law prohibits the disclosure of a requested record.

Nothing in this rule affects the application of the rules in SSA's disclosure regulations. As provided in § 403.105, if you request records or information in any legal proceeding covered by this rule, SSA employees will not disclose the requested records or information unless authorized by SSA disclosure regulations. If the disclosure is not authorized, the decision to deny the request would be made by the appropriate SSA official under the SSA disclosure regulations. However, if disclosure is not authorized and your request states that a response is due on a particular date, we will make every reasonable effort to provide you with the written notification described in § 403.145 on or before the specified date. We will also send you any notices required by part 401 or 402. If disclosure of records or information is authorized by the disclosure regulations but you request testimony concerning those matters, your request will be subject to the process for applying for testimony described in §§ 403.120 through 403.140. By focusing a requestor on the disclosure regulations (which usually require the consent of the individual to whom the requested record pertains) and the procedures for obtaining the Commissioner's permission for testimony, this rule emphasizes the most efficient means for obtaining information, records, or testimony.

Under the DHHS regulations, subpoenas duces tecum were deemed to be requests for records under the Freedom of Information Act (FOIA), 5 U.S.C. 552, and were to be processed under the DHHS FOIA regulations. See 45 CFR 2.5. SSA has concluded that a more useful approach given the nature of SSA's records and operations is to treat subpoenas duces tecum as requests for records within the scope of this rule. Accordingly, SSA will apply the procedures in this rule in responding to such subpoenas duces tecum. We are deleting the last sentence of the definition of “request” in 20 CFR 402.30 to clarify that subpoenas will not be treated as FOIA requests.

In § 403.120, we explain the process for requesting testimony. We have changed the procedures used under the DHHS regulations for requesting testimony from an SSA employee to standardize the procedures and to make them more administratively efficient.

To obtain the testimony of an SSA employee in a legal proceeding, you must file a written application. As in the DHHS regulations, this rule requires that the application set out the nature of the testimony sought, explain why the information is not available by other means, and explain why it is in SSA's interest to provide the testimony. In addition, this rule requires you to explain in the application the relevance of the testimony to the issues involved in the legal proceeding and state the date and time when you need the testimony and the location where the testimony would be presented. Another change from the DHHS regulations is that this rule requires you to submit the application for testimony to us at least 30 days in advance of the date when you need the testimony, or explain in your application why your application is not timely and why it is in SSA's interest to review the untimely application. Failure to submit a complete and timely application could result in the denial of the application or could delay the decision on the application.

Unlike the DHHS regulations, this rule establishes a central address for all applications for testimony by SSA employees for use in legal proceedings. This rule requires that all applications (except applications involving the Office of the Inspector General) be sent to our Office of the General Counsel in Baltimore, Maryland. By using a central location, we can issue quicker responses and handle applications more efficiently and consistently.

Once we receive a complete application for testimony under this rule, the Commissioner will consider whether to approve it. The Office of the General Counsel or another component of SSA may review your application. In consultation with these offices, the Commissioner will make a final decision on your application and notify you of that decision. See § 403.135. To decide whether to approve the application, and therefore to authorize an SSA employee to provide testimony, the Commissioner will consider a number of factors, such as:

• Whether providing the testimony would violate a statute, Executive Order, or regulation;

• Whether providing the testimony will put confidential, sensitive, or privileged information at risk;

• Whether providing the testimony would unduly expend for private purposes the resources of the United States (including the time of SSA employees otherwise needed for official duties);

• Whether the testimony is available in a less burdensome form or from another source;

• Whether the testimony sought is limited to the purpose of the request;

• Whether you previously have requested the same testimony in the same or a related proceeding;

• Whether providing the testimony is in SSA's interest;

• Whether providing the testimony is consistent with SSA's policy of impartiality among private litigants;

• Whether another government agency is involved in the proceeding;

• Whether you need the testimony to prevent fraud or similar misconduct; and

• Whether providing the testimony sought is necessary to prevent a miscarriage of justice or to preserve the rights of an accused individual to due process in a criminal proceeding.

See § 403.130.

Under this rule, if the Commissioner approves your application, the Commissioner decides the form by which SSA will provide the testimony. For example, if the Commissioner decides that SSA can meet your needs satisfactorily with a sworn written statement, he or she will not authorize oral testimony.

Under the DHHS regulations, if the Agency head denied approval for an employee to comply with a subpoena for testimony, or did not act by the return date in the subpoena, the employee was to appear at the stated time and place unless advised by the Office of the General Counsel that responding to the subpoena would be inappropriate. The only actions the employee was authorized to take at this appearance were to provide a copy of the regulations and to respectfully decline to testify or produce any documents. See 45 CFR § 2.4(b). Our experience suggests that under the prior procedures, SSA incurred the substantial cost of sending individuals to hearings, and that these appearances did not provide any significant service or information to the tribunal or the parties involved.

Section 403.145 provides that, in cases where the Commissioner has not authorized testimony or SSA cannot respond to a request by the date specified in the application, SSA will make every reasonable effort to provide a statement to the requesting party and/or the court or other tribunal conducting the proceeding by the specified date. The statement will explain the following: compliance with the request is not authorized without the Commissioner's approval and approval has not yet been given; the requirements for obtaining approval; and, if the request complies with § 403.120, the estimated time necessary for reaching a decision.

If 20 CFR part 401 or 402 does not authorize disclosure of the requested records or information, the statement will explain the requirements for disclosure. Generally, if a response to a request for information, records, or testimony is due before the conditions of this Part or 20 CFR part 401 or 402 are met, no SSA employee will appear before the tribunal or the parties involved in the proceeding.

Under certain circumstances, this rule permits the Commissioner to grant an exception from any requirement related to your application for testimony. For example, § 403.120(b) provides that if you apply for testimony by an SSA employee, you must submit the application at least 30 days before the date the testimony is needed. If, however, the Commissioner believes that a waiver of this requirement would be in SSA's interests or would be necessary to prevent a miscarriage of justice, he or she may grant an exception. In addition, SSA employees may resolve requests for information informally (as they currently do in the ordinary course of business) by writing letters to claimants or other members of the public explaining procedures or other matters encompassed by the Social Security Act. Such letters may include information about an individual, if that person has provided written consent to disclosure as required in 20 CFR part 401. Such informal activity is not a waiver of the procedures described in this rule since it does not involve a sworn statement by an SSA employee, but is an alternative means of assisting a person without providing employee testimony.

This rule provides that if you seek records or information of the Office of the Inspector General or the testimony of an employee of the Office of the Inspector General, the regulations in Part 403 apply with two exceptions. The Inspector General or his or her designee will make any determination that the Commissioner would make. A separate address is provided for requests for Office of the Inspector General records or information or applications for the testimony of an employee of the Office of the Inspector General.

This rule is procedural, not substantive. Nevertheless, failure to comply with the procedures may be a basis for denying a request. This rule does not create a right to obtain information, records, or the testimony of an SSA employee nor does it create any additional right or privilege not already available to SSA to deny such a request. Furthermore, this rule creates no independent right of action against SSA or any of its employees.

We are adding a new paragraph (c) to 20 CFR 401.180. That regulation contains SSA's rules on disclosure of information about individuals under court order or subpoena. New paragraph (c) contains a cross-reference to the new regulations contained in Part 403.

We have consulted with the Office of Management and Budget (OMB) and determined that this rule does not meet the criteria for a significant regulatory action under Executive Order 12866. Thus, it was not subject to OMB review. We have also determined that this rule meets the plain language requirement of Executive Order 12866 and the President's Memorandum of June 1, 1998.

We certify that this rule will not have a significant economic impact on a substantial number of small entities. Therefore, a regulatory flexibility analysis as provided in the Regulatory Flexibility Act, as amended, is not required.

These regulations contain reporting requirements in section 403.120(a), (b), and (c), which establish the requirements for applying for the testimony of an SSA employee. We have the clearance from the Office of Management and Budget (OMB) under the requirements of 44 U.S.C. 3507, as amended by section 2 of the Paperwork Reduction Act of 1995, to collect this information. The OMB clearance number is 0960-0619. The clearance expires on September 30, 2003.

On November 5, 1999, temporary regulations were published in the Federal Register (64 FR 60342) that revised the rules for when a reopening of Treasury securities is a qualified reopening. The temporary regulations eliminated the acute, protracted shortage requirement that was in § 1.1275-2(d). See § 1.1275-2T(d) of the temporary Income Tax Regulations. As a result, additional Treasury securities issued in a reopening are part of the same issue as the original Treasury securities if (1) The additional Treasury securities have the same terms as the original Treasury securities, and (2) the additional Treasury securities are issued not more than one year after the original Treasury securities were first issued to the public.

On November 5, 1999, proposed regulations (REG-115932-99) also were published in the Federal Register (64 FR 60395) that, for the first time, provided rules for reopenings of debt instruments other than Treasury securities. See § 1.1275-2(k) of the proposed Income Tax Regulations.

Although a public hearing on the proposed regulations was held on March 22, 2000, no one testified at the hearing. Eight comment letters, however, were received on the proposed regulations. The proposed regulations, with certain changes to respond to the comments, are adopted as final regulations.

In certain circumstances, an issuer would like to reopen an existing issue of debt instruments (that is, sell additional amounts of debt instruments with terms that are identical to the terms of the original debt instruments and with the same CUSIP number and tax characteristics as the original debt instruments). In most cases, the purpose of the reopening is to create a large, liquid issue of debt instruments. However, during periods of rising market interest rates, the original issue discount (OID) provisions of the Code can effectively prohibit reopenings, especially if the additional debt instruments are not considered part of the same issue as the original debt instruments.

If the debt instruments sold in the reopening are considered part of the original issue, they have OID only to the extent the debt instruments in the original issue have OID. Thus, if the original debt instruments were issued without OID, the subsequently sold debt instruments also do not have OID. In this case, any discount on the subsequently sold debt instruments generally is market discount, not OID. Conversely, if the subsequently sold debt instruments are a separate issue for tax purposes, any discount that arises as part of their issuance is OID if it equals or exceeds the OID de minimis amount for the debt instruments.

The holder and issuer have different consequences depending upon whether the discount is characterized as OID or market discount. For a holder, the primary difference is whether the holder has to include the discount in income on a current basis as it accrues. If it is OID, the holder must include the accruals in income currently; if it is market discount, the holder generally does not have to include discount in income until the debt instrument is disposed of or redeemed. In general, an issuer's interest deduction does not depend on whether the discount is OID or market discount. However, the issuer's reporting obligations depend on whether the discount is OID or market discount. If the subsequently sold debt instruments are part of a separate issue and if the discount is OID, the issuer (or a broker or middleman) generally is required under section 6049 to make OID information reports for these debt instruments. To comply with this reporting obligation, the issuer must be able to distinguish the subsequently sold debt instruments (which require OID information reports) from the originally sold debt instruments. As a practical matter, the only way the subsequently sold debt instruments can be distinguished is if they are assigned new CUSIP numbers. The different tax treatment and the assignment of new CUSIP numbers prevents the debt instruments from being fungible and, thereby, defeats the purpose of the reopening.

In an attempt to strike a balance between the tax policy concern about the conversion of OID into market discount and the need to have the tax rules reflect current capital market practices, the proposed regulations specified when debt instruments issued in a reopening are considered part of the same issue as the original debt instruments (a qualified reopening). (As noted above, § 1.1275-2T(d) provides rules to determine when a reopening of Treasury securities is a qualified reopening.)

Under § 1.1275-2(k) of the proposed regulations, a reopening of debt instruments is a qualified reopening if: (1) The original debt instruments are publicly traded; (2) the issue date of the additional debt instruments (treated as if they were a separate issue) is not more than six months after the issue date of the original debt instruments; (3) seven days before the date on which the price of the additional debt instruments is established, the yield of the original debt instruments (based on their fair market value) is not more than 107.5 percent of the yield of the original debt instruments on their issue date; and (4) the yield of the additional debt instruments (based on the sales price of the additional debt instruments) is no more than 115 percent of the yield of the original debt instruments on their issue date. For purposes of the yield tests, if the original debt instruments were issued with no more than a de minimis amount of OID, the coupon rate of the original debt instruments is used rather than the yield. A qualified reopening also includes a reopening of original debt instruments if the first two conditions described above are met and the additional debt instruments (treated as a separate issue) are issued with no more than a de minimis amount of OID. A qualified reopening, however, does not include a reopening of tax-exempt obligations or contingent payment debt instruments.

The 107.5 percent test was designed to give some relief to the reopening of relatively short-term issues (that is, issues with a remaining term of ten years or less), which tend to be the most impacted by the OID de minimis rules. In addition, the 107.5 percent test, which is tested seven days before the anticipated pricing date, would give the issuer an indication as to whether the reopening would be a qualified reopening. The 115 percent test was designed to prevent, in a situation in which interest rates were to move sharply upward in the period between the announcement date and the issue date, a conversion of a significant amount of OID into market discount.

Commentators suggested that the final regulations extend the one-year rule for reopenings of Treasury securities to other issuers. In support of this change, commentators stated that different rules will impede the ability of U.S. issuers to compete with foreign issuers for investors' funds and will affect the ability of non-Treasury issuers to make their dollar-denominated issues attractive alternatives to U.S. Treasury securities as benchmarks for prevailing market interest rates. They also stated that an extended period (from six to twelve months) is often required in order to aggregate sufficient debt issuances to create a large liquid issue and that many holders of reopened debt instruments are tax-indifferent parties.

If the one-year rule is not adopted in the final regulations, some commentators suggested that the final regulations provide a fixed period of less than one year in which there would be no restrictions on reopenings (for example, a period of six months for non-Treasury securities with an original maturity of less than ten years and nine months for non-Treasury securities with an original maturity of at least ten years). In addition, other commentators suggested that the final regulations extend the one-year rule to reopenings of issuers whose securities are treated as government securities for U.S. securities law purposes.

After careful consideration of these comments, the IRS and the Treasury Department have decided not to adopt these suggestions. Congress adopted different statutory regimes for OID and market discount. The IRS and the Treasury Department believe that adopting the commentators' suggestions would not strike the appropriate balance between the statutory scheme and providing some flexibility for issuers. Additionally, the reopening of Treasury securities does not produce a potential mismatch between the issuer's interest deductions and the holder's income inclusions.

Commentators suggested that the two-part yield test be replaced with a single yield test. According to the commentators, by the time a reopening is priced, dealers, traders, and investors have arranged their affairs in reliance on the issue coming to market, and the issuer has earmarked the proceeds for use in its business. In addition, many of the participants have arranged hedges and other transactions around the reopening. In those cases in which the second-yield test would not be met (which would be caused by unexpected market volatility), a cancelled reopening could generate lost economic costs for these capital market participants. In addition, the second test would create marketing and credibility concerns for issuers.

Most of the commentators suggested that any yield test should be applied either on the pricing date or the announcement date. According to one commentator, the yield test should be applied by an issuer on a single date that is the announcement date for the reopening transaction, provided the pricing date for the transaction occurs thereafter within a period consistent with customary commercial practice. Although customary commercial practice may vary somewhat by issuer and market, the period between the announcement date and the pricing date is usually five business days or less. The yield test should allow issuers to presume that a transaction is consistent with customary commercial practice if the period between the announcement date and the pricing date is five business days or less.

For public transactions, the commentators suggested that the announcement date can be defined as the date that the reopening transaction is publicly announced through one or more media, including a press release, a news item posted on a public messaging service such as Reuters, Telerate, or Bloomberg, or a posting on the issuer's public web site. (Because the transaction is a reopening, the payment terms of the securities to be issued will be known in advance based on the prior issue.) A test based on a public announcement date would be fairly easy to administer for both issuers and the government. Moreover, if an announced reopening transaction is not priced within a customary commercial time frame, it is likely that the transaction will be re-evaluated and subsequently re-announced on a later date that could serve as the appropriate announcement date for the yield test.

According to another commentator, each reopening should be tested on the earlier of the pricing date or the announcement date of a reopening. The term announcement date could be defined as the later of seven days before pricing or the date on which an issuer's intent to reopen a security is reported on the standard electronic news services used by security broker-dealers. This rule would accommodate issuers who announce and price reopenings on the same day as well as Treasury and non-Treasury issuers who announce reopenings up to 7 days before pricing.

According to a third commentator, an issuer should be permitted to satisfy any yield test by demonstrating that the test was satisfied on any one of the seven days prior to the date on which the price of the additional debt instruments was established.

Based on historical evidence, the commentators stated that the 107.5 pecent test in the proposed regulations would not have been met in a number of cases in which a reopening would be economically desirable. Therefore, the commentators suggested that any yield test should be based on 115 percent of the yield rather than 107.5 percent of the yield. While a 115 percent test also would not be met in a number of cases, the commentators stated that the 115 percent figure used in the proposed regulations represents an acceptable middle ground. (However, some commentators stated that a 115 percent test would be too low to qualify many reopenings of sovereign debt issued by emerging market governments.)

In response to the comments, the final regulations adopt a single yield test to determine if the reopening is a qualified reopening. Under the final regulations, the yield test is satisfied if, on the date on which the price of the additional debt instruments is established (or, if earlier, the announcement date), the yield of the original debt instruments (based on their fair market value) is not more than 110 percent of the yield of the original debt instruments on their issue date (or, if the original debt instruments were issued with no more than a de minimis amount of OID, the coupon rate). For purposes of the yield test, the announcement date is the later of seven days before the date on which the price of the additional debt instruments is established or the date on which the issuer's intent to reopen a security is publicly announced through one or more media, including an announcement reported on the standard electronic news services used by security broker-dealers (for example, Reuters, Telerate, or Bloomberg). The test rate of 110 percent in the final regulations reflects a compromise between the 107.5 percent test rate in the proposed regulations and the 115 percent test rate suggested by the commentators.

Some of the commentators suggested that the six-month period be extended to one year. According to the commentators, many issuers have specific funding needs that arise sporadically over the course of a year or, in the case of foreign sovereign issuers, are often fiscally constrained from reopening issues within a six-month period. Therefore, an extended period (from six to twelve months) is required in order to aggregate sufficient debt issuances to create a large, liquid issue. Because the extension of the six-month period would increase the likelihood of the conversion of OID into market discount, the final regulations do not adopt this suggestion.

Some of the commentators suggested that the final regulations clarify the treatment of reopened debt instruments that are issued with no more than a de minimis amount of OID after the expiration of the six-month period (a de facto qualified reopening). According to the commentators, the proposed regulations apparently are stricter than current law in limiting a de facto qualified reopening to one in which the reopened securities are issued within six months after the issue date of the original debt instruments. As a result, there is uncertainty in the debt markets where none existed for these securities.

The final regulations provide that a reopening (including a reopening of Treasury securities) is a qualified reopening if the original debt instruments are publicly traded and the additional debt instruments are issued with no more than a de minimis amount of OID (determined without the application of § 1.1275-2(k)). As a result, the de minimis test is no longer limited to the six-month period after the issue date of the original debt instruments.

Some of the commentators suggested that the final regulations allow a reopening occurring after the expiration of the fixed reopening period to be a qualified reopening if the reopening satisfies a yield test that would limit the amount of OID converted into market discount. In the experience of the commentators, as longer-term debt securities progress in age, they become less liquid as compared with shorter-term debt securities of equal remaining life. (For example, a thirty-year debt issue with five years of remaining life generally can be expected to be less liquid than an otherwise identical new five-year issue.) The ability to reopen a security throughout its life would help issuers increase the liquidity of their longer-term issues as needed to address such competitive concerns. This ability would be highly valuable to private sector and government-sponsored enterprise issuers; therefore, it would be appropriate to allow it so long as a yield test ultimately limits the amount of OID that can be converted into market discount. For example, the final regulations could permit an issuer (including the Treasury Department) to reopen a security after the fixed reopening period if a 10 percent yield-change test is met.

The final regulations do not adopt this suggestion. The IRS and the Treasury Department believe that the changes to the de minimis test described above provide the appropriate relief for debt instruments reopened after the six-month period.

The final regulations concerning reopenings of Treasury securities are generally the same as the temporary regulations. See § 1.1275-2(d)(2). In addition, under the final regulations, if a reopening of Treasury securities is not a qualified reopening under § 1.1275-2(d)(2) (for example, because the reopening date is more than one year after the issue date of the original Treasury securities), the reopening is a qualified reopening under § 1.1275-2(k) if the additional Treasury securities are issued with no more than a de minimis amount of OID (determined without the application of § 1.1275-2(k)).

The proposed regulations require the issuer to take into account, as an adjustment to its interest expense, any difference between the amounts paid by the holders to acquire the additional debt instruments issued in a qualified reopening and the adjusted issue price of the original debt instruments. This difference would either increase or decrease the adjusted issue prices of all of the debt instruments in the issue (both original and additional) with respect to the issuer (but not the holder). The issuer would then, as of the reopening date, recompute the yield of the debt instruments in the issue based on this aggregate adjusted issue price and the remaining payment schedule of the debt instruments. The issuer would use this recomputed yield for purposes of applying the constant yield method to determine its accruals of interest expense over the remaining term of the debt instruments in the issue.

One commentator suggested that the adjusted issue price of the combined debt instruments simply should be the sum of the issuer's adjusted issue price in the original debt instruments on the reopening date and the issue price of the additional debt instruments determined as if they were a separate issue. The final regulations do not adopt this suggestion; the rule in the proposed regulations is more accurate than the rule suggested by the commentator. The same commentator also suggested that the final regulations state that, for purposes of determining the adjusted issue price of the combined debt instruments, pre-issuance accrued interest on the additional debt instruments for which the issuer is compensated at issuance is not treated as part of the issue price of the additional debt instruments. In effect, this suggestion would make the rule in § 1.1273-2(m) mandatory for debt instruments issued in a qualified reopening. Under § 1.1273-2(m), a taxpayer can choose to determine the issue price of a debt instrument by excluding pre-issuance accrued interest. There does not seem to be a compelling reason to make this rule mandatory for debt instruments issued in a qualified reopening when it is not mandatory for other debt instruments. As a result, the final regulations do not adopt this suggestion.

The rules in the final regulations for qualified reopenings (other than for Treasury reopenings subject to § 1.1275-2(d)) apply to debt instruments that are part of a reopening where the reopening date is on or after March 13, 2001.

The proposed regulations define the term issue as two or more debt instruments that (1) have the same credit and payment terms, (2) are issued either pursuant to a common plan or as part of a single transaction or a series of related transactions, and (3) are issued within a period of 13 days beginning with the date on which the first debt instrument that would be part of the issue is issued to a person other than a bond house, broker, or similar person acting in the capacity of an underwriter, placement agent, or wholesaler. The final regulations generally are the same as the proposed regulations but for the additional requirement that the debt instruments be issued on or after March 13, 2001. The final regulations also provide certain transition rules if the debt instruments are issued prior to March 13, 2001.

Under § 1.1275-2T(d)(1), the issue price of an issue of Treasury securities auctioned before November 2, 1998, is the average price of the securities sold, and the issue price of an issue of Treasury securities auctioned on or after November 2, 1998, is the price of the securities sold at auction. The change to the definition of issue price for Treasury securities in the temporary regulations reflected the Treasury Department's switch on November 2, 1998, from an average price auction to a single price auction for selling Treasury securities. However, in order to accommodate all types of auction techniques and because the rule for an average price auction, when applied to a single price auction, produces the same result as the rule for a single price auction, the final regulations provide that the issue price of an issue of Treasury securities is the average price of the securities sold.

It has been determined that this Treasury decision is not a significant regulatory action as defined in Executive Order 12866. Therefore, a regulatory assessment is not required. It also has been determined that section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to these regulations and, because the regulations do not impose a collection of information on small entities, the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not apply. Pursuant to section 7805(f) of the Code, the notice of proposed rulemaking preceding these regulations was submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small business.

The principal author of the regulations is William E. Blanchard, Office of the Associate Chief Counsel (Financial Institutions and Products). However, other personnel from the IRS and Treasury Department participated in their development.

This document contains amendments to the Regulations on Procedure and Administration (26 CFR part 301) under section 6212(b) relating to the sufficiency of a notice of deficiency if it is mailed to the last known address of a taxpayer. This document also contains amendments to the Income Tax Regulations (26 CFR part 1) and the Regulations on Procedure and Administration (26 CFR part 301) to provide cross-references to the last known address rules under section 6212(b) in order to apply those rules to other notices, statements, and documents required to be sent to the last known address of a taxpayer.

A notice of proposed rulemaking (REG-104939-99) was published in the Federal Register (64 FR 63768) on November 22, 1999. No public hearing was requested or held. Three written comments were received. After consideration of the comments, the proposed regulations are adopted as modified by this Treasury decision. The comments are discussed below.

Under the proposed regulations, the IRS would have accessed the United States Postal Service (USPS) National Change of Address database (NCOA database) annually to update all taxpayer address records maintained in the IRS's automated masterfile for purposes of updating the IRS's mailing list. The IRS's mailing list contains the last known address for each taxpayer. In addition, prior to mailing correspondence to any particular taxpayer from an IRS Service Center, the IRS would have accessed the NCOA database to update the taxpayer's last known address. Employees mailing correspondence from one of the district offices would have accessed an updated address by virtue of the annual update of the entire masterfile. Except in the case of certain joint filers, the annual update was scheduled to occur in May 2000, November 2000, and every November thereafter. The update based on correspondence mailed from an IRS Service Center was scheduled to begin May 2000. All steps necessary to implement the proposed regulations were not completed by May 2000. Therefore, the IRS delayed use of the NCOA database to update a taxpayer's last known address. See Announcement 2000-49 (2000-19 I.R.B. 998 (May 8, 2000)).

The procedures for updating taxpayer address records maintained in the IRS's automated masterfile are modified by these regulations. Implementing the proposed procedures for updating a taxpayer's last known address upon the mailing of correspondence from a Service Center required complicated programming that resulted in the delay in finalizing the proposed regulations. In addition, one commentator on the proposed regulations noted that the difference in treatment for Service Center mailings and district office mailings might cause confusion for taxpayers. The IRS, in conjunction with the USPS, has developed an improved system for updating taxpayer addresses that is intended to be easier to implement and operate and minimize confusion.

To gain access to the NCOA database, the IRS has become a limited licensee of the NCOA database. The NCOA database is a computerized record of changes of address maintained by the USPS. This database retains address changes for a thirty-six month period. As a limited licensee, the IRS will receive from the USPS a copy of the entire thirty-six month NCOA database. The IRS's copy of the NCOA database will be retained at the Martinsburg Computing Center (MCC) in Martinsburg, West Virginia. Additionally, the IRS will receive weekly updates to the NCOA database. The updates will contain the most recent changes of address submitted to the USPS. The IRS will update its copy of the full NCOA database with the most recent changes of address in the weekly update.

Beginning in January 2001, the IRS will access the NCOA database to update taxpayer address records maintained in the IRS's automated masterfile for purposes of updating the IRS's mailing list. The IRS plans to undertake two different procedures in order to assure the most comprehensive update of taxpayer addresses.

First, the IRS will compare taxpayer addresses in IRS's records to the most recent changes of address contained in the weekly updates to the NCOA database received from the USPS. To accomplish this, the IRS will use the USPS's FASTCheck system. The FASTCheck System works by comparing key elements of existing taxpayer address information maintained in IRS records to an extract of the same elements from the weekly updates to the NCOA. The key address elements used by IRS to detect possible matches include primary house number, secondary number, secondary designator, and nine digit zip code. If there is a match between the key address elements from IRS records and the key address elements from the weekly update to the NCOA database, the IRS will then compare the taxpayer's complete address information in IRS records to the full NCOA database to determine if there is a change of address for a taxpayer. If the taxpayer's name and last known address in IRS records match the taxpayer's name and old mailing address contained in the NCOA database, the new address in the NCOA database is the taxpayer's last known address, unless the IRS is given clear and concise notification of a different address. A match will only be made if the taxpayer's name in IRS records is the same, within certain tolerances, as is found in the NCOA database. There may be a delay of up to two to three weeks from the date a taxpayer notifies the USPS that his or her change of address is effective and the time the new address is posted to the IRS's automated masterfile.

In addition, the IRS plans to annually compare all taxpayer address records maintained in the IRS's automated masterfile with the full thirty-six month NCOA database for purposes of updating the IRS's mailing list. The IRS will begin comparing all taxpayer address records with the full NCOA database for the first time in January 2001. If the taxpayer's name and last known address in IRS records match the taxpayer's name and old mailing address contained in the NCOA database, the new address in the NCOA database is the taxpayer's last known address, unless the IRS is given clear and concise notification of a different address. As with the weekly updates, the names must be the same, within certain tolerances, in both the IRS's records and the NCOA database. Matching all taxpayer address records to the full NCOA database will take several months. The next annual update will be completed by September 30, 2002, and every September 30th thereafter if the IRS determines that subsequent annual updates are necessary in addition to the weekly updates.

For taxpayers who file joint income tax returns under section 6013, the IRS's automated masterfile is currently only able to retain one address. Beginning with the processing of tax year 2000 joint income tax returns, the IRS's automated masterfile will be able to retain a second address. Therefore, if the NCOA database contains change of address information for only one spouse from a joint return, the rules of this regulation will not apply to notices, statements, and other documents mailed before the processing of the taxpayers' tax year 2000 joint income tax return.

Commentators also suggested that these regulations refer to section 6672(b)(1) and section 4103. Because section 6672(b)(1) requires that the IRS mail notices to the taxpayer's last known address, a cross-reference under § 301.6672-1 has been added to these regulations. However, because section 4103 does not require the IRS to mail notices to the taxpayer's last known address, no cross-reference is necessary.

A third commentator suggested that the IRS coordinate these regulations with Rev. Proc. 90-18 (1990-1 C.B. 491). Rev. Proc. 90-18 will be updated to incorporate changes made by these final regulations and to provide rules for oral notification of a change of address, additional tax forms from which taxpayer addresses will be updated, and additional Internal Revenue Code sections that require a notice be sent to a taxpayer's last known address.

The commentator also asked what is the most recently filed return for purposes of § 301.6212-2(a) of the regulations, i.e., whether different returns filed by the same taxpayer will update the taxpayer's last known address. The rules provided in these regulations do not in any way alter the existing rules for updating a taxpayer's last known address from a filed return. Section 5.01 of Rev. Proc. 90-18 provides which returns will update a taxpayer's last known address under a social security number or an employer identification number. Therefore, an amended return filed on a Form 1040X with a different address from that which appeared on the taxpayer's previously filed Form 1040 will update the taxpayer's last known address of record with the IRS. However, a Form 941 filed by a Schedule C business would not update the address for the taxpayer's individual income tax account as the Form 941 is filed with an employer identification number and the individual income tax account is associated with the taxpayer's social security number.

Finally, as mentioned above, the commentator noted that accessing the NCOA database for IRS Service Center mailings but not for district office mailings might cause confusion for taxpayers. As the procedures for updating taxpayer addresses are modified by these final regulations, there is no longer any difference between Service Center and other field or area office mailings.

It has been determined that this Treasury decision is not a significant regulatory action as defined in Executive Order 12866. Therefore, a regulatory assessment is not required. It also has been determined that section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to these regulations, and because these regulations do not impose a collection of information on small entities, the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not apply. Pursuant to section 7805(f) of the Internal Revenue Code, the notice of proposed rulemaking preceding these regulations was submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small business.

The principal author of these regulations is Charles A. Hall of the Office of Associate Chief Counsel, Procedure and Administration (Administrative Provisions and Judicial Practice Division). However, other personnel from the IRS and Treasury Department participated in their development.

On December 30, 1977, the IRS and Treasury published in the Federal Register proposed regulations (42 FR 65204) and temporary regulations (42 FR 65152) under section 367(c) of the Internal Revenue Code. The principal purpose of these regulations, §§ 7.367(c)-1 and 7.367(c)-2, was to distinguish between the treatment of transfers described in section 367(c) before and after the enactment of the Tax Reform Act of 1976 (the Act) (90 Stat. 1634). Before enactment of the Act, transfers described in section 367(c) were subject to a ruling requirement. After enactment of the Act, transfers described in section 367(c) were within the scope of §§ 7.367(b)-1 through 7.367(b)-12. In light of the substantial time that has passed since enactment of the Act and, moreover, in light of the fact that §§ 1.367(b)-1 through 1.367(b)-6 have substantially superceded §§ 7.367(b)-1 through 7.367(b)-12, §§ 7.367(c)-1 and 7.367(c)-2 are no longer necessary and may be misleading.

The PBGC's regulations prescribe actuarial assumptions—including interest assumptions—for valuing and paying plan benefits of terminating single-employer plans covered by title IV of the Employee Retirement Income Security Act of 1974. The interest assumptions are intended to reflect current conditions in the financial and annuity markets.

Three sets of interest assumptions are prescribed: (1) A set for the valuation of benefits for allocation purposes under section 4044 (found in appendix B to part 4044), (2) a set for the PBGC to use to determine whether a benefit is payable as a lump sum and to determine lump-sum amounts to be paid by the PBGC (found in appendix B to part 4022), and (3) a set for private-sector pension practitioners to refer to if they wish to use lump-sum interest rates determined using the PBGC's historical methodology (found in appendix C to part 4022).

Accordingly, this amendment (1) adds to appendix B to part 4044 the interest assumptions for valuing benefits for allocation purposes in plans with valuation dates during February 2001, (2) adds to appendix B to part 4022 the interest assumptions for the PBGC to use for its own lump-sum payments in plans with valuation dates during February 2001, and (3) adds to appendix C to part 4022 the interest assumptions for private-sector pension practitioners to refer to if they wish to use lump-sum interest rates determined using the PBGC's historical methodology for valuation dates during February 2001.

For valuation of benefits for allocation purposes, the interest assumptions that the PBGC will use (set forth in appendix B to part 4044) will be 6.50 percent for the first 20 years following the valuation date and 6.25 percent thereafter. These interest assumptions represent a decrease (from those in effect for January 2001) of 0.20 percent for the first 20 years following the valuation date and are otherwise unchanged.

The interest assumptions that the PBGC will use for its own lump-sum payments (set forth in appendix B to part 4022) will be 4.75 percent for the period during which a benefit is in pay status, and 4.00 percent during any years preceding the benefit's placement in pay status. These interest assumptions represent a decrease (from those in effect for January 2001) of 0.25 percent for the period during which a benefit is in pay status and the seven-year period directly preceding the benefit's placement in pay status; they are otherwise unchanged.

For private-sector payments, the interest assumptions (set forth in appendix C to part 4022) will be the same as those used by the PBGC for determining and paying lump sums (set forth in appendix B to part 4022).

The PBGC has determined that notice and public comment on this amendment are impracticable and contrary to the public interest. This finding is based on the need to determine and issue new interest assumptions promptly so that the assumptions can reflect, as accurately as possible, current market conditions.

Because of the need to provide immediate guidance for the valuation and payment of benefits in plans with valuation dates during February 2001, the PBGC finds that good cause exists for making the assumptions set forth in this amendment effective less than 30 days after publication.

The PBGC has determined that this action is not a “significant regulatory action” under the criteria set forth in Executive Order 12866.

Because no general notice of proposed rulemaking is required for this amendment, the Regulatory Flexibility Act of 1980 does not apply. See 5 U.S.C. 601(2).

Section 1452 of the Safe Drinking Water Act (SDWA), 42 U.S.C. 300j-12, establishes a national DWSRF program to assist public water systems in financing the cost of drinking water infrastructure projects needed to achieve or maintain compliance with SDWA requirements and to further the public health objectives of the Act. Section 1452(g)(3) of the SDWA states that “the Administrator shall publish guidance and promulgate regulations as may be necessary to carry out the provisions of this section.”

On August 7, 2000, the EPA promulgated an interim final rule (65 FR 48286) which codified the DWSRF Program Final Guidelines (EPA-816-R-97-005) published on February 28, 1997. The interim final rule establishes: what States must do to receive a capitalization grant; what States may do with capitalization grant funds intended for infrastructure projects; what States may do with funds intended for set-aside activities; and the roles of both the States and EPA in managing and administering the program. Both the DWSRF Program Final Guidelines and the interim final rule were the result of a thorough stakeholder consultation process.

The interim final rule was effective on the date of publication in the Federal Register , but included a 60-day comment period to give interested parties an opportunity to comment. EPA indicated that comments would be considered and, if necessary, the Agency would issue a revised final rule changing the interim final rule to respond to comments. EPA received comments from 15 parties by the close of the comment period on October 6, 2000. After careful consideration of the comments received on the interim final rule, EPA has determined that it will not make changes to the interim final rule. Accordingly, the interim final rule is adopted as a final rule without change.

EPA received comments on the interim final rule from 15 parties representing a variety of interests. The majority of commentors represented State government and finance agencies that administer State DWSRF programs (10 commentors). Other commentors included trade associations (2 commentors); environmental/citizen groups (2 commentors); and a State association (one commentor). Commenters raised several key issues which are discussed below. The complete response to comments document has been established under Docket W-00-11 and is available for review.

Many of the comments that EPA received addressed issues that go beyond the scope of the interim final rule because they would involve changes to requirements found in the SDWA. Several commentors stated that the requirement that four percent of the allotment can be set aside for administration of the DWSRF program is insufficient for program administration oversight by States. This restriction on the amount of allotment that can be set aside for administration of the program is a requirement in section 1452(g)(2) of the SDWA. Several commentors stated that EPA should support extending the deadline for appropriations for the DWSRF program beyond fiscal year 2003 because of the success of the program. The preamble to the interim final rule reflects the language in section 1452(m) of the SDWA whereby Congress authorized appropriations for the DWSRF program through fiscal year 2003. One commentor stated that refinancing should be allowed for privately-owned systems and that the deadline for transfer of funds between the DWSRF and Clean Water SRF programs should be removed. The interim final rule reflects the provision in section 1452(f)(2) the SDWA which allows refinancing only for publicly-owned systems and the provision in section 302 of the SDWA that funds may not be transferred between the two SRF programs after September 30, 2001.

Several of the comments that EPA received asked for modifications to provisions that were discussed during development of the DWSRF Program Final Guidelines and which EPA indicated would not change as part of the rule development process. Specifically, five commentors disagreed with EPA's decision to include the requirement in the interim final rule that certain types of infrastructure projects are ineligible for assistance from the DWSRF program. One commentor agreed with EPA's decision. EPA maintains the position established during the development of the DWSRF Program Final Guidelines and reflected in the interim final rule that certain types of projects are ineligible for DWSRF program assistance because they do not further the objectives Congress set out in the SDWA to the same extent as other projects that are eligible.

EPA received mixed comments on the level of public involvement that the interim final rule should require for States to have in their DWSRF programs. Several commentors stated that the rule should have more stringent requirements for public review and comment on State DWSRF programs. For instance, one commentor indicated that the rule should require a State to do more proactive outreach and education to small and disadvantaged communities and that the rule should require a State to use a percentage of its State program management set-aside for public outreach during the development of its Intended Use Plan (IUP). Other commentors indicated that the rule requires too much public review and comment as part of the IUP process. For instance, one commentor indicated that the rule should not require State decisions on the use of the set-aside funds to go through public comment as part of the IUP process because public input is already received as part of the State budget process. EPA believes that the public involvement requirements in the interim final rule allow for a balance between the need for the public to have sufficient opportunities to provide input on State DWSRF programs and the need for States to implement their programs in an efficient manner.

Several of the comments EPA received reflected a misunderstanding of the provisions in the interim final rule. One commentor stated that the rule should not require a State to include in its Biennial Report a demonstration of how it is complying with operator certification and capacity development provisions to avoid withholding of funds. In actuality, the rule does not require a State to demonstrate in its Biennial Report how it is complying with the withholding requirements. The rule only requires a State to agree as part of its capitalization grant agreement that it will provide the annual program submittals that are required in the capacity development and operator certification programs. Several commentors stated that the provision to allow set-aside funds to be used for planning and design costs associated with infrastructure projects for small systems is too narrow and that it precludes a State from funding the development of comprehensive water system plans for systems of all sizes. In actuality, the language in the rule does not preclude a State from providing funds for the development of comprehensive water system plans as part of capacity development assistance since these would not be considered planning and design costs. Thus, a State could use the State program management set-aside to fund water system plans for systems of all sizes, not just small systems.

EPA received mixed comments on the level of stakeholder involvement provided for during the rule development process. Several commentors commended EPA for the level of stakeholder input on many policy matters in the rule and for the Agency's responsiveness to comments received on the rule. Other commentors stated that stakeholder involvement in the rule should have been broader and more inclusive. EPA believes that the interim final rule gives States a high degree of flexibility to operate their programs and is the result of a thorough stakeholder consultation process that went beyond what is required under the Administrative Procedures Act. The rule is primarily a codification of the DWSRF Program Final Guidelines which went through an extensive public comment and review process. Any additions or modifications to the Final Guidelines that are reflected in the rule went through rounds of public comment and revisions in memoranda, guidance documents, or were published in the Federal Register for comment. Stakeholders were also given multiple opportunities to provide comments during the rule development process and all comments received were carefully considered.

The Congressional Review Act, 5 U.S.C. 801 et seq., as added by the Small Business Regulatory Enforcement Fairness Act of 1996, does not apply because this action is not a rule, for purposes of 5 U.S.C. 804(3).

The NFIP enables property owners to purchase flood insurance which is generally not otherwise available. In return, communities agree to adopt and administer local floodplain management aimed at protecting lives and new construction from future flooding. Section 1315 of the National Flood Insurance Act of 1968, as amended, 42 U.S.C. 4022, prohibits flood insurance coverage as authorized under the National Flood Insurance Program, 42 U.S.C. 4001 et seq. , unless an appropriate public body adopts adequate floodplain management measures with effective enforcement measures. The communities listed in this document no longer meet that statutory requirement for compliance with program regulations, 44 CFR part 59 et seq. Accordingly, the communities will be suspended on the effective date in the third column. As of that date, flood insurance will no longer be available in the community. However, some of these communities may adopt and submit the required documentation of legally enforceable floodplain management measures after this rule is published but prior to the actual suspension date. These communities will not be suspended and will continue their eligibility for the sale of insurance. A notice withdrawing the suspension of the communities will be published in the Federal Register .

In addition, the Federal Emergency Management Agency has identified the special flood hazard areas in these communities by publishing a Flood Insurance Rate Map (FIRM). The date of the FIRM if one has been published, is indicated in the fourth column of the table. No direct Federal financial assistance (except assistance pursuant to the Robert T. Stafford Disaster Relief and Emergency Assistance Act not in connection with a flood) may legally be provided for construction or acquisition of buildings in the identified special flood hazard area of communities not participating in the NFIP and identified for more than a year, on the Federal Emergency Management Agency's initial flood insurance map of the community as having flood-prone areas (section 202(a) of the Flood Disaster Protection Act of 1973, 42 U.S.C. 4106(a), as amended). This prohibition against certain types of Federal assistance becomes effective for the communities listed on the date shown in the last column. The Associate Director finds that notice and public comment under 5 U.S.C. 553(b) are impracticable and unnecessary because communities listed in this final rule have been adequately notified.

Each community receives a 6-month, 90-day, and 30-day notification addressed to the Chief Executive Officer that the community will be suspended unless the required floodplain management measures are met prior to the effective suspension date. Since these notifications have been made, this final rule may take effect within less than 30 days.

National Environmental Policy Act. This rule is categorically excluded from the requirements of 44 CFR Part 10, Environmental Considerations. No environmental impact assessment has been prepared.

Regulatory Flexibility Act. The Associate Director has determined that this rule is exempt from the requirements of the Regulatory Flexibility Act because the National Flood Insurance Act of 1968, as amended, 42 U.S.C. 4022, prohibits flood insurance coverage unless an appropriate public body adopts adequate floodplain management measures with effective enforcement measures. The communities listed no longer comply with the statutory requirements, and after the effective date, flood insurance will no longer be available in the communities unless they take remedial action.

Regulatory Classification. This final rule is not a significant regulatory action under the criteria of section 3(f) of Executive Order 12866 of September 30, 1993, Regulatory Planning and Review, 58 FR 51735.

Paperwork Reduction Act. This rule does not involve any collection of information for purposes of the Paperwork Reduction Act, 44 U.S.C. 3501 et seq.

Executive Order 12612, Federalism. This rule involves no policies that have federalism implications under Executive Order 12612, Federalism, October 26, 1987, 3 CFR, 1987 Comp., p. 252.

Executive Order 12778, Civil Justice Reform. This rule meets the applicable standards of section 2(b)(2) of Executive Order 12778, October 25, 1991, 56 FR 55195, 3 CFR, 1991 Comp., p. 309.

Flood insurance, Floodplains.

Accordingly, 44 CFR part 64 is amended as follows:

The Transportation Equity Act for the 21st Century (TEA-21), Pub. L. 105-178, 112 Stat. 241 (1998), created the Transportation Infrastructure Finance and Innovation Act of 1998 (TIFIA). The TIFIA establishes a new Federal credit program to provide credit assistance to surface transportation projects. The TIFIA authorizes the Secretary to provide secured (direct) loans, lines of credit, and loan guarantees to private and public sponsors of eligible transportation projects.

Funding for TIFIA is limited; therefore, the projects to receive financial assistance will be selected on a competitive basis. In fiscal years 1999 through 2003, TIFIA authorizes $530 million to be appropriated from the Highway Trust Fund (other than the Mass Transit Account) for the Secretary to provide up to $10.6 billion of credit assistance to major surface transportation projects. The TIFIA authorizes the Secretary to select the recipients of credit assistance and to use up to $2 million of the budget authority provided each fiscal year for program administration.

The TEA-21 Conference Report stated, “To ensure the financial and programmatic success of TIFIA, the conference strongly encourages the Secretary to establish an organizational structure within the Department in which financial activities and programs can be closely coordinated and monitored.” In June 1999, consistent with the Conference Report language, the Secretary and the Administrators of the Federal Highway Administration (“FHWA”), the Federal Railroad Administration (“FRA”), and the Federal Transit Administration (“FTA”) entered into a Memorandum of Understanding (“MOU”) to manage the TIFIA program on an interim basis through the creation of a TIFIA Working Group.

In December 2000, the Secretary and the Administrators of FHWA, FRA, and FTA entered into an MOU, which amended and superseded the June 1999 MOU, to establish a TIFIA Joint Program Office (“TIFIA JPO”) to coordinate and manage the day-to-day activities associated with implementing the TIFIA statutory provisions. According to the 2000 MOU, the TIFIA JPO will organizationally be located within FWHA and will have a dual reporting structure. The TIFIA JPO will report to the Secretary for overall policy direction and key program decisions. The TIFIA JPO will report to the Federal Highway Administrator for coordination and management of day-to-day operations and funding matters.

In accordance with the December 2000 MOU, the Secretary is delegating his authority to operate and manage the financial assistance program under TIFIA to the Federal Highway Administrator. Operation and management of the program consists of the initial evaluation of each project, the negotiation and preparation of the legal documents necessary to consummate the transaction, and the continuing oversight of the project.

For instance, the Federal Highway Administrator will act as the Executive Agent for the TIFIA Program and will be responsible for managing the TIFIA funds, which are authorized to be appropriated from the Highway Trust Fund (other than the Mass Transit Account), with assistance from the other modal agencies and the TIFIA JPO. The Federal Highway Administrator will also manage specific accounting and budgeting activities to include: recording credit agreement obligations into the accounting system; preparing requests for and entering into loan agreements with the U.S. Treasury to borrow funds; receiving borrower requests (original documents) for fund disbursements; disbursing funds to borrowers; collecting and depositing payments from borrowers; making interest payments to the U.S. Treasury for borrowed funds; and satisfying other necessary budgetary and reporting requirements in accordance with the Federal Credit Reform Act (FCRA) and other relevant laws, regulations, and OMB guidelines.

Further, the Federal Highway Administrator will procure any necessary financial, legal, or other technical support services to assist in implementing and administering the TIFIA program and will execute all TIFIA credit instruments, including, but not limited to, term sheets, loan agreements, line of credit agreements, and loan guarantee agreements under delegated authority from the Secretary to the Federal Highway Administrator.

This delegation to the Federal Highway Administrator does not affect the authority or responsibility of the Secretary to develop credit policy and make the final selection of the projects receiving assistance. The Secretary and the Administrators of FHWA, FRA, and FTA intend to create a TIFIA Credit Council that will assist the Secretary in establishing overall policy direction and key program decisions for the TIFIA Program. The TIFIA Credit Council, with the approval of the Secretary, will select individual projects to receive TIFIA assistance, based on the analyses and recommendations of the TIFIA JPO. Formal membership of the TIFIA Credit Council will include the following: Assistant Secretary for Budget and Programs; Assistant Secretary for Transportation Policy; Director of the Office of Intermodalism; General Counsel; and, Administrators of FHWA, FRA and FTA. The TIFIA Credit Council will be chaired by the Assistant Secretary for Budget and Programs.

Since this amendment relates to Departmental organization, procedure, and practice, notice and comment on it are unnecessary under 5 U.S.C. 553(b). Efficient execution of the TIFIA JPO is instrumental to ensuring the financial and programmatic success of TIFIA. This delegation of authority assists the Federal Highway Administrator in establishing an organizational structure within the FHWA in which financial activities and programs can be closely coordinated and monitored. Further, since the amendment expedites the Department of Transportation's ability to meet the statutory intent of the Transportation Infrastructure Finance and Innovation Act of 1998, the Secretary finds good cause under 5 U.S.C. 553(d)(3) for the final rule to be effective on the date of publication in the Federal Register .

The Sacramento splittail (Pogonichthys macrolepidotus) , is the only large cyprinid that is endemic to California's Central Valley, where they were once widely distributed (Moyle 1976). Historically, splittail were found as far north as Redding on the Sacramento River, as far south as the present-day site of Friant Dam on the San Joaquin River, and as far upstream as the current Oroville Dam site on the Feather River and Folsom Dam site on the American River (Rutter 1908).

In recent times, dams and diversions have increasingly prevented upstream access to large rivers, and the species is now apparently restricted to a small portion of its former range (Moyle and Yoshiyama 1992). Splittail enter the lower reaches of the Feather (Jones and Stokes 1993) and American rivers (Charles Hanson, State Water Contractors, in litt. , 1993) on occasion; however, the species now is largely confined to the delta, Suisun Bay, Suisun Marsh, and Napa Marsh. The “Delta” refers to all tidal waters contained within the legal definition of the San Francisco Bay-Sacramento-San Joaquin River Delta, as delineated by section 12220 of the State of California's Water Code of 1969. Generally, the Delta is contained within a triangular area that extends south from the City of Sacramento to the confluence of the Stanislaus and San Joaquin rivers at the southeast corner and Chipps Island in Suisun Bay.

In recent years, splittail have been found most often in slow moving sections of rivers and sloughs and dead-end sloughs (Moyle et al. 1982, Daniels and Moyle 1983). Reports from the 1950s, however, mention Sacramento River spawning migrations and catches of splittail during fast tides in Suisun Bay (Caywood 1974). California Department of Fish and Game survey data indicate that the highest catches occurred in shallow areas subject to flooding. Historically, major flood basins, distributed throughout the Sacramento and San Joaquin valleys, provided spawning and rearing habitat. These flood basins have all been reclaimed or modified into flood control structures (bypasses). Although primarily a freshwater species, splittail can tolerate salinities as high as 10 to 18 parts per thousand (Moyle and Yoshiyama 1992).

On January 6, 1994, the Service published a proposed rule to list the splittail as a threatened species and requested public comment for 60 days (59 FR 862). The proposed rule constituted a 12-month finding that the petitioned action was warranted, in accordance with section 4(b)(3)(B) of the Act. The data in the proposed rule were based on a status report prepared for the Service by Meng in 1993. This status review used the same methodology as the peer-reviewed article published in the Journal of the American Fisheries Society.

On January 10, 1995, a second comment period was opened for 45 days, and a 6-month extension added to the final rulemaking time frame, in accordance with section 4(b)(6)(B)(I) of the Act. A moratorium on listing actions, imposed on April 10, 1995 (Pub. L. 104-6), was lifted on April 26, 1996. Severe funding constraints imposed by a number of continuing resolutions between November 1995 and April 1996 were followed by passage of the Omnibus Budget Reconciliation Act on April 26, 1996, allowing work to continue on various listing actions in accordance with fiscal year guidance that assigned priorities in a multi-tiered approach in accordance with section 4 of the Act (61 FR 64479). The guidance stated that handling emergency situations was the highest priority (Tier 1), and resolving the listing status of outstanding proposed rules was second highest priority (Tier 2). Processing of this proposed rule fell under Tier 2.

On May 18, 1998, a third comment period was opened for 60 days. This comment period was opened in response to requests by the California Department of Water Resources and the State Water Contractors. The basis of the requests concerned the collection of substantial data in the intervening period since 1995, regarding the abundance and distribution of the splittail. During this third comment period, the California Department of Fish and Game (CDFG) and the Department of Water Resources (DWR) objected to the proposed designation of the splittail as threatened, stating that the geographic distribution of the splittail was broader than previously believed and was being shown to expand as data continued to be gathered.

On May 29, 1998, Southwest Center for Biological Diversity filed a citizen suit alleging that the Service had failed to timely make a final determination on the listing and critical habitat designation of the splittail, consistent with the timeframes set forth in section 4 of the Endangered Species Act 4. By Order dated December 23, 1998, the court (Judge Gonzalez of the Southern District of California) ordered the Service to comply with section 4 listing requirements by February 1, 1999, after determining that the Service violated the Act's time limits for making a final listing determination (Order Granting Plaintiffs' Motion for Summary Judgment; Denying Defendants' Request for Stay, Southwest Center for Biological Diversity etc. v. Babbitt ).

On Monday, February 8, 1999, the Service published a final rule, listing the splittail as threatened under the Act. At that time, the Service determined that the splittail had declined by 50 percent; and was primarily threatened by changes in water flow and water quality resulting from the export of water from the Sacramento and San Joaquin rivers, periodic prolonged drought, loss of shallow-water habitat, introduced aquatic species, and agricultural and industrial pollutants.

Subsequent to the publication of the final rule, plaintiffs in the cases San Luis & Delta-Mendota Water Authority v. Anne Badgley, et al. and State Water Contractors, et al. v. Michael Spear, et al. commenced action in federal district court, challenging the listing of the splittail as threatened, alleging various violations of the Act and of the Administrative Procedure Act (5 U.S.C 551 et seq. ), specifically that the Service failed to use the best scientific and commercial data available; that the Service ignored all pre-1980 and post-1992 data available and that it used only selected data from the 1980-1992 period; that the Service did not publish a summary of the available data, which data the Service considered, and the relationship between the data and the Service's decision on the final rule; and that the final rule was promulgated by the Service in a manner that was arbitrary, capricious, and not in accordance with law, in that the splittail did not meet the definition of a threatened species as set forth in the Act.

On June 23, 2000, the court rendered summary judgment in the two cases in favor of the plaintiffs, finding that the Service's promulgation of the final rule listing the splittail as threatened was unlawful. On September 22, 2000, the court remanded the determination of whether or not the splittail is a threatened or endangered species to the Service. The court ordered the determination be completed within six months of the date of the remand order, and kept the rule in effect during that period.

By this notice, the Service is seeking information regarding the splittail's status, abundance and distribution, as well as information regarding issues identified by the court in its June 23, 2000, judgment.

The following text discusses the analysis the Service completed in the final rule, with additional analysis using 1998 and 1999 data, an updated threats analysis and how these threats may impact the splittail.

At the time of the final rule, the Service considered data made available to it up to and through the third commenting period. This included all the information that the Service received from the various agencies during the open comment periods and the additional data that were collected between 1993 to 1997. The Service based its analysis for the final rule on the 1995 Meng and Moyle paper entitled “Status of Splittail in the Sacramento-San Joaquin Estuary”, published in the Transactions of the American Fisheries Society, a peer reviewed journal. When an author submits a paper to a professional scientific journal, there are experts in the scientific community that anonymously review the submittals. Therefore, to be accepted in a professional journal, the paper is subjected to several reviews by an anonymous panel and the reviewers do not know who authored the paper. This, therefore, eliminates any bias or subjectivity that may occur in review and ensures papers submitted to professional journals are unbiased and scientifically sound.

The Meng and Moyle paper clearly explains the methodology which the Service used to determine splittail declines in abundance. They state:

At the time the final rule was written, this was the best scientific method available to the Service. No other methodology had nor has been presented before or since the publication of the final rule. The Meng and Moyle paper had been peer reviewed and accepted for publication in the Transactions of the American Fisheries Society, after rigorous scientific review by fisheries experts. Based on available information to date, the Service continues to believe that this methodology is the best scientific method to determine decline in abundance.

When determining whether splittail abundance indices had decreased over time, the Service considered data from (1) the fall mid-water trawl (FMWT), (2) Bay Study, (3) Suisun Marsh survey, and (4) Chipps Island survey. The FMWT survey is conducted in the upper Estuary by CDFG. It is one of the most comprehensive surveys for surveying fish in the Delta. The data have been collected from 1967 to the current time; with the exception of two years of data (1974 and 1979). The monthly midwater and otter trawl in the lower Estuary is conducted by CDFG (Bay study). Data for this survey have been collected from 1980 to the current time. The Service combined the midwater and otter trawl for the Bay study because the mid-water trawl samples juveniles and the otter trawl targets adults. By combining the data generated from the two sampling methods, any bias inherent in this sampling method for each life stage is evened out. The monthly otter trawl survey of Suisun Marsh is conducted by the University of California at Davis (Suisun Marsh survey). Data have been collected from 1979. The midwater trawl survey is conducted by the Service at Chipps Island in Suisun Bay (Chipps Island). This survey has been ongoing since 1976.

The summer townet and beach seine data were also available to the Service. However, neither of these surveys were used in the abundance decline analysis because the Service believes that the summer townet is inefficient in sampling splittail. It is inefficient because it is selective for a certain age class of splittail. The beach seine data were not used because several years of data are missing and the sample sites have changed over time; therefore this survey represents an inconsistent data set to be used to analyze abundance. However, both of these aforementioned data sets were used in the distribution analysis for this species.

The fish salvage data collected by CDFG and by the Bureau of Reclamation at the State and Federal pumping facilities located in the South Delta (fish salvage data) were used on an individual basis to determine if there were trends, and the directions of those trends, within these data collected. However, these salvage data were not used for overall decline analysis because collection of fish salvage data is not a survey method. It is not a survey method because take of this species is based on the location of the fish. In addition, it is highly selective to juveniles. Therefore, this method does not represent the population as a whole. There is also high variability of the number of fish taken based on project operations. For instance, if most of the population of splittail is temporarily in or centered around the San Joaquin River, then more is susceptible to take at the export facilities. However, splittail are not always found at the export facilities. When splittail are more evenly distributed, the export facilities do not give a good indication of the population as a whole.

In addition, the Service conducted an abundance analysis for each survey set which fit within the Services' abundance data criteria for splittail. These abundance criteria serve to ensure that data from specific surveys were scientifically and statistically reliable. To fit within these abundance data criteria, (1) data had to be collected for at least ten consecutive years, and (2) had to be relatively constant or (3) a core data set had to be available to extract for analysis. These criteria were identified in published literature and adopted by the Service in it rulemaking. In addition, data sets were chosen based on consistency in sampling method. For instance, the FMWT data prior to 1980 were excluded because this survey is missing data for two years prior to 1980 (1974, and 1979). The summer townet was not used for the abundance analysis due to the inefficiency in sampling splittail and because the sampling sites changed over time. The beach seine data were not used for the abundance analysis because several years of data are missing and the sample sites changed over time, rendering it an inconsistent data base.

Based on this methodology, the 1995 Meng and Moyle article calculated population trends for the splittail over 13 years, from 1980 to 1992. The Service then updated this analysis using the same methodology as Meng and Moyle, but including the data sets from 1993 through 1997. The 1998 data were not used in the final rule because at the time the final rule was prepared for surname, and even until the time of publication in February 1999, not all data for the four surveys (FMWT, Chipps Island, Suisun Marsh, and Bay study) had been compiled and/or submitted to the Service. Likewise for this notice, not all 2000 data have yet been compiled and/or submitted to the Service, hence the data that have been received are not incorporated into Table 1 (see below). Since the publication of the final rule in February 1999, the Service has analyzed and incorporated the 1998 and 1999 data in its abundance analysis (Table 1). The following is a breakdown of the abundance analysis, for all life stages, by survey method, as completed by Meng and Moyle, the Service in the final listing determination, and the Service with the addition of 1998 and 1999 data (Table 1).

The results of this abundance analysis are revealing. Between 1980 and 1992, splittail had experienced an overall decline of 62 percent. Based upon the updated data sets that include data through 1997, the splittail had experienced a significant overall decline in abundance by 48 percent. The results using the 1998 and 1999 data still demonstrate an overall decline of 32 percent and 33 percent, respectively. Based upon historical data, over the most lengthy study period (1980-1999), and based upon methodology critiqued by experts, the splittail still face an overall abundance decline of 33 percent.

To date, the Service has only received 2000 data on the fall mid-water trawl and these data are preliminary. However, the FMWT indices for splittail are as follows: September is zero and October is four. Based on historic fall midwater trawl data, these numbers appear to be at the low-end of the spectrum. However, all of the FMWT data are not available yet. The Service is not incorporating these data at this time into any analysis nor is the Service speculating on what these low numbers may mean for splittail abundance indices because these data are incomplete.

In addition to the abundance analysis, the Service conducted an analysis using CVP and SWP export facility data, commonly known as salvage data, depicted below (Table 2). As noted, there was an increase of splittail taken at the CVP and SWP export facilities using 1995 and 1998 data. It is the opinion of the Service that this increase in take was due to the exceptionally wet water years that occurred in 1995 and 1998, which resulted in a higher number of splittail. Take at the export facilities was exceptionally high during both years because in general, there are more fish in an aquatic system in wet years. The Service believes the high take for 1995 was related to the following factors: (1) It was the first extremely wet water year in several years; (2) the spawning distribution of splittail was located primarily in the San Joaquin River, exposing more fish to the export facilities; and (3) CVP and SWP exports were unusually high to take advantage of the high water flows. For 1998, the Service believes that take was high due to the location of splittail again in the San Joaquin River and the increased export operations of the export facilities associated with wet year hydrologies. Salvage data are not used in overall abundance analysis because salvaging is not a survey method.

It is erroneous to conclude that because more splittail were taken at the projects as reflected by the above later year analysis, that more splittial are present in the system. To reach such a conclusion discounts results of the studies conducted to determine actual abundance and the analysis which results from them (see Table 1). In addition to abundance decline, the Service conducted a “wet year” analysis using the Chipps Island survey data from 1980 to 1999. The Chipps Island survey was chosen because it surveys the area at the center of the historic distribution of the splittail. The Service believes that this survey is the most representative of splittail abundance. A decline in splittail in this area of historic distribution was evident through the wet years of 1993. In 1995, an extreme wet water year, the decline in wet water year abundance evident in those years through 1993, was no longer evident. However, since 1995, the wet water year indices for this survey are again low. Wet water years (such as 1995) are assumed to provide essential habitat for splittail by inundating the floodplain and allowing populations to rebound from dry water years, when there is less or no suitable spawning habitat. Successful reproduction in splittail is often highly correlated with wet water years. Large pulses of young fish were observed in wet water years 1982, 1983, 1986, and 1995. In 1995, one of the wettest years in recent history, an increase in the Chipps Island index, indeed in all indices was recorded, as in 1986, another wet water year following a dry water year. However, young of the year taken per unit effort (for example, either the number of fish per net that is towed or the number of fish per volume of water sampled) has actually declined steadily in wet water years, from a high of 12.3 in 1978 to 0.3 in 1993. The updated data (1998 and 1999) from CDFG demonstrate a similar decline in wet years, from 37.3 in 1978 to 0.6 in 1993. The abundance index of splittail calculated using Chipps Island survey data during the years of 1995, 1996, 1997, 1998, and 1999 were 44.5, 2.1, 2.6, 6.5, and 2.05 respectively. 1995 was an extreme wet year and splittail abundances were high (44.5). However, 1998 was another extreme wet year and the Chipps Island survey data indicate only a slight increase (from 2.6 to 6.5) as a result. For the wet water years 1996, 1997, and 1999, the abundance indices remained low (2.1 to 2.05). The Service agrees that in certain wet water years, splittail may have higher reproduction. However, outside of 1995, the indices in wet water years remain low.

In summary, the Service used an analytical method, indeed the only method presented to it, to determine splittail abundance. This method incorporated the four indices previously discussed and an overall analysis, the Chipps Island wet year analysis and salvage data. This method was peer-reviewed and published after rigorous scientific scrutiny by fishery biologists, in the Journal of the American Fisheries Society. The analysis utilizing this method demonstrates a decline in the overall abundance of splittail as well as a decline in three of the four surveys analyzed. In addition to the overall abundance analysis based upon the four independent surveys that demonstrate decline, the Chipps Island survey also demonstrates decline, even in wet water years. Since the decline continues, the Service is of the opinion that splittail are continuing a downward trend. This conclusion is reached using the same methodology and data (now updated through 1999), that were used and explained in the rule making process.

In addition to the abundance analysis, the Service conducted a threats analysis for the splittail. In the final rule we determined that the splittail was a threatened species due to a combination of the five factors that are described in the “Summary of Factors Affecting the Species” of the final rule (64 FR 5963) pursuant to section 4(a)(1) of the Act. An endangered species is a species which is in danger of extinction throughout all or a significant portion of its range. A threatened species is a species which is likely to become endangered within the foreseeable future throughout all or a significant portion of its range. Pursuant to section 4(a)(1) of the Act, the Secretary is required to list a species that he determines to be threatened or endangered because of one or more 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; or

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

At the time of the final rule, splittail were determined to be under threat by actions listed under all factors, except Factor B, and that the scope and magnitude of these threats were sufficient to warrant listing of the species as threatened. The final rule's analysis of the five threat factors is summarized below.

Threats to splittail were identified under Factor A, which refers to the present or threatened destruction, modification, or curtailment of a species habitat or range. Specifically, the Service determined that, at that time, the present operation of Federal, State, and private water development projects—entailing water storage, diversions and re-diversions, releases, export and agricultural return flows—destroyed splittail habitat.

Regarding Factor B, the Service determined that overutilization ( i.e., recreational and commercial harvest) was not known to be a factor affecting the splittail. Factor B was thus not considered in the final rule's determination of threatened status for the splittail.

The final rule identified the threats under Factor C, which refers to the risk presented by disease or predation, as significant. Disease was considered significant because of high incidences of adult splittail in poor health being captured in the State and Federal water project facilities in the south Delta. The south Delta is dominated by water from the San Joaquin River, where pesticides ( e.g., chlorpyrifos, carbofuran, and diazinon), salts ( e.g., sodium sulfates), trace elements (boron and selenium), and total dissolved solids are prevalent in agricultural runoff. In the final rule, threats of predation were considered minor because striped bass ( Morone saxatilis ) had coexisted with splittail for decades and because CDFG had forgone hatchery rearing and release of striped bass.

Factor D refers to the inadequacy of existing regulatory mechanisms. In the final rule, the suite of regulatory mechanisms were not considered to be adequate to protect the splittail. Implementation of ecosystem restoration-based programs ( e.g., Central Valley Project Improvement Act (CVPIA), CALFED Bay-Delta Program), while having beneficial elements, would not solely be sufficient to prevent the decline of the species. The splittail was without protection under the California Fish and Game Code.

Other natural or manmade factors affecting a species' continued existence were evaluated under Factor E. In the final rule, the Service evaluated the risk of drought, the lack of screened water diversions, poor water quality (contaminants), detrimental flood bypass operations, and invasive species and found that these factors were contributing to the decline of the splittail.

Based on the analysis of all five listing factors, threats to habitat and destruction of habitat, disease, the lack of protection, drought, water diversions, contaminants, project operations in concert with a clearly declining abundance, the Service determined that the splittail was likely to become endangered in the foreseeable future if those threats and current population trends continued. The species was thus listed as threatened.

Numerous threats under Factor A were discussed in the final rule and continue to remain. In addition, there have been numerous recent projects which have resulted in habitat loss due to construction of bank protection involving rock revetment, or riprap. Riprapping typically removes riparian and natural bank habitat features of a naturally functioning stream channel. Riparian and natural bank habitats are features that historically provided natural function to the stream banks and flood plains for splittail by providing spawning substrate, organic material, food supply, and cover from predators. Before the splittail was listed as a threatened species, vast stretches of the Sacramento and San Joaquin Rivers, their tributaries, and distributary sloughs in the Delta had been channelized and covered with rock revetment. This historic channelization and rock revetment precluded access to the historic flood plain that the splittail could otherwise utilize during periods of higher flow as spawning and rearing habitat.

Environmental restoration as a component of the CALFED Program would benefit the splittail, though some protection would not necessarily be ensured were the species not listed. For example, some protections provided by the Environmental Water Account would not be available for unlisted species. The Sacramento-San Joaquin Comprehensive Study, under joint development by DWR and the U.S. Army Corps of Engineers (USACE), may address restoration efforts but is also projected to include a substantial bank protection component. Further, the Comprehensive Study is only now engaged in early planning efforts and no specific projects have been identified as feasible.

Prior to the final rule and in the time since the final rule, USACE has placed or is proposing to place, rock revetment on a total of 130.6 acres of splittail habitat, and an additional 70.8 miles of suitable splittail habitat. To offset these negative effects, the USACE has restored, or is proposing to restore, up to 61.5 acres and 13.1 miles of suitable splittail habitat. These activities will result in a net loss of 69.1 acres and 57.7 miles of suitable splittail habitat. It is not known to what extent this will affect splittail abundance.

Projections of the current and future degree of riprapping within the range of the splittail do not include estimates of non-Federal riprap projects. The effect of this non-federally applied bank protection is addressed under Factor D, as it is related to the inadequacy of existing regulatory mechanisms.

A present threat may exist under Factor B. The Service is concerned that the recreational splittail fishery may be targeting gravid female splittail from within spawning areas and that the continued lack of protection in the State's Fish and Game Code will allow this fishery to expand such that it becomes significant. At this writing, however, recreational fishing is not considered by the Service to be a significant factor in the decline of the species.

Regarding Factor C, the Service has determined that predation remains a minor factor in the decline of the splittail. In the June 16, 2000, biological opinion on the issuance of a section 10(a)(1)(B) permit for the CDFG Striped Bass Management Program, the Service concluded that this activity would not jeopardize splittail if the conditions in the Habitat Conservation Plan were adhered to. The permit expires in 10 years, at which time the effects to listed species will be reexamined. Should other factors in the decline of the splittail, such as prolonged drought, occur during the permit period, the species could suffer predation beyond the level anticipated in the biological opinion. This could also require a reexamination of the permit.

Disease, considered under Factor C, is likely a more significant factor in the decline of the splittail than was known at the time of the final rule. The reason for the increased scope and magnitude of the threat posed by disease is the current understanding regarding the prevalence and effects of environmental contaminants on the splittail. The presence of environmental contaminants can weaken splittail to the point that they suffer from reduced disease resistance. Of specific concern are the threats posed by metals, mercury, selenium, and pesticides. The current status of information regarding the threat posed by environmental contaminants is addressed in detail under Factor E.

Threats to splittail described under Factor D, beyond those analyzed in the final rule remain. Since the publication of the final rule, regulatory mechanisms continue to remain inadequate to protect the species or its habitat. Splittail remain unprotected by the State of California under the Fish and Game Code.

The Service has determined that the CVPIA may benefit the splittail, but may not adequately protect the species. The Service also has determined that because of the multiple purposes of the CVPIA, flows provided by the CVPIA may occur at times of the year that might not benefit splittail, such as flows in the fall for salmon. Further, CVPIA implementation may involve retention of some water within reservoirs during the spring/early summer for cold water pool conservation and its subsequent release for meeting salmonid water temperature criteria. The retention of flows during the spring negatively affects splittail by reducing the frequency and duration of floodplain inundation, which is key for spawning and rearing success. Delta smelt protection offers little benefit because smelt occur in low frequencies or are absent in part of the splittail's range ( i.e., outside of the legally-defined Delta).

Though the CALFED Ecosystem Restoration Program Plan (ERPP) will have beneficial effects to splittail, provided the ERPP secures long-term funding, as currently described, it cannot be relied upon to ameliorate all threats to the splittail. The CALFED Program, though containing broad standards for covered activities, is also not a regulatory mechanism and does not necessarily preclude the implementation of non-CALFED Program actions harmful to splittail. The Environmental Water Account (EWA) does provide a mechanism for providing for improved Delta conditions for splittail. However, EWA benefits to splittail would be reduced should the species lose the protection afforded by the Endangered Species Act because Tier 3 protections apply only to listed species.

In addition, numerous, small scale bank protection projects have been implemented without section 404 permits throughout the range of the Sacramento splittail. Implementation of these unpermitted projects has effects similar to those described under Factor A, but given the inadequate enforcement of the Clean Water Act, they typically include no mitigative features. The result, when unauthorized activities including unpermitted bank protection projects, and sand and gravel extraction projects occur in streams within the splittail's range, is lost and/or degraded habitat for the species.

There also exists a risk to the splittail from the continued issuance of a number of Nationwide General Permits (NWPs), authorized under Section 404(e) of the CWA, by the USACE. Certain NWPs allow implementation of their permitted activities with the only regulatory oversight being provided through notification by the regulated entity to the USACE. The Service is especially concerned that NWP General Condition 11, which addresses take of listed species and identifies requirements for consultation with the Service, is not being implemented by applicants and that USACE enforcement of the condition is lacking.

Under Factor E, environmental contaminants (addressed briefly under Factor C, above) are a threat to the continued survival of splittail. Metals such as copper, zinc, and cadmium can be directly toxic to splittail, especially in their sensitive larval stages. These metals damage gills and alter liver and nervous system functions causing death, behavioral changes, and reduced growth and reproduction. These metals can have the same effects on food items of the splittail, reducing their prey base and placing additional stress on the splittail.

Literature exists which documents the existence of methylated mercury (primarily monomethyl mercury) in the Sacramento River and the estuary. Research by the USGS indicates that elevated levels of mercury in water, sediment, and biota are found throughout the Sacramento River, its tributaries, the Delta, and San Francisco Bay. The primary source of this contamination is from mercury mines in the Coast Range and from gold mines in the Sierra Nevada range.

Human health advisories have been issued for mercury in certain waterfowl and fish species from the Delta and San Francisco Bay. The levels at which human health advisories are issued are also levels at which deleterious effects on fish and wildlife can be expected. Splittail are relatively long-lived fish, five to seven years, making them more susceptible to mercury bioaccumulation than shorter-lived fish. Mercury accumulated in a female fish is transferred to the embryo where it causes reduced hatching, developmental abnormalities, reduced growth, and behavioral changes. Suchanek et al. (2000) investigated the role of wetland restoration involving re-flooding of mercury-contaminated soils.

There is concern that reestablished wetlands could become effective pathways for the introduction of toxic methyl mercury in the Delta. Ecosystem restorations at Clear Lake, a watershed which includes runoff from the Sulphur Bank Mercury Mine, threaten to introduce methyl mercury to Cache Creek and thus, to the Sacramento River. The Clear Lake splittail ( Pogonichthys ciscoides ), endemic to Clear Lake, is now extinct (64 FR 5963), though the role of mercury contamination in its decline is not known.

The Yuba River, a tributary to the Sacramento River via the Feather River, is the site of extensive deposition of historic hydraulic mining debris. Historic mining often involved the use of elemental mercury to amalgamate gold, and much was lost downstream. Current operations within the goldfields, whereby the sediments are dredged for gold, can liberate waste mercury back into the river system.

Continued operation of sand and gravel mines and dredging operations in these and other mercury-contaminated tributary streams threatens to liberate mercury presently stored in the alluvium and release it to the ecosystem, where it adversely affects the splittail.

Also regarding Factor E, and not previously analyzed, is the threat to the splittail posed by the synergistic interaction between introduced species and other environmental contaminants. Selenium concentrations in water from the lower San Joaquin River system are at levels that can cause bio-accumulation in fish species, which result in reproductive impacts. In 1998, in a rare occurrence, splittail were found in Mud Slough and Salt Slough (tributaries to the lower San Joaquin River). Composite samples of these fish from four sites were analyzed for selenium. At Mud Slough upstream of the San Luis Drain discharge, a composite sample of four splittail had a selenium concentration of 4.95 parts per million (ppm). At Mud Slough below the discharge, selenium in a composite of seven fish was 7.08 ppm while at a third Mud Slough site further downstream a two fish composite had 5.2 ppm. At Salt Slough, ten splittail were composited and had selenium at 3.19 ppm. The Service has determined, based on studies of its effects on salmonids, that negative effects of selenium on splittail begin to be seen at a level ranging from 3 to 9 ppm.

Selenium is readily bioaccumulated in the introduced Asiatic clam ( Potamocorbula amurensis ), the most common bivalve in the Delta. These clams have selenium concentrations ranging from 6 to 20 ppm, dietary concentrations known to cause severe reproductive problems in fish. These clams are, in turn, consumed by Sacramento splittail (Stewart et al. 2000). When splittail are exposed to this level of selenium a reduction in reproductive performance occurs, which results in poor post-hatch survivorship. This means that less splittail young are able to recruit to adulthood. The 1998 splittail data confirm that these fish are being exposed to harmful levels of selenium in their range along the San Joaquin River. Data presented by the U.S. Geological Survey and Stewart et al. (2000) at the CALFED Science Conference in October 2000 indicated selenium concentrations in the composite liver samples of splittail in Suisun Marsh at or nearing levels associated with adverse reproductive effects in fish.

The relationship between the bio-accumulation of selenium in the clam and its predation by splittail is synergistically worsened because the clam, via its predation on typical splittail prey items such as estuarine copepods ( Eurytemora affinis, and Acartia sp.) (Wimmerer and Pealva 2000), is emerging as an alternate food source for Delta fishes (Feyrer and Matern 2000).

The Chinese mitten crab ( Eriocheir sinensis ), initially addressed in the final rule, remains present within the Delta. Although the interaction between this species and the splittail remain largely unknown, it is still considered a threat. Crabs will continue to interfere with salvage operations at the Central Valley Project (CVP) and State Water Project (SWP). Further, the burrowing activities of the crab can weaken levees. Splittail habitat would be lost if the weakened levees were repaired and armored with traditional riprap. Nonnative, invasive, and harmful species likely will continue to be introduced to the splittail's range and may have adverse effects as described above.

Pesticides are also prevalent within the Delta and its tributaries due to runoff from agricultural lands and remain a threat. As with mercury and selenium, the long-lived, predatory splittail is highly susceptible to bioaccumulation of contaminants within the aquatic ecosystem. Over time, the splittail will exhibit reduced reproductive success, developmental abnormalities, reduced growth, and behavioral changes associated with the long-term exposure of the species to toxic chemical elements in the various streams throughout its range in the Central Valley.

The Service believes that the splittail may remain vulnerable to natural events such as drought, because of the consistent, overall decline in population indices and severely constricted range and distribution. Since the publication of the final rule, several large water diversions have been screened to prevent entrainment of splittail. Still, numerous, smaller diversions remain unscreened and/or operated in a manner that does not minimize the threat to splittail. Though the CALFED Program has identified screening as a priority, funding has not been secured, nor has any definitive implementation schedule or plan been formulated.

The variability of California's Mediterranean climate exacerbates the threats discussed above. Since the proposal to list the splittail, California has had relatively wet hydrologic conditions that benefit fish species. Because the splittail is a floodplain adapted species, a dramatic decline in abundance was demonstrated during the 1987-92 drought. When another drought occurs splittail indices will again invariably drop.

As the Service stated in the final rule, in the wet water year of 1993, splittail should have been able to exploit flood plain habitat for spawning and rearing. However, since the reservoirs were relatively empty in that year, the rainfall filled the reservoirs instead of inundating habitat for splittail. As a result, the improvements in splittail abundance typical of wet water years were not evident in any of the splittail indices for 1993. This reservoir operation scenario could be repeated and may be exacerbated by reservoir operations intended to retain cold water pools for salmonids.

Flood bypasses continue to be operated in a manner that harms splittail and their habitat. It has been documented that splittail use the Yolo and Sutter bypasses for spawning under certain hydrologic conditions. As recognized in the final rule, however, the bypasses are flood control facilities and are operated as such. The flood bypasses are only flooded when flows in the Sacramento River (Yolo Bypass) and Feather River (Sutter Bypass) reach a certain level. This inundation of the flood bypasses can occur at the wrong time of the year for splittail to take advantage of the spawning habitat. In addition, flooding of the bypasses may not occur for a long enough period of time to ensure successful splittail spawning. This constitutes a threat in that adult fish, having migrated to suitable spawning habitats in the bypass, could be denied the opportunity to spawn. In those cases where adult splittail have successfully spawned, the resulting progeny could become trapped and killed. There also exists an unquantified threat to developing splittail from agricultural pesticides applied to crops within the bypass.

In addition, the flood bypasses are not sufficiently contoured to ensure that fish can, as the water recedes, escape to the natural riverine and estuarine environment. As an example, in May 2000, up to 1,000 juvenile splittail were trapped in a less than 2-acre borrow pit pond within the bypass. This artificial, temporary pond, with egress originally intended to be constructed, serves as evidence that the various existing borrow pits, agricultural facilities, and other natural sinks are and can be expected to continue to be a source of splittail mortality.

In order for the bypasses to be considered a beneficial splittail spawning habitat, their threats to the species would need to be reduced substantially. Flood bypasses would need to be inundated for at least 30 continuous days between March and April, pesticide use would have to be assessed and possibly, regulated, and entrainment hazards would need to be reduced.

Also in regard to Factor E, and not addressed in the past, is the potential that interspecific competition is a threat to the splittail. Nonnative cyprinids and centrarchids, introduced into the splittail's range as bait and game fish, respectively, may occupy similar ecological niches, thus increasing competition for finite food resources. This threat is apart from the predatory pressure addressed under Factor C.

The splittail is on a downward trend as shown by the abundance analysis. The species is facing threats to its habitat including loss of spawning habitat due to rock revetment, loss of habitat due to poor water quality and water diversions, as well as other threats mentioned above. The Service is seeking comment on the relationship between the data available and the listing of the species as threatened. We are also taking comments on the threats and/or measures which reduce those threats to determine whether continued listing is warranted. Finally, we seek comment regarding abundance of the splittail.

The court requested that the Service provide a more thorough response to the California Resources Agency comments, specifically comments submitted by CDFG and DWR. The court also requested that the Service address other factors including the species population, range, abundance, and distribution. In addition, the court requested that the Service formally respond to the California Resources Agencies (CDFG and DWR) before making a final decision regarding the status of the splittail per section 4(I) of the Endangered Species Act. Section 4(I) states that when a state agency opposes a listing of a species by the Act, then the Federal agency shall write a letter to that state agency stating its decision. The Service shall respond to the state agencies if the Service determines that continued listing is warranted.

(1) The CDFG comments submitted in July 1998 discussed a long-term and medium-term abundance trend. The long-term trend was based on summer townet and fall mid-water trawl survey data. CDFG states that these long-term trend data are consistent in showing no long-term trend in splittail abundance. The medium-term trend was based on surveys that started in the mid-1970s or later. CDFG divided the data sets into “small” geographic areas and “broad” geographic areas. The data sets that were considered “small” were the CVP and SWP salvage data, Chipps Island Trawl, and the Suisun Marsh Survey data. The data sets that were considered “broad” were the Beach Seine, the Bay Study Otter and Midwater Trawl, and the FMWT.

The Service cannot determine what method the CDFG used to calculate its results, nor define its terminology. For instance, the Service cannot determine from the comment if there was an overall trend with the medium-term data. The Service cannot determine if the methods used in the paper submitted by the CDFG were peer-reviewed or if the method used by CDFG has been subjected to a statistical test. The Service seeks further information from CDFG explaining and defining its trend theory, and its calculations and methodology.

(2) The CDFG and DWR discuss the increased range of the splittail in the past years and speculate that splittail may remain upstream in the Sacramento River over the summer. These data are based on the capture of two (2) splittail in August of 1997, one at the Red Bluff Division Dam and one at the Glenn-Colusa Irrigation District. In addition, the CDFG cite sporadic and small numbers of splittail captured on the Sacramento River. CDFG states that this information constitutes an expansion of range. CDFG discusses splittial in the lower San Joaquin, Petaluma River, Napa Marsh, and Coyote Creek.

The Service acknowledges the presence of splittail in these areas during wet years and concurs that the splittail may use these areas during wet years. However, a few fish captured in these extreme areas does not constitute a viable population. These are questions relating to distribution for which the Service is seeking comments.

(3) DWR stated its belief that the 1998 data would prove to be an exceptional year for the splittail, without providing or referring to complete 1998 data (i.e., through December 1998). It then speculated on how 1998 would be a good year for splittail, based on numbers of take at the export facilities.

The Service determined that it would be unwise to speculate on data that were not complete at the time of the listing. However, now that we have the complete data sets for 1998, we re-analyzed the data and there is still an overall decline (using the four surveys) in abundance of splittail. In addition, the Resources Agency stated that the Service should withdraw the proposal to list the splittail, based on the preliminary results from 1998.

(4) DWR also commented on the resiliency of the splittail. The Service addressed the resiliency issue in the final rule. The term resilience is a relative term. Due to the larger body size, splittail may be more resilient than delta smelt to entrainment or impingement, for example, but they are less resilient than larger fish such as salmon. We agree with the statement that more than one year class of splittail may spawn at one time. However, spawning is not always successful. Spawning success is correlated with several factors, including wet water years, high Delta outflow, and the presence of flooded vegetation. If these parameters are not present, then the splittail may not successfully spawn and exhibit low recruitment to the population during later years.

(5) DWR and the State Water Contractors submitted additional comments by the CDFG in January 1999, six months after the close of the third comment period (July 1998), and after the final rule had been sent to Washington, D.C. for surname by the Directorate of the Service. A final rule is sent to Washington, D.C. only after it has been reviewed and revised as necessary by the Solicitor's Office and the California-Nevada Operations Manager. In any regard, the CDFG paper stated that 1998 resulted in record or near record age-0 splittail abundance for the summer townet, the FMWT, and the Bay study. These data could not be used for the Service's analysis because we used four data sets to complete the overall abundance decline and in July 1998 only two were available. We have subsequently used the complete 1998 data sets to perform an additional analysis, and our analysis shows a decline still present in the overall abundance of splittail. In addition, the CDFG re-iterated the expansion of the range of splittail, as it did in its July 1998 submittal. We responded to this comment in the final rule and previously in this document.

The court has also requested that we provide an estimate of the current population size of splittail; determine whether or why the current population size is inadequate to prevent extinction in the near future; determine the rate of population decline of splittail; and to identify the minimum viable population size.

The Service appropriately did not “calculate the risk of extinction” because there is no methodology of which we are aware for making such a calculation suitable for the splittail. Instead, the Service determined that the splittail was likely to become in danger of extinction within the foreseeable future. After evaluation of population status (abundance), the Service made the determination that the species would likely become endangered within the foreseeable future based upon an analysis of threats to the species. As the abundance information indicates, the species is in decline. There is no scientific formula for determining extinction. However, the threats analysis, which consists of an evaluation of the five listing factors, coupled with abundance decline led the Service to reach its professional conclusion that although not endangered, because extinction is not imminent, the species was threatened. The species habitat and health is continuously being and has been permanently impacted as a result of the threats identified herein.

On behalf of plaintiffs, Dr. Charles Hanson submitted a declaration to the court (Hanson Declaration) making several assertions regarding methods for estimating population size, population viability, minimum habitat requirements, and calculated rates of extinction for the splittail. The Service is familiar with each of these methods in general and would agree that these types of analyses may be appropriate for certain species. However, it is the Services's opinion that none of these methods are scientifically supportable for evaluating splittail, and therefore, would not provide useful indicators of splittail population health. The Hanson Declaration discusses the need for utilizing several analytical methodologies to evaluate the risk of extinction. Models such as those to which the Hanson Declaration may be referring are developed over time and, if using recognized modeling protocols, need validation and verification, and in addition, are species specific. Also, a critical assumption that must be developed to utilize analytical methods such as those to which the Hanson declaration may be referring is an absolute value of population size. Best available information indicates there is no absolute value of population size for this species. The Service is not aware of a model that now exists for this species, nor was such a model identified during the comment periods. No specific alternative methodology was described or presented during the comment period nor did the Hanson Declaration identify any model or methodology that could be used or modified to conduct such an analysis. As such, it is our opinion, the use of such a methodology is not scientifically justified for this species. The Service requests comment on the methods and models suggested by the Hanson Declaration.

Contrary to the Hanson Declaration, we do not believe that an analysis regarding population estimates would be appropriate for splittail. To develop a population estimate, one must be able to count individuals of the species and have confidence in the methodology, one must know how many are born; and how many may recruit to the population the next year. We are not aware of any scientifically supportable methods developed to date to count all individuals of splittail.

Additionally, the sampling methods utilized to capture splittail have not been refined enough to take a subset of individuals and extrapolate that number to the entire population range wide. As noted in both the Hanson Declaration and the Service's analysis, the population of splittail is represented in the form of an index. By definition an index is a representation of population levels, not an absolute number. This is the state of the science for splittail at this time.

Splittail do not effectively use the fish ladders that are in place for salmon, and whereas adult salmon can be counted during their upstream migration, adult splittail cannot be counted in this manner. The species has a low stock recruitment because of the environmental variation found throughout the Central Valley of California, and one cannot predict with any statistical significance, what will be a good year for splittail. In addition, splittail have a very poor stock recruitment relationship. That is to say one can not predict with any scientific certainty what the population of a species is by the number of juveniles produced in a given year. Nor can one predict with any certainty what the juvenile population in a given year would be, even if the adult spawning population was known. As such it is pure speculation to conduct a population viability analysis for this species.

There have been attempts to calculate a given population size during a specific snapshot in time. This kind of analysis is generally based on monitoring data that are very near term and thereby more reliable for developing a general indication of population size at that given time. Such an analysis can not be carried further as a predictor of overall population size or viability at some unknown time in the future because one can not predict the environmental variables which appear to control the reproductive success of this species.

The Hanson Declaration refers to the need to quantify the minimum habitat area required to avoid extinction. The Service prepared and finalized the Recovery Plan for the Sacramento/San Joaquin Delta Native Fishes in 1996, which specifically included splittail that was a proposed species at the time. There was substantial discussion of habitat requirements for splittail and, although the plan does not specifically quantify the minimum habitat area necessary, in part because it can not be scientifically determined, it does specifically quantify abundance criteria that would be necessary to consider delisting the species. In developing the recovery plan for the Delta native fishes the Service convened a recovery team. If sufficient scientific support were available to quantify the minimum habitat needs for the species, that information would have almost certainly been provided by the recovery team, of which Dr. Hanson was a member. The splittail is dependant on a highly variable ecosystem, both temporally and spatially. Habitat is but one component of that very complex ecological system that would lead the species to abundance levels necessary for such a consideration. An additional component to be considered to delist the splittail would be if the threats that lead to listing in the first place were no longer evident.

In the court order dated June 2000, it states that the Service has not shown a relationship between the data and the listing of the splittail, because we did not estimate a minimum viable population nor estimate a population size for the splittail. As previously indicated, the methods stated in the Hanson Declaration are not applicable to this species. There is no stock-recruitment relationship identified for this species. Therefore, such a biological measure cannot be used for splittail.

The Service is soliciting comment on the current population size of splittail, and how one could calculate that with statistical rigor; how the Service could determine whether the current population size is adequate or inadequate to prevent extinction in the near future; how it can determine the rate of population decline of splittail; and how it can identify the minimum viable population of the splittail.

The Service is also seeking comment on the relevance of a final CALFED decision in the context of how the implementation of the CALFED program will address, and the extent to which it will address, the threats to splittail. In addition, we are also seeking comment on any other environmental program, such as CVPIA, and how it may address the threats to the splittail.

The threats to the splittail could be affected by implementation of the CALFED Bay-Delta Program (CALFED Program). The Record of Decision (ROD) for the CALFED Program was signed in August 2000. The CALFED Program is a long-term comprehensive plan to restore ecosystems and improve water management for beneficial uses of the San Francisco Bay and Sacramento-San Joaquin River Delta (Bay-Delta). The CALFED Program was developed by 14 Federal and State agencies with management responsibilities in the San Francisco Bay and Sacramento-San Joaquin River Delta (Bay-Delta). These agencies seek to address issues in four problem areas—ecosystem quality, water quality, water supply, and levee system integrity.

Several components of the CALFED Program will influence the status of the splittail, including the Ecosystem Restoration Program Plan (ERPP), the Multi-Species Conservation Strategy (MSCS), the Water Quality Program Plan, and an Environmental Water Account. The ERPP and MSCS identify recovery goals for 44 species in the Bay-Delta region, including a goal to “Recover” the splittail. In the context of the CALFED Program the term “recover” means the program will implement all necessary measures, within its discretion, to recover the splittail, including implementation of Service recovery plans. The current agreements to provide assets for the EWA and $150 million annually for the ERPP extend only 4 years from the date the ROD was signed. Therefore, the programs and agreements embodied in the ROD for the CALFED Program have great potential to aid the recovery of the splittail.

The likelihood the CALFED Program will achieve its recovery objectives is influenced by available funding and the continuing agreement among the parties involved to fully implement the program. Agreements to fund the ERPP and provide assets for the EWA extend only four years from the date the ROD was signed, after which the CALFED program will need to be reevaluated. Full implementation of the 30-year program will require both State and Federal funding and is expected to require both annual appropriations by Congress and continued funding by the State of California. To date, Congress has not appropriated funding for Federal responsibilities under the CALFED Program for fiscal year 2001. Therefore, the program will be funded solely by State funding sources (including, but not limited to propositions 204, 12, and 13).

In addition, the Service it seeking comment on Implementation of the Central Valley Project Improvement Act (CVPIA). CVPIA provisions potentially can affect threats to the splittail. The CVPIA amends previous authorizations of the California Central Valley Project (CVP) to include fish and wildlife protection, restoration, and mitigation as project purposes having equal priority with irrigation and domestic water supply, and fish and wildlife enhancement having equal priority with power generation. Provisions of the CVPIA to benefit fish and wildlife habitat include protection and restoration of natural channel, riparian, and wetland habitats [sections 3406(b)(1) and 3406(d)], dedication and management of 800,000 acre-feet of CVP yield [section 3406(b)(2)], acquisition of additional water supplies to supplement the amount dedicated [section 3406(b)(3)], modification of CVP operations [sections 3406(b)(1) and 3406 (b)(19)], removal of fish migration barriers [sections 3406(b)(10) and 3406(b)(17)], screening of water diversions [section 3406(b)(21)], and acquisition of land and associated water rights [section 3408(h)], among others.

None of the CVPIA provisions specifically target splittail and, to date, no actions have been implemented under the CVPIA specifically to benefit this species. Because major portions of the CVPIA target anadromous fish, most of the benefits to splittail would be incidental to actions taken to benefit anadromous fish. Splittail can benefit from shaded streamside habitat and wetlands resulting from stream channel, riparian, and wetland habitat improvements within the splittail's spawning range. Management of dedicated, supplemental, and reoperated CVP yield can benefit splittail if water releases are made at times and locations that coincide with splittail spawning and rearing, and if the releases are adequate to flood vegetated areas adjacent to stream channels. Removal of migration barriers can provide additional splittail habitat where potential habitat is blocked, and entrainment of splittail at diversions can be reduced if fish screens are installed in splittail habitat areas.

All CVPIA mitigation and restoration actions are contingent on available funding. Funding sources include the CVPIA Restoration Fund, state funds provided to meet CVPIA cost share requirements, and additional Federal funds appropriated by Congress. The total annual funding projected for the CVPIA's preferred alternative was about $90 million, but these funds are not guaranteed and will require appropriation by pertinent state and Federal governments.

The Service is taking comments on the CALFED, CVPIA, and any other environmental process and how they may or may not alleviate some of the threats that are facing the species.

Written comments on all of the above issues may be submitted until February 12, 2001 to the Service office in the ADDRESSES section.

Author: The primary authors of this notice are Stephanie Brady and Jason Douglas (see ADDRESSES section).

A complete list of all references cited in this notice is available upon request from the Sacramento Fish and Wildlife Office (see ADDRESSES section).

The authority for this action is the Endangered Species Act of 1973 (16 U.S.C.1531 et seq. )