This administrative rule is governed by the provisions of Sections 556 and 557 of Title 5 of the United States Code and, therefore, is excluded from the requirements of Executive Order 12866.

This interim rule has been reviewed under Executive Order 12988, Civil Justice Reform. This rule is not intended to have retroactive effect. This rule will not preempt any state or local laws, regulations, or policies, unless they present an irreconcilable conflict with the rule.

The Agricultural Marketing Agreement Act of 1937, as amended (7 U.S.C. 601-674), provides that administrative proceedings must be exhausted before parties may file suit in court. Under Section 608c(15)(A) of the Act, any handler subject to an order may request modification or exemption from such order by filing with the Department a petition stating that the order, any provision of the order, or any obligation imposed in connection with the order is not in accordance with the law. A handler is afforded the opportunity for a hearing on the petition. After a hearing, the Department would rule on the petition. The Act provides that the District Court of the United States in any district in which the handler is an inhabitant, or has its principal place of business, has jurisdiction in equity to review the Department's ruling on the petition, provided a bill in equity is filed not later than 20 days after the date of the entry of the ruling.

In accordance with the Regulatory Flexibility Act (5 U.S.C. 601 et seq.), the Agricultural Marketing Service has considered the economic impact of this action on small entities and has certified that this interim rule will not have a significant economic impact on a substantial number of small entities. For the purpose of the Regulatory Flexibility Act, a dairy farm is considered a “small business” if it has an annual gross revenue of less than $750,000, and a dairy products manufacturer is a “small business” if it has fewer than 500 employees. For the purposes of determining which dairy farms are “small businesses”, the $750,000 per year criterion was used to establish a production guideline of 500,000 pounds per month. Although this guideline does not factor in additional monies that may be received by dairy producers, it should be an inclusive standard for most “small” dairy farmers. For purposes of determining a handler's size, if the plant is part of a larger company operating multiple plants that collectively exceed the 500-employee limit, the plant will be considered a large business even if the local plant has fewer than 500 employees. For purposes of determining a handler's size, if the plant is part of a larger company operating multiple plants that collectively exceed the 500 employee limit, the plant will be considered a large business even if the local plant has fewer than 500 employees. In October 2001, there were 11,120 producers pooled on and 40 handlers regulated by the Mideast order. Based on these criteria, the vast majority of the producers and handlers would be considered small businesses. The adoption of the amended pooling standards serve to revise and establish criteria that ensure the pooling of producers, producer milk, and plants that have a reasonable association with, and are consistently serving, the fluid milk needs of the Mideast milk marketing area. Criteria for pooling milk are established on the basis of performance standards that are considered adequate to meet the Class I fluid needs of the market, and determine those that are eligible to share in the revenue that arises from the classified pricing of milk. Criteria for pooling are established without regard to the size of any dairy industry organization or entity. The criteria established are applied in an equal fashion to both large and small businesses.

Prior documents in this proceeding:

Notice of Hearing: Issued September 21, 2001; published September 28, 2001 (66 FR 49571).

Tentative Final Decision: Issued June 4, 2002; published June 11, 2002 (67 FR 39871).

The findings and determinations hereinafter set forth supplement those that were made when the Mideast order was first issued and when it was amended. The previous findings and determinations are hereby ratified and confirmed, except where they may conflict with those set forth herein.

The following findings are hereby made with respect to the Mideast order:

(a) Findings upon the basis of the hearing record. Pursuant to the provisions of the Agricultural Marketing Agreement Act of 1937, as amended (7 U.S.C. 601-674), and the applicable rules of practice and procedure governing the formulation of marketing agreements and marketing orders (7 CFR Part 900), a public hearing was held upon certain proposed amendments to the tentative marketing agreement and to the order regulating the handling of milk in the Mideast marketing area.

Upon the basis of the evidence introduced at such hearing and the record thereof it is found that:

(1) The Mideast order, as hereby amended on an interim basis, and all of the terms and conditions thereof, will tend to effectuate the declared policy of the Act;

(2) The parity prices of milk, as determined pursuant to Section 2 of the Act, are not reasonable in view of the price of feeds, available supplies of feeds, and other economic conditions which affect market supply and demand for milk in the marketing area, and the minimum prices specified in the order, as hereby amended on an interim basis, are such prices as will reflect the aforesaid factors, insure a sufficient quantity of pure and wholesome milk, and be in the public interest; and

(3) The Mideast order, as hereby amended on an interim basis, regulates the handling of milk in the same manner as, and is applicable only to persons in the respective classes of industrial and commercial activity specified in, a marketing agreement upon which a hearing has been held.

(b) Additional Findings. It is necessary and in the public interest to make these interim amendments to the Mideast order effective August 1, 2002. Any delay beyond that date would tend to disrupt the orderly marketing of milk in the aforesaid marketing area.

The interim amendments to this order are known to handlers. The final decision containing the proposed amendments to this order was issued on June 4, 2002.

The changes that result from these interim amendments will not require extensive preparation or substantial alteration in the method of operation for handlers. In view of the foregoing, it is hereby found and determined that good cause exists for making these interim order amendments effective on August 1, 2002. It would be contrary to the public interest to delay the effective date of these amendments for 30 days after their publication in the Federal Register . (Sec. 553(d), Administrative Procedure Act, 5 U.S.C. 551-559.)

(c) Determinations. It is hereby determined that:

(1) The refusal or failure of handlers (excluding cooperative associations specified in Sec. 8c(9) of the Act) of more than 50 percent of the milk, which is marketed within the specified marketing area, to sign a proposed marketing agreement, tends to prevent the effectuation of the declared policy of the Act;

(2) The issuance of this interim order amending the Mideast order is the only practical means pursuant to the declared policy of the Act of advancing the interests of producers as defined in the order as hereby amended;

(3) The issuance of the interim order amending the Mideast order is favored by at least two-thirds of the producers who were engaged in the production of milk for sale in the marketing area.

Bovine tuberculosis (tuberculosis) is a contagious, infectious, and communicable disease caused by Mycobacterium bovis . It affects cattle, bison, deer, elk, goats, and other warm-blooded species, including humans. Tuberculosis in infected animals and humans manifests itself in lesions of the lung, bone, and other body parts, causes weight loss and general debilitation, and can be fatal. At the beginning of the past century, tuberculosis caused more losses of livestock than all other livestock diseases combined. This prompted the establishment of the National Cooperative State/Federal Bovine Tuberculosis Eradication Program for tuberculosis in livestock. Through this program, the Animal and Plant Health Inspection Service (APHIS) works cooperatively with the national livestock industry and State animal health agencies to eradicate tuberculosis from domestic livestock in the United States and prevent its recurrence.

Federal regulations implementing this program are contained in 9 CFR part 77, “Tuberculosis” and in the “Uniform Methods and Rules—Bovine Tuberculosis Eradication” (UMR), January 22, 1999, edition, which is incorporated by reference into the regulations in part 77. Additionally, the regulations in 9 CFR part 50 (referred to below as the regulations) provide for the payment of indemnity to owners of certain animals destroyed because of tuberculosis, in order to encourage destruction of animals that are infected with, or at significant risk of being infected with, the disease.

In this interim rule, we are adding provisions to part 50 of the regulations to allow APHIS to make payments to owners of dairy cattle and other property in the area of El Paso, TX, in connection with the disposal of their herds and dairy operations, under the condition that the owners agree to dispose of their herds, close their existing dairies and refrain from establishing new cattle breeding operations in the area. The provisions of this interim rule apply to owners of dairy herds and other property only within a specified area in Texas. All other animals in the United States destroyed because of tuberculosis will continue to be eligible for indemnity in accordance with the existing regulations. To make this clear, we are designating the existing regulations in part 50 as subpart A, and are designating the provisions we are adding in this interim rule (new §§ 50.17 through 50.22) as subpart B of part 50. Additionally, we are adding language to § 50.2 to make clear our intent.

The action we are taking in this interim rule is part of a cooperative plan with the State of Texas to create a buffer zone along the United States-Mexico border that will contain no cattle that are at significant risk of being infected with tuberculosis. Since 1985, State animal health officials in Texas, along with APHIS, have been taking measures to eliminate tuberculosis in dairy herds in the El Paso area. (Tuberculosis has been diagnosed in only one herd of beef cattle in the area, and that infection was due to an infected steer from Mexico that was added to the herd. We believe the lack of tuberculosis infection in beef cattle is due to the relatively short time such cattle remain on a premises, compared to dairy cattle.) As a result of these eradication efforts, dairy herds in the El Paso area have become free of tuberculosis, only to be reinfected despite the application of sound agricultural practices designed to prevent reintroduction of the disease.

Recent epidemiological findings, including the DNA fingerprinting of tuberculosis isolates, have indicated that the reinfection of the dairy herds near El Paso is strongly correlated with the proximity of tuberculosis-infected herds in the area of Ciudad Juarez, Mexico. Based on this evidence, we consider it likely that any dairy herds that remain in the El Paso area will continue to be reinfected with tuberculosis, despite U.S. efforts to eradicate the disease.

Because of this situation, APHIS, in conjunction with State animal health officials in Texas, has determined that, in order to further the eradication of tuberculosis in the United States, it is necessary to remove all bovine dairy herds from the El Paso area. To make this possible, APHIS has secured funding to make payments to the owners of those dairy operations, including payments to owners for the loss of their animals and other property, for the cessation of their dairy operations, for the cessation of the use of their dairy properties for dairy operations, and for relocation of a dairy facility.

New § 50.17(a) provides that owners of dairy operations, including owners of dairy herds and other property, will be eligible for payment under the provisions of this rule if they meet all applicable requirements of the regulations and if their herds are located in the area in Texas circumscribed by the following boundaries: Beginning at the point where the Hudspeth-El Paso County line intersects U.S. Highway 62; then west along U.S. Highway 62 to the El Paso Toll Bridge; then southeast along the Rio Grande River to the Fort Hancock-El Porvenir Bridge; then northeast along spur 148 to Interstate 10; then northwest along Interstate 10 to the Hudspeth-El Paso County line; then north along the Hudspeth-El Paso County line to the point of beginning.

New § 50.17(b) provides that, to be eligible for payment under this interim rule, all owners of dairy operations, including owners of dairy herds and other property, within the area described above under the heading “Eligibility for Payment” must sign and adhere to an agreement with APHIS to do the following:

• Cease all dairy operations within the described area, and dispose of all sexually intact cattle on the dairy operation premises, no later than 2 years after all eligible owners have signed their respective agreements;

• Conduct no dairy farming or other dairy activity, including the rearing of any breeding cattle, but not including the grazing or feeding of steers and spayed heifers intended for terminal market, within the area described above until the described area and the adjoining area of Mexico have been declared free of bovine tuberculosis, as determined epidemiologically by APHIS, but in any event for a period of not less than 20 years after all eligible owners have signed their respective agreements;

• Allow a covenant to be placed on the property where the dairy operations were conducted that will prevent the establishment of any cattle breeding operations (not including the grazing or feeding of steers and spayed heifers intended for terminal market) on the premises until the described area and the adjoining area of Mexico have been declared free of bovine tuberculosis, as determined epidemiologically by APHIS, but in any event for a period of not less then 20 years after all eligible owners have signed their respective agreements;

• Maintain responsibility for all cattle on the premises used in the dairy operation until those animals are removed from the premises;

• Make all arrangements for the removal of all sexually intact cattle from the premises; and

• Notify APHIS officials of the intended removal of all sexually intact cattle from the premises and provide APHIS officials with the opportunity to monitor and evaluate the removal operations.

• Such other terms, provisions, and conditions as agreed by each owner and APHIS.

There are approximately 12,200 dairy cattle in the described El Paso area. We are providing up to 2 years for owners to dispose of all cattle from dairy operations in the area to minimize any economic effects such disposal might otherwise have on the beef industry in that region.

We are requiring a minimum 20-year period without cattle breeding operations because reinfection of herds in the El Paso area has been linked to the existence of tuberculosis in nearby regions of Mexico, and we consider 20 years to represent a minimum reasonable time frame for the eradication of tuberculosis from those Mexican regions. Additionally, we believe it will take at least 20 years of heightened surveillance in the United States to confirm what we anticipate to be the complete eradication of tuberculosis in livestock in the United States in the next several years. Until that eradication is confirmed, we believe it is necessary to continue to prohibit the breeding of cattle in the El Paso region.

New § 50.17(c) provides that we will make payments for cattle and other property based on the following rates:

• For milking cows, an amount not to exceed $2,922 per animal; and

• For heifers, an amount not to exceed $834 per animal.

We used the income approach to determine the value to be paid for disposal of the herds and the cessation of dairy operations and the cessation of use of the properties for dairy operations. We calculated the net present value (NPV) of a milking cow. To calculate the NPV, we used discounted cash flow analysis, which takes into account the quantity, variability, and duration of the forecasted income stream over a specified income projection period, assuming 15 years' worth of expected remaining life of the dairy facility.

The valuation model can be expressed in the following equation form, where r = discount rate, I = annual income per cow, and y = number of years in the discount period:

To calculate NPV using the above equation, we had to determine the annual income per cow, the discount rate, and the number of years income is paid. We discuss each of these factors below. For more information regarding our analysis, please contact Terry Disney, APHIS Center for Epidemiology and Animal Health, at 970-490-8000.

Annual income per milking cow. There was some variation in the actual annual net income per milking cow over the past several years among the dairy operations in the El Paso area. Taking this variation into account, we used $320 as the annual net income per milking cow.

Discount rate. The discount rate used in the present value calculation is 7 percent, which is the risk-adjusted rate estimated to be appropriate in this situation.

Number of years income is paid. For the purposes of our equation, we used a term of 15 years.

Difference between discounted fair market value and salvage value . We added a small differential (just under $8 per head) to the NPV to account for the difference between the fair market value of the milking cow discounted over 15 years (because our income calculations assumed that the size of the milking cow herd would remain constant for 15 years) and the amount we estimated the owner would receive as salvage for a dairy cow that was sent to slaughter.

Value of heifers . Some of the dairy operations in the El Paso area include heifers that are not yet being used for milk production. We calculated the value of such heifers by subtracting from the present fair market value of each heifer the amount an owner could expect to receive if the heifer were sold for slaughter.

New § 50.17(d) provides that any dairy cattle added to a premises after the date an owner has signed the agreement discussed above will not be eligible for payment and must be disposed of within 2 years after all eligible owners have signed the agreement.

New § 50.17(e) provides amounts for additional payments for two dairy facilities located within the geographic area covered by this interim rule.

Paragraph (e)(1) of § 50.17 provides for payment for relocating the equipment of a reverse osmosis plant. This plant removes water from milk. The plant was located on the premises of one of the dairy farms within the area covered by this interim rule. It would no longer be a viable operation at that location because of the removal of all dairy herds in the area. APHIS will pay the documented costs of relocating the plant's equipment to a location outside the area covered by this interim rule, up to a maximum of $675,000.

Paragraph (e)(2) of § 50.17 provides for payment for the permanent closure of a fluid milk processing plant that is located within the area covered by this interim rule. The fluid milk processing plant processes fresh milk. In determining the amount of payment that will be made for the processing plant, we used the following formula, where Cost G = amount to be paid by APHIS; ebitd = annual earnings before interest, taxes, and depreciation; and x = the industry standard multiple that is paid for similar businesses (an industry standard multiple takes into account the potential effects on the sale of a company of factors such as the age of the facility, its profitability, and the desirability of markets):

In applying this formula to the fluid milk processing plant, we considered ebitd to be the average of the plant's last 4 years' earnings, as shown on the company's tax records. We estimated the industry standard multiple in this case to range from 4.5 to 5.25. We based salvage value on appraisals, and we also estimated goodwill ( e.g., the value of name recognition and customer base and loyalty). Using these figures, we determined that an amount not to exceed $950,000 was appropriate for the permanent closure of the milk processing plant.

APHIS will make payment to the owners of the fluid milk processing plant in the same manner and at the same times, on a pro rata basis, as we make payments to such owners for their dairy cattle and other property.

In order to allow for traceback, if necessary, of cattle disposed of under this interim rule, we are providing in new § 50.18(a) that all cattle so disposed of must travel from the premises of origin to their final destination with an approved metal eartag, supplied by APHIS or the State representative, bearing a serial number and attached to each animal's left ear.

New § 50.18(b) provides that cattle disposed of in accordance with this interim rule must be shipped under permit either (1) directly to slaughter at a Federal or State inspected slaughtering establishment or (2) directly to a livestock market and, under the supervision of an APHIS representative or State representative, through a livestock market pen that is dedicated to and marked exclusively for use for animals moved to slaughter, and then directly to slaughter at a Federal or State inspected slaughtering establishment.

In order to confirm that dairy cattle affected under this interim rule are disposed of in some way, we are requiring in new § 50.19 a report of the salvage derived from the sale of each animal for which a claim for payment is made. We are requiring that the salvage form be one that is acceptable to APHIS and that is signed by the purchaser or by the selling agent handling the animals. If the cattle are sold by the pound, the salvage form must show the weight, price per pound, gross receipts, expenses if any, and net proceeds. If the cattle are not sold on a per-pound basis, the salvage form must show the net purchase price of each animal, accompanied by an explanation showing how that amount was derived. If the animals are not disposed of through regular slaughterers or through selling agents, the owner must furnish, in lieu of the salvage form, an affidavit showing the amount of salvage obtained by him or her and must certify that the amount is all he or she has received or will receive as salvage for the animals. The original of the salvage form or the affidavit of the owner must be furnished to the veterinarian in charge within 3 months of the destruction of the animals, if it is not already in his or her possession. Disposal of cattle by burial, incineration, or other means must (1) be supervised by an APHIS or State representative, who will prepare and transmit to the veterinarian in charge a report identifying the animals and showing their disposition; or (2) be documented by an affidavit of the owner identifying the animals and describing their disposition, a copy of which must be provided to the veterinarian in charge within 3 months of the destruction of the animals. The salvage form, disposal certificate, or affidavit will be for information purposes only and will have no effect on the amount of any payment due.

New § 50.20 sets forth procedures an owner must follow to submit a claim for payment. In order to coordinate claims, the timing for all claims for payment is based upon disposal of cattle, regardless of whether the payments are attributable to cattle or other property as agreed to by APHIS and the owner. These provisions are largely the same as those set forth in § 50.12 of the existing regulations for claiming indemnity for cattle, bison, captive cervids, or swine destroyed because of tuberculosis.

Under subpart B of part 50, claims for payment must be presented on payment claim forms furnished by APHIS. The payment claim forms may be obtained from the APHIS veterinarian in charge. On the claim form, the owner of the animals or other property must certify that the animals or other property are, or are not, subject to any mortgage. If the owner states that there is a mortgage, the claim form must be signed by the owner and by each person holding a mortgage, who must agree that the person specified on the claim form may receive any payment due. The APHIS veterinarian in charge or the official designated by the veterinarian in charge will record on the claim form the amount of payment that appears to be due the owner, and the owner will be furnished a copy of the APHIS payment claim form. The veterinarian in charge or official designated by the veterinarian in charge will then forward the APHIS payment claim form to the appropriate APHIS official for further action on the claim. Section 50.20 provides that the Department will not pay any costs arising from the holding of the animals pending slaughter or for trucking or other transportation costs, yardage, commission, slaughtering charges, or for any other costs related to having the cattle slaughtered.

New § 50.21 provides that we will make payments at 90-day intervals, with the first payment to be made no earlier than 30 days after all owners eligible for payment have signed their respective agreements as required under § 50.17(b) of this interim rule. The Department will determine the amount to be paid to each owner in each payment by multiplying the total agreement amount for that owner by a fraction arrived at by dividing the initial census number of dairy cattle for the respective owner into the number of dairy cattle that have been removed from the owner's herd during that payment period. From this amount, 10 percent will be withheld until all animals in the herd have been disposed of and the requirements of this subpart have been met. The payments to owners of property other than animals will be determined by multiplying the total agreement amount for that other property times the same ratio that is used for the herd that is related to that other property, minus the 10 percent withholding.

We will not make final payments until the premises used for dairy operations have been without sexually intact cattle for at least 30 days and have been inspected by APHIS officials and been found to be free of manure, except for non-solid areas such as lagoons, and free of all feedstuffs that are not in barns, containers or feeders.

New § 50.22 provides that we will not allow claims for payment under this interim rule if the claimant has failed to comply with any of the requirements established by this interim rule, or if there is substantial evidence, as determined by the Administrator, that the claimant has in any way been responsible for any attempt to obtain payment unlawfully or improperly.

We are adding definitions of heifer and milking cow to § 50.1 to read as follows:

Heifer . A female dairy cow that has not given birth.

Milking cow. A female dairy cow that has given birth and is being used for milk production.

This rulemaking is necessary on an emergency basis to ensure that dairy cattle in the El Paso, TX, area, which are at significant risk of being infected with tuberculosis, are removed from that area as soon as possible. This prompt removal is necessary to help prevent the spread of bovine tuberculosis in the United States. Under these circumstances, the Administrator has determined that prior notice and opportunity for public comment are contrary to the public interest and that there is good cause under 5 U.S.C. 553 for making this rule effective less than 30 days after publication in the Federal Register .

We will consider comments we receive during the comment period for this interim rule (see DATES above). After the comment period closes, we will publish another document in the Federal Register . That document will include a discussion of any comments we receive and any amendments we are making to the rule as a result of the comments.

This rule has been reviewed under Executive Order 12866. The rule has been determined to be significant for the purposes of Executive Order 12866 and, therefore, has been reviewed by the Office of Management and Budget.

For this rule, we have prepared an economic analysis that provides a cost-benefit analysis as required by Executive Order 12866 and an analysis of the potential effects on small entities as required by the Regulatory Flexibility Act. The analyses are set forth below.

This interim rule provides for specified owners of dairy operations in the area of El Paso, TX, to be paid for the disposal of their herds and the cessation of their operations and the cessation of the use of their dairy properties for dairy operations. Past efforts to permanently eliminate tuberculosis from the El Paso milkshed dairies have been unsuccessful due to the proximity of this area to known tuberculosis-infected dairies in Ciudad Juarez, Mexico. Elimination of the Texas El Paso milkshed dairies would provide a benefit in the form of a permanent buffer zone that would serve to prevent the reintroduction of bovine tuberculosis from the Ciudad Juarez area into U.S. dairy herds. Ten dairy farms with 12,203 milking cows are located in the proposed buffer zone. Payment is needed to obtain producers' voluntary cooperation to cease their dairy operations permanently. With this payment, these producers are expected to neither gain nor lose financially, and the economic impact upon them can be considered neutral.

Additionally, payment will also be offered to one dairy entity in connection with the closure of its fluid milk processing operation, and to another for the relocation of its reverse osmosis equipment. These operations are located on or associated with two of the affected farms in the buffer zone. The discussion below describes how payment for these items is calculated, the total amount of payment expected to be paid to affected owners in El Paso, and impacts of the interim rule.

El Paso is one of the top five milk producing counties in Texas and is located in the milkshed of the Southwest Federal Milk Marketing Order, which includes all of New Mexico and Texas. In El Paso County, milk production yielded more cash than any other agricultural product, accounting for about 27 percent of total sales in 2000. The 10 affected El Paso dairies produced about 258 million pounds of milk in 2000 (or a 5 percent share of the milk production of the State of Texas), valued at about $34 million.

In order to determine the value to be paid, an appraisal method was utilized by which the future earnings of the 10 affected dairy farms are estimated. These contributions are then discounted to present value over a period of 15 years, the assumed useful life of these profitable dairy farms. 1

A discount rate of 7 percent was applied to estimates of future producer returns to risk, management, and capital investment. This rate is higher than the risk-free rate (approximately 4.9 percent) that the U.S. Government pays on Series I bonds, reflecting some degree of risk and uncertainty.

Future farm earnings are based on the returns per milking cow. Some of the 10 dairy herds have only milking cows and replacement animals (calves and heifers). Others have additional calves and heifers in excess of replacement needs. APHIS has historically used the fair market value (FMV) appraisal approach to evaluate the value of animals to be indemnified. With this approach, the market value of assets is evaluated by an appraiser(s) and the amount reimbursable to the producer is based on this appraisal. This method is suited to situations where established markets are available and animals are being removed and replaced with other animals on the farm. In the current situation, APHIS is requiring permanent cessation of dairying operations on the premises. Therefore, payment is being made for the value of animals plus the value of the cessation of dairy operations plus the value of the cessation of use of the dairy properties for dairy operations. The appraisal methodology used to determine the value is based on documented production records of annual earnings before interest, taxes, and depreciation (ebitd) generated per milking cow. Using this method, the ebitd value of a milking cow is estimated to be $320 per year, or a present value of $2,915 per animal over 15 years. The same valuation method is applied to each farm.

In addition, this interim rule requires each affected producer to sell all animals in the dairy herd to a terminal market for slaughter. The proceeds from this sale are commonly referred to as the salvage value. However, assuming that herd size and structure would be the same 15 years from now (individual animals may change, but the distribution remains the same), most of the animals would still have remaining milking value. The determination of the value should, therefore, be based on the difference between the present value of his herd's FMV (productive worth) 15 years from now and the herd's current salvage value. In sum, the value is composed of the present value of the net income stream per cow ($2,915), plus the difference between the discounted fair market value per cow (about $508) and the assumed salvage value per cow ($500).

Seven of the ten affected dairy operations have heifers beyond the number needed as replacement animals. A portion of the value is, therefore, determined by subtracting from the current FMV of each heifer the amount an owner could expect to receive if the heifer were sold for slaughter. Thus, that portion of the value is estimated at about $834 per head.

The total payment amount to be paid to owners of dairy cattle and other property based upon 12,203 milking cows and 7,190 additional heifers is estimated at nearly $42 million. Eighty-six percent of this total payment is determined by milking cows, and the remaining 14 percent is determined by heifers in excess of replacement needs. Approximately 85 percent of the payments is allocable to 5 farms. The largest payment to an owner is over $12 million. Three owners receive less than $1 million each.

In addition to the 10 dairy farms that are being closed, two additional dairy operations are considered for payment on a case-by-case basis as part of the El Paso buffer zone payment package. The first case involves a reverse osmosis plant that is located on one of the affected farms. The plant, owned by a producer cooperative, would cease operation in its current location and be moved to an area outside the buffer zone. Payments would cover the cost of relocating the equipment and would be limited to qualifying expenditures submitted with receipts. It is estimated that these expenditures would include costs of a reverse osmosis milk unit, silos, boiler and refrigeration equipment, and transport expense. The total amount eligible for payment is estimated at $675,000. This amount does not include the cost of a new building (estimated at $300,000), which will be absorbed by the cooperative.

The second case involves the closure of a dairy processing plant that has been in business for nearly 60 years. This plant processes fresh milk exclusively from one of the affected dairy farms, and with the closing of the latter, this niche market would no longer be commercially maintainable.

The model used to calculate payment for the closure of the processing plant relies on the industry standard framework for purchasing dairy facilities. The framework typically follows the following formula:

As APHIS will not be taking possession of the processing plant, the initial formula (1) is therefore modified to reflect the ability of the plant owner to salvage any value remaining in the physical facilities once the plant no longer processes milk. The payment amount will be based on the following formula:

In applying formula (3) to the processing plant, ebitd is the average earnings over the last 4 years, obtained directly from tax records. The value of the multiple x was determined based on extensive conversations with industry contacts experienced with similar dairy plant buyouts. Estimates of salvage value of the building and equipment were obtained from an auction house. Goodwill is a difficult concept to quantify, but estimates were made using information from various industry contacts.

Several scenarios for payment were calculated for the processing plant. These scenarios resulted in similar overall estimates of payment. The average compensation estimate was $950,000 for the closure of the processing plant.

In sum, the total amount to be paid by APHIS for the closure of 10 El Paso dairy farm operations and an associated processing plant, and the relocation of a reverse osmosis plant, is almost $44 million.

The impact of the rule on the 10 affected El Paso dairy farms is expected to be economically neutral as owners of the farms will be paid for their animals and other property and the cessation of operations. However, closure of these farms may indirectly affect interrelated activities in the county and/or State such as bottling plants and dairy products manufacturing plants in the area. These effects are expected to be small whether farms move away from Texas or relocate to other areas within Texas.

If the affected farms were to move away from Texas, bottling and dairy plants would likely be minimally impacted due to the close proximity of the affected area to milk-abundant counties of New Mexico. The lost milk production in El Paso will probably be offset over time by increases in milk production in the rest of Texas and New Mexico.

According to discussions with area market economists and with representatives of the Southwest Federal Milk Marketing Order, the farmers are likely to remain in the dairy business and would prefer to relocate to other areas of the State. In this case, the impact on the local economy would be similarly small over time. Therefore, we do not anticipate any long-term increases in milk prices paid by milk processors or retail prices paid by consumers due to the buyout. Furthermore, the impact on beef prices of sending 12,200 dairy cattle to slaughter under this interim rule will be mitigated by the 2-year period allowed to complete depopulation.

Texas has not been able to achieve Statewide tuberculosis accredited-free status because efforts to permanently eliminate tuberculosis from the El Paso dairies has been unsuccessful. The loss to Texas producers from not having accredited-free status, not only for the dairy enterprises, but for the beef cow and cattle-on-feed enterprises, was estimated to be $260 million for a 5-year time horizon. This loss was calculated according to the methodology adapted from Leefers et al . (1998) that estimated the economic impact on Michigan of losing its tuberculosis accredited-free status. 2 The impact of the higher producer costs attributed to stricter tuberculosis testing regimen in that study is measured as the difference between the present value of sales with accreditation and without accreditation. The loss to Texas producers of not having accredited-free status is calculated by extrapolating from the percent decline in present value of sales for each of the three types of cattle enterprises (dairy enterprises, beef cow, and cattle-on-feed), as calculated by Leefers et al . for Michigan.

Even without taking trade implications of tuberculosis into consideration, the costs associated with the El Paso buyout are relatively small compared to the benefits arising from reducing the risk of spreading tuberculosis to other dairy and livestock herds in other parts of Texas, New Mexico, and other States.

The Small Business Administration defines small dairy cattle and milk production facilities (North American Industry Classification System code 112120) as those earning $750,000 or less in annual receipts. The 10 dairies affected by this rule produced about 258 million pounds of milk in 2000, valued at about $34 million. Assuming an annual milk production per cow of 20,000 pounds, only 1 of the 10 dairy farms has annual gross revenues of less than $750,000. In any event, all 10 dairy farms will be fully paid for the disposal of their herds and other property and cessation of operation.

Under these circumstances, the Administrator of the Animal and Plant Health Inspection Service has determined that this action will not have a significant economic impact on a substantial number of small entities.

This program/activity is listed in the Catalog of Federal Domestic Assistance under No. 10.025 and is subject to Executive Order 12372, which requires intergovernmental consultation with State and local officials. (See 7 CFR part 3015, subpart V.)

This rule has been reviewed under Executive Order 12988, Civil Justice Reform. This rule: (1) Preempts all State and local laws and regulations that are in conflict with this rule; (2) has no retroactive effect; and (3) does not require administrative proceedings before parties may file suit in court challenging this rule.

In accordance with section 3507(j) of the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq. ), the information collection and recordkeeping requirements included in this interim rule have been submitted for emergency approval to the Office of Management and Budget (OMB). OMB has assigned control number 0579-0193 to the information collection and recordkeeping requirements.

We plan to request continuation of that approval for 3 years. Please send written comments on the 3-year approval request to the following addresses: (1) Office of Information and Regulatory Affairs, OMB, Attention: Desk Officer for APHIS, Washington, DC 20503; and (2) Docket No. 00-105-1, Regulatory Analysis and Development, PPD, APHIS, Station 3C71, 4700 River Road Unit 118, Riverdale, MD 20737-1238. Please state that your comments refer to Docket No. 00-105-1 and send your comments within 60 days of publication of this rule.

Under this interim rule, owners of dairy cattle herds and dairy operations in the area of El Paso, Texas, will be eligible for payment from the Department for disposal of their herds and other property and for cessation of their dairy operations and relocation of a dairy plant's equipment. Implementing this payment program will entail the use of a number of information collection activities, including an agreement to cease operations, metal eartags, movement permits, salvage reports, salvage and disposal affidavits, and payment claim forms. We are soliciting comments from the public, as well as from affected agencies, concerning our information collection and recordkeeping requirements. These comments will help us:

(1) Evaluate whether the information collection is necessary for the proper performance of our agency's functions, including whether the information will have practical utility;

(2) Evaluate the accuracy of our estimate of the burden of the information collection, including the validity of the methodology and assumptions used;

(3) Enhance the quality, utility, and clarity of the information to be collected; and

(4) Minimize the burden of the information collection on those who are to respond (such as through the use of appropriate automated, electronic, mechanical, or other technological collection techniques or other forms of information technology; e.g., permitting electronic submission of responses).

Estimate of burden: Public reporting burden for this collection of information is estimated to average 1.483 minutes per response.

Respondents: Owners of dairy operations, owners and operators of livestock markets and slaughtering plants, cattle purchasers and selling agents, State animal health authorities, and accredited veterinarians.

Estimated annual number of respondents: 95.

Estimated annual number of responses per respondent: 6.210526.

Estimated annual number of responses: 590.

Estimated total annual burden on respondents: 875 hours. (Due to averaging, the total annual burden hours may not equal the product of the annual number of responses multiplied by the reporting burden per response.)

Copies of this information collection can be obtained from Mrs. Celeste Sickles, APHIS' Information Collection Coordinator, at (301) 734-7477.

A final rule airworthiness directive FR Doc, 02-16535 applicable to Pratt & Whitney JT8D-200 series turbofan engines, was published in the Federal Register on July 3, 2002 (67 FR 44527). The following correction is needed:

A final rule; request for comments airworthiness directive FR Doc. 02-16174 applicable to Teledyne Continental Motors O-300, IO-360, TSIO-360, and LTSIO-520-AE series reciprocating engines, was published in the Federal Register on June 27, 2002 (67 FR 43230). The following correction is needed:

The FAA published this direct final rule with a request for comments in the Federal Register on May 20, 2002 (67 FR 35426). The FAA uses the direct final rulemaking procedure for a non-controversial rule where the FAA believes that there will be no adverse public comment. This direct final rule advised the public that no adverse comments were anticipated, and that unless a written adverse comment, or a written notice of intent to submit such an adverse comment, were received within the comment period, the regulation would become effective on October 3, 2002. No adverse comments were received, and thus this notice confirms that this direct final rule will become effective on that date.

The collection of information requirement contained in these final regulations has been reviewed and approved by the Office of Management and Budget in accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)) under control number 1545-1705. Responses to this collection of information are mandatory.

An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a valid control number assigned by the Office of Management and Budget.

The estimate of the reporting burden in § 1.6041-1 is reflected in the burden of Form 1099-MISC. The estimate of the reporting burden in § 1.6045-1 is reflected in the burden of Form 1099-B.

Comments concerning the accuracy of this burden estimate and suggestions for reducing this burden should be sent to the Internal Revenue Service, Attn: IRS Reports Clearance Officer, W:CAR:MP:FP:S, Washington, DC 20224, and to the Office of Management and Budget, Attn: Desk Officer for the Department of the Treasury, Office of Information and Regulatory Affairs, Washington, DC 20503.

Books or records relating to the collection of information must be retained as long as their contents may become material in the administration of any internal revenue law. Generally tax returns and tax return information are confidential, as required by 26 U.S.C. 6103.

This document contains amendments to the Income Tax Regulations (26 CFR parts 1 and 5f) and Employment Tax Regulations (26 CFR part 31). These regulations finalize proposed regulations relating to payments to joint payees, payments made on behalf of another person, and payments of gross proceeds from sales involving investment advisors. A notice of proposed rulemaking (REG-246249-96) was published in the Federal Register (65 FR 61292) on October 17, 2000. A public hearing was held on February 7, 2001, at which two commentators presented oral comments. The IRS also received other written comments responding to the notice of proposed rulemaking. After consideration of all the comments, the proposed regulations are adopted as amended by this Treasury decision. The revisions are discussed below.

Comments were received requesting further clarification as to the meaning of the terms management or oversight functions and significant economic interest in § 1.6041-1(e)(1) of the proposed regulations. In response to these comments, the final regulations add language that was included in the preamble to the proposed regulations, explaining that a person who merely writes checks at another's direction is not exercising management or oversight with respect to the payment and that a person has a significant economic interest in a payment when such interest would be compromised if the payment were not made.

One commentator stated that an agent cannot perform management or oversight functions in connection with payments it receives and remits to its principal, and, therefore, an agent for a payee could never be required to report a payment to the payee under this standard. The commentator recommended that § 1.6041-1(e)(1) of the proposed regulation be revised to apply only to payments made by agents to third parties.

The determination of whether a person performs management or oversight functions with respect to a payment made on behalf of another, or has a significant economic interest in connection with such payment, is a factual one. Whether an agent has a reporting obligation under these standards must, therefore, be determined in each instance based on the particular facts and circumstances. The standards set forth in the proposed regulations are intended to apply to all persons making payments on behalf of another, whether they are making such payments on behalf of the payor or payee in a transaction. In keeping with the need for uniformity and consistency in this regard, the regulations also amend § 31.3406(a)-2 to eliminate the current distinction between payor agents and payee agents with respect to the obligation to backup withhold on payments. Therefore, while in some cases an agent for a payee may not be required to report a payment to its principal, the final regulation does not adopt the commentator's suggestion to eliminate the potential applicability of the regulation to all such payments.

With respect to one type of payee agent, however, the final regulation does contain an exception to the rules set forth in paragraph (e)(1). The final regulation adds paragraph (e)(3) exempting from information reporting payments made by an employee to his employer, in recognition of the principle that the employee received such payment from a third party and remitted it to his employer in the course of his employment. Example 11 is added to illustrate this exception.

Comments were also received with respect to special reporting exceptions. One commentator asked that the current rule with respect to financial institutions be retained. The proposed regulations removed § 1.6041-3(n), which provided that banks making payments on an infrequent and isolated basis would not be subject to the reporting requirements. Banks will therefore now be subject to the same standards as other persons in determining whether they have an obligation to report payments. If a bank exercises management or oversight functions over a payment, or has a significant economic interest in the payment, it will have a reporting obligation regardless of how frequently it makes such payments. Although this is a change that imposes a new reporting burden on financial institutions, the burden is no different than the one that applies to other persons, and the final regulations therefore do not adopt this suggestion.

Another commentator asked that we eliminate the reporting requirements for real estate agents, found in § 1.6041-3(d), as they conflict with the proposed regulations under § 1.6041-1. The proposed regulations made conforming amendments to § 1.6041-3(d), but retained the existing provision that rent paid by real estate agents is reportable, by cross-reference to the provisions of § 1.6041-1(a). We believe it is appropriate to require such agents to report under these regulations; therefore, we decline to adopt this comment. The final regulations do, however, change the term real estate agents to rental agents to more accurately describe the type of person who would be collecting rent from a tenant and remitting it to a landlord.

One commentator asked that the regulations clarify that insurance companies do not have a “significant economic interest” in payments they make to third parties pursuant to contracts with policyholders. Because this is a factual determination which should be made on a case by case basis, this suggestion was not adopted in the final regulations.

Several commentators expressed concern that more than one person might report the same payment pursuant to these rules. One commentator stated that a service-recipient might be obligated to report the payment made on his behalf, while the person making the payment might also report it. Another commentator described a situation where funds were transferred through several parties involved in a construction project before reaching the ultimate payee and each of the parties might meet the management or oversight/significant economic interest standard for reporting the payments.

Several of the examples illustrate the correct reporting of a payment by the parties to a transaction. In the event that several parties might be viewed as meeting the tests for reporting under § 1.6041-1(e) of the regulations, the final regulations set forth the rule that the party closest in the chain to the payee must report the payment, unless the parties agree, in writing, that one of the other parties meeting the test for reporting will report the payment. Example 12 has been added to § 1.6041-1(e) of the regulations to illustrate this rule. This provision is not intended to preclude the optional method to report under § 1.6041-1(e)(4) of the regulations.

A commentator suggested that in Example 3, dealing with an agent who performs real estate closings, we clarify that the term settlement agent can include a number of different persons who perform real estate closings, such as title companies or title insurance underwriters. Since these examples are meant to be illustrative only, and since any person making a payment on behalf of another person is subject to these regulations, it is not necessary to list all possible individuals who may be performing the functions described in this example. Therefore, the final regulations do not adopt this suggestion.

One commentator objected to the rule in § 1.6041-1(f) of the proposed regulations that the amount to be reported is the gross amount, before fees and other expenses are deducted. The commentator pointed out the conflicting case law with respect to the issue of whether attorneys fees are income to the client. The final regulations provide that in cases in which the gross amount is income, the gross amount should be reported regardless of any expenses, commissions or other obligations, including backup withholding, that were deducted from the amount before the check was issued. To assist taxpayers in determining whether the gross amount or some lesser amount is includible in a particular payee's income, the Commissioner may provide guidance in the Internal Revenue Bulletin with examples. Example 1 in § 1.6041-1(f) has been modified to illustrate this rule.

In response to a comment, we have added a cross-reference to section 6045(f) of the Internal Revenue Code and the regulations thereunder in the examples in § 1.6041-1(f).

One commentator asked that we include a statement in the regulations or commentary that the regulations render obsolete any revenue rulings that are factually encompassed by the proposed rules and that all other revenue rulings pertaining to third party payments would remain in effect unless specifically deemed obsolete.

The preamble to the proposed regulations stated that “Rulings that are factually encompassed by the proposed regulations will be obsoleted.” A list of revenue rulings to become obsolete was included. The notice of proposed rulemaking also requested comments that identified other factually relevant rulings. No such comments were received. As the proposed regulations made clear that revenue rulings factually encompassed by the proposed regulations would be obsoleted and enumerated those rulings, there is no need to include this commentator’s suggestion.

Another commentator recommended that Rev. Rul. 69-595 (1969-2 C.B. 242) and Rev. Rul. 70-608 (1970-2 C.B. 286), both of which were listed in the notice of proposed rulemaking as obsoleted by the proposed regulations, be obsoleted only to the extent they are inconsistent with the proposed regulations. The two revenue rulings cited contain guidance relating to the definition of medical service payments, which the commentator felt should be retained.

Rev. Rul. 70-608 is listed in the notice of proposed rulemaking as obsoleted only with respect to Situations 1, 2, and 5. Therefore, Situation 4 of the revenue ruling, which includes a description of medical service payments, was not obsoleted. Rev. Rul. 69-595 will likewise not be obsoleted with respect to the definition of medical service payments.

The following revenue rulings are obsolete as of January 1, 2003:

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 has also been determined that section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to these regulations. A final regulatory flexibility analysis under 5 U.S.C. section 604 has been prepared for the collection of information in this Treasury decision. This analysis is set forth in this preamble under the heading “Final Regulatory Flexibility Analysis.” Pursuant to section 7805(f), 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 collection of information contained in § 1.6041-1(e) is needed to clarify the requirements for filing an information return under section 6041 when a person makes a payment on behalf of another person or to joint payees. The objectives of the proposed regulations are to provide uniform, practicable, and administrable rules under section 6041 for persons making payments on behalf of another person or to joint payees. The types of small entities to which the regulations may apply are small businesses. An estimate of the number of small entities affected is not feasible because of the large variety of entities and transactions to which the regulations may apply.

There are no known Federal rules that duplicate, overlap or conflict with these regulations. The regulations are considered to have the least economic impact on small entities of all alternatives considered.

The collection of information contained in § 1.6045-1(c)(3) will not have a significant economic impact on a substantial number of small entities. The regulations will relieve investment advisors of the requirement to make information returns under section 6045(a), and few, if any, financial custodians that may be affected by the regulations are small entities.

The principal author of these regulations is Nancy L. Rose, Office of the Associate Chief Counsel (Procedure and Administration).

The collection of information contained in these final regulations has been reviewed and approved by the Office of Management and Budget in accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)) under control number 1545-1726. The collection of information in these final regulations is in §§ 10.6, 10.29, and 10.30.

Section 10.6 requires an enrolled agent to maintain records and educational materials regarding his or her satisfaction of the qualifying continuing professional education credit. Section 10.6 also requires sponsors of qualifying continuing professional education programs to maintain records and educational material concerning these programs and those who attended them. The collection of this material helps to ensure that individuals enrolled to practice before the Internal Revenue Service are informed of the newest developments in Federal tax practice.

Section 10.29 requires a practitioner to obtain and retain for a reasonable period written consents to representation whenever such representation conflicts with the interests of the practitioner or the interests of another client of the practitioner. The consents are to be obtained after full disclosure of the conflict is provided to each party. Section 10.30 requires a practitioner to retain for a reasonable period any communication and the list of persons to whom that communication was provided with respect to public dissemination of fee information. The collection of consents to representation and communications concerning practitioner fees protects the practitioner against claims of impropriety and ensures the integrity of the tax administration system.

An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a valid control number.

Books or records relating to a collection of information must be retained as long as their contents might become material in the administration of any internal revenue law. Generally, tax returns and tax return information are confidential, as required by 26 U.S.C. 6103.

Section 330 of title 31 of the United States Code authorizes the Secretary of the Treasury to regulate the practice of representatives before the Treasury Department. The Secretary of the Treasury is authorized, after notice and an opportunity for a proceeding, to suspend or disbar from practice before the Department those representatives who are, inter alia, incompetent, disreputable, or who violate regulations prescribed under section 330 of title 31. Pursuant to section 330 of title 31, the Secretary has published the regulations in Circular 230 (31 CFR part 10). These regulations authorize the Director of Practice to act upon applications for enrollment to practice before the Internal Revenue Service, to make inquiries with respect to matters under the Director of Practice's jurisdiction, to institute proceedings for suspension or disbarment from practice before the Internal Revenue Service, and to perform such other duties as are necessary to carry out these functions.

The regulations have been amended from time to time to address various specific issues in need of resolution. For example, on February 23, 1984, the regulations were amended to provide standards for providing opinions used in tax shelter offerings (49 FR 6719). On October 17, 1985, the regulations were amended to conform to legislative changes requiring the disqualification of an appraiser who is assessed a penalty under section 6701 of the Internal Revenue Code for aiding and abetting the understatement of a tax liability (50 FR 42014). The regulations were most recently amended on June 20, 1994 (59 FR 31523), to provide standards for tax return preparation, to limit the use of contingent fees in tax return or refund claim preparation, to provide expedited rules for suspension, and to clarify or amend certain other items.

On June 15, 1999, an advance notice of proposed rulemaking was published (64 FR 31994) requesting comments on amendments to the regulations that would take into account legal developments, professional integrity and fairness to practitioners, taxpayer service, and sound tax administration. On May 5, 2000, an advance notice of proposed rulemaking was published (65 FR 30375) requesting comments on amendments to the regulations relating to standards of practice governing tax shelters and other general matters. On January 12, 2001, a notice of proposed rulemaking (REG-111835-99) was published (66 FR 3276) that proposed amendments to the regulations, requested comments on the proposed amendments, and announced a public hearing on the subject of the proposed amendments. The January 12, 2001 notice of proposed rulemaking addressed both general matters pertaining to practice before the Internal Revenue Service and also matters pertaining specifically to tax shelter opinions. A public hearing was held on these proposals on May 2, 2001. The final regulations in this document encompass only those proposals addressing non-tax shelter related matters pertaining to practice before the Internal Revenue Service. Accordingly, this document does not contain final regulations governing standards for tax shelter opinions. The standards that currently govern tax shelter opinions remain in effect. The Department of Treasury and Internal Revenue Service intend to issue a second notice of proposed rulemaking that re-proposes amendments for such standards. The Department of Treasury and Internal Revenue Service also intend to issue an additional advance notice of proposed rulemaking that will cover additional non-tax shelter matters pertaining to practice before the Internal Revenue Service. Many of the matters covered by the advance notice of proposed rulemaking will be distinct from those that have been the focus of the non-tax shelter revisions of Circular 230 to this point, e.g., matters concerning unenrolled practice and whether the use of contingent fee arrangements should be further restricted.

Fifty-one written comments were received concerning revisions to Circular 230. All comments were considered and are available for public inspection upon request. These comments addressed both the tax shelter and non-tax shelter related proposed amendments. Many commentators expressed general support for amending Circular 230. The following paragraphs provide a summary of significant comments concerning the non-tax shelter proposals.

One commentator recommended specific language for proposed § 10.6 with respect to determining credits for continuing professional education through distance learning programs, and another recommended that the standards for continuing professional education classes be modified to include more diverse subjects beyond those strictly related to taxation, such as in the fields of financial services and practice management.

With regard to unenrolled practice under proposed § 10.7(c)(1)(viii), one commentator argued that a restriction on the right of non-practitioners to practice hampers the ability of taxpayers to obtain a speedy and inexpensive resolution of matters before the Internal Revenue Service. In contrast, some commentators recommended that unenrolled practice as permitted by § 10.7(c)(1)(viii) be further restricted or eliminated outright. One of these commentators suggested that it is not appropriate to allow a tax return preparer who may not have demonstrated knowledge of tax law or tax procedure to represent a taxpayer during an examination merely because the preparer has signed the return under examination.

A number of commentators expressed concern regarding the information to be furnished to the Internal Revenue Service under proposed § 10.20. Commentators were concerned that the proposal is overly burdensome, puts an improper affirmative obligation on a practitioner, fails to respect privileged communications, and impairs a represented taxpayer's right to challenge an unlawful request for information by the Internal Revenue Service. Particular concern was expressed as to the removal of the phrase “of doubtful legality,” appearing in the current section governing the topic.

Commentators both supported and criticized the proposed amendment to § 10.21 regarding a practitioner's duties when discovering a client's error or omission on a return, claim for refund, or other document. Two commentators suggested that the proposal to mandate that a practitioner advise a client regarding the consequences of not taking corrective action was a good one, but should be expanded to include advice regarding the consequences of taking corrective action. Some commentators criticized the proposal on the ground that it would require some practitioners to offer advice beyond their competence.

Commentators suggested that the Internal Revenue Service's interpretation of § 10.26 is too strict and thus imposes obligations on the firms of former government employees that are more burdensome than the related criminal statute.

With regard to the proposed clarification of the prohibition on contingent fees in § 10.27, one commentator was supportive of the clarification, but recommended further amendments to address ambiguities, uncertainties, and opportunities for abuse with regard to the section's application. Another commentator urged that the section be amended so that contingent fees can be charged for advice regarding return positions on original returns when the practitioner reasonably anticipates that the return position will be substantively reviewed by the Internal Revenue Service prior to the filing of the return.

A number of commentators expressed concern regarding the proposed amendment in § 10.28 that would require a practitioner to return a client's records upon a client's request regardless of a dispute over fees. One commentator recommended that the section distinguish between records pertaining to tax and non-tax matters because Circular 230 should not attempt to regulate a practitioner's conduct with respect to non-tax matters. A number of commentators urged that the section be revised to distinguish more completely the records of the client from the practitioner's work product, so that a client may not take advantage of a practitioner by obtaining the practitioner's work product without paying for it. A number of commentators objected to the section on the grounds that it conflicts with state laws governing attorneys' liens.

With regard to the proposal regarding representation of conflicting interests in § 10.29, many commentators expressed concern with the use of the word “potential” to modify “conflicting interests,” arguing that the use of the word made the section's application too ambiguous. A number of commentators objected to the proposal that consents from taxpayers be in writing, some arguing that the requirement could create disharmony among clients. Some commentators observed that the section incongruously failed to require written consents when the conflict arises with the practitioner's own interest.

Some commentators objected to the proposal in § 10.30 to prohibit enrolled agents from using the term licensed in describing their professional designation. These commentators argued that the term “licensed” is not misleading to the public and does accurately describe the professional status of enrolled agents.

With regard to the proposal to add censure as a sanction available under Circular 230, as proposed in § 10.50, some commentators questioned the statutory authority for the censure sanction. One commentator expressed concern that the censure sanction as proposed did not fulfill the role of an intermediate sanction because the remedial conditions proposed for censured practitioners appear to be of indefinite duration.

With regard to proposed § 10.53, governing the receipt of information by the Director of Practice concerning practitioners, some commentators recommended that the section provide for the destruction of information determined to be frivolous and also establish a timetable for the Director of Practice's destruction of records in general.

With regard to the proposed amendments in Subpart D, governing the conduct of disciplinary proceedings under Circular 230, one commentator praised the proposal to merge the provisions governing proceedings for appraisers into the same subpart. One commentator urged that the standard of proof in a Circular 230 hearing be specified, and that such standard should be one of clear and convincing evidence. This commentator also recommended that Subpart D be amended to provide for additional discovery procedures.

The final regulations adopted in this document concern only the non-tax shelter related provisions as proposed in the January 12, 2001, notice of proposed rulemaking. The Department of Treasury and Internal Revenue Service intend to issue a second notice of proposed rulemaking that re-proposes amendments for the standards governing tax shelter opinions.

Paragraph (d)(2) of § 10.3 of the regulations adopts the proposed changes that expanded the list of issues with respect to which an enrolled actuary is authorized to represent a taxpayer in limited practice before the Internal Revenue Service. The list is expanded to include issues involving 26 U.S.C. 419 (treatment of funded welfare benefits), 419A (qualified asset accounts), 420 (transfers of excess pension assets to retiree health accounts), 4972 (tax on nondeductible contributions to qualified employer plans), 4976 (taxes with respect to funded welfare benefit plans), and 4980 (tax on reversion of qualified plan assets to employer).

Section § 10.6 sets forth the conditions and process for renewal of enrollment to practice before the Internal Revenue Service. One condition for renewal of enrollment is that the enrolled agent complete a minimum number of hours of continuing professional education in programs comprised of current subject matter in Federal taxation or Federal tax related matters. The final regulations do not adopt the commentator's suggestion to expand the subjects of qualifying tax programs to non-tax related matters, nor do they adopt the suggested language for determining distance learning credits.

Section § 10.6 as adopted differs from the proposed section in that it incorporates a system of rolling renewals for enrollment. The year in which enrolled agents will be required to apply for renewal of enrollment will vary based on the last digit of the enrolled agent's social security number. This change is ministerial only and is made in order to balance the workflow involved in processing renewals.

The final regulations adopt new paragraph 10.6(a) that clarifies that enrollment and the renewal of enrollment of actuaries is also governed by the regulations of the Joint Board for the Enrollment of Actuaries at 20 CFR 901.1 et seq.

The final regulations adopt the provisions governing unenrolled practice as proposed in paragraph 10.7(c)(viii). This amendment preserves the scope of unenrolled practice as it has existed and only makes non-substantive changes in nomenclature that are necessitated by the organizational restructuring of the Internal Revenue Service.

Section 10.20 of the regulations adopts the proposed changes in modified form. Paragraph (a) of § 10.20 requires a practitioner to respond promptly to a proper and lawful request for records and information, unless the practitioner believes in good faith and on reasonable grounds that the records or information are privileged. The right and ability of practitioners to resist efforts that the practitioner believes to be of doubtful legality is preserved. The phrase “of doubtful legality” was excised from § 10.20 merely to eliminate the redundancy in the section's text, which requires requests from the Internal Revenue Service to be “proper and lawful,” not to effectuate a substantive change with regard to a practitioner's ability to resist efforts by the government to obtain documents or information that are irrelevant to an inquiry, confidential, privileged, or otherwise immune from compulsion.

The final regulations adopt, with amendment and clarification, the proposed amendment to require a practitioner to provide information regarding the identity of persons the practitioner reasonably believes may have possession or control of requested documents. The requirement, in paragraph (a)(2) of § 10.20, applies only when requested records or information are not in the possession or control of the practitioner or the practitioner's client. The paragraph is modified from its proposed form to clarify that the practitioner's duty is limited only to making reasonable inquiry of the practitioner's client and that there exists no obligation on the practitioner to make inquiry of any other person or to independently verify information provided by a client.

The right and ability of a practitioner to resist a request by the Director of Practice regarding an alleged violation of Circular 230 that the practitioner believes to be of doubtful legality is similarly unchanged in paragraph (b), which requires practitioners to provide information to the Director of Practice regarding the alleged violations of Circular 230 by any person. An alleged violation under paragraph (b) is not limited to a violation that is the subject of a proceeding under subpart D, for the necessary reason that the Director of Practice should be able to obtain evidence regarding alleged violations to determine whether they merit formal charges.

Section 10.21 of Circular 230 has historically required a practitioner to advise a client promptly of any noncompliance, error, or omission. The proposed rules expanded the practitioner's duty under § 10.21 to include providing advice to the client regarding the manner in which the error or omission might be corrected and the possible consequences of a failure to take such corrective action. Rather than adopting § 10.21 as proposed, the final regulations modify the preexisting duty by simply requiring that, in addition to notifying the client of the fact of the noncompliance, error, or omission, the practitioner advise the client of the consequences as provided under the Code and regulations of the noncompliance, error, or omission. This change requires practitioners to provide information that taxpayers who consult tax professionals typically expect to receive.

The final regulations adopt the proposed clarification in § 10.22 that a practitioner is presumed to have exercised due diligence if the practitioner relies on the work product of another person and the practitioner uses reasonable care in engaging, supervising, training, and evaluating such person, taking proper account of the relationship between the practitioner and the person. It is expected that practitioners will use common sense and experience in guiding their conduct under this section. The section applies both in the context of a firm and in circumstances involving a practitioner's engagement of an outside practitioner. For example, in circumstances in which a practitioner must hire another practitioner for a specialized or complicated matter, such practitioner's duty under the section will be more focused on the reasonable care taken in the engagement of the specialist. Supervising and training are not part of a practitioner's engagement of a specialist. Conversely, in the context of a firm, the section's application will focus more on supervising and training, if there is an issue with regard to a supervisory practitioner's reliance on a subordinate. Finally, the presumption of due diligence provided by this section does not apply for purposes of § 10.33 and § 10.34, governing tax shelter opinions and standards for advising with respect to tax return positions, respectively, which have their own rules concerning due diligence.

The final regulations adopt without change the proposed amendments found in § 10.25 (former § 10.26) governing the restrictions on the practice of former Government employees, their partners, and their associates with respect to matters that the former Government employees participated in during the course of their Government employment. This section reflects changes to the Federal statutes governing post-employment restrictions applicable to former Government employees. The former § 10.25, governing the practice of partners of former Government employees, is removed, as was proposed, because the statutory prohibition implemented by the provision was repealed.

The final regulations adopt the proposed clarification governing the prohibition on contingent fees in connection with advice rendered in connection with a position taken or to be taken on an original tax return. The Department of the Treasury and the Internal Revenue Service remain concerned regarding the use of contingent fees and will request further public comments regarding contingent fees in the upcoming advance notice of proposed rulemaking.

The final regulations adopt, with substantial changes, the proposed amendment to § 10.28 that requires a practitioner to return a client's records upon the client's request, regardless of a fee dispute. As recommended by one commentator, the section's application is restricted by paragraph (a) to the client's records that are necessary for the client to comply with his or her Federal tax obligations.

Further, as recommended by a number of commentators, the term records of the client is defined to exclude items such as returns or other documents prepared by the practitioner that the practitioner is withholding pending the client's payment of fees for those documents. These changes are incorporated to protect practitioners from being disadvantaged or compromised by clients seeking to obtain an unfair advantage under this section. In consideration of various state laws that may permit liens on a client's records in favor of practitioners during the course of fee disputes, the regulations provide that a practitioner must only return those records that must be attached to the client's return if a fee dispute has triggered an applicable state lien provision. The practitioner, however, must provide the client access to review and copy any of the client's records retained by the practitioner under state law that are necessary for the client to comply with his Federal tax obligations.

The final regulations adopt the amendments as proposed in § 10.29, with modification. The modifier potential has been removed in the identification of conflicts of interest. The final regulations have been modified from the proposed regulations to conform more closely with the approach of the recently revised Model Rule 1.7 of the American Bar Association Rules of Professional Conduct. Section 10.29 requires a client to give informed consent, confirmed in writing, to representation by a practitioner when the representation of one client will be directly adverse to another client or there is a significant risk that the representation of one or more clients will be materially limited by the practitioner's responsibilities to another client, a former client or a third person or by a personal interest of the practitioner. The adoption of this requirement results in parallel application to conflicts with another client and conflicts with the practitioner's own interest. The section requires a practitioner to retain the written consent for at least 36 months after the conclusion of the representation and to provide the written consents to the Internal Revenue Service, if requested to do so.

The final regulations adopt some but not all of the changes to the solicitation standards from the proposed regulations. Under the final regulations, a practitioner is prohibited from making written and oral solicitations of employment in matters related to the Internal Revenue Service if such solicitations would violate Federal or State statutes or other rules applicable to the practitioner regarding the uninvited solicitation of prospective clients. For example, if an attorney is prohibited under that attorney's governing State bar rules from making a certain type of uninvited solicitation, the attorney's uninvited solicitation with respect to a matter related to the Internal Revenue Service will constitute a violation of § 10.30. Conversely, if such a solicitation is permissible under the relevant State bar rule, the making of the solicitation with respect to a matter related to the Internal Revenue Service is permissible under § 10.30.

Section 10.30 also expands the prohibition of deceptive and other improper solicitation practices to cover private, as well as public, solicitations. The final regulations provide that a practitioner may not, in matters related to the Internal Revenue Service, assist, or accept assistance from, any person or entity who, to the knowledge of the practitioner, obtains clients, or otherwise practices in a manner forbidden under this section.

In consideration of the comments received, the final regulations do not adopt the change that would have prohibited enrolled agents from using the term licensed in describing their professional designation. The Department of Treasury and the Internal Revenue Service recognize the valuable services provided by the over thirty-thousand enrolled agents in the United States, but want to ensure that the respective roles of enrolled agents, attorneys and certified public accountants are understood by taxpayers. The Treasury Department and Internal Revenue Service will solicit comments in an advance notice of proposed rulemaking regarding whether an additional designation may be employed to describe the professional services of enrolled agents.

The final regulations adopt the additional sanction of censure, which is defined as a public reprimand, as proposed in the amendments to § 10.50. The sanction of censure is not listed with disbarment or suspension in 31 U.S.C. 330(b), but the authority of the Secretary to regulate practice before the Internal Revenue Service is not limited to those specific sanctions. A censure sanction is authorized by the general grant of authority to “regulate the practice of representatives of persons before the Department of the Treasury” as provided in 31 U.S.C. 330(a). Additionally, the final regulations are modified in § 10.79 to clarify that suspended representatives may be subject to conditions and the conditions placed upon suspended or censured practitioners may only be imposed for a period that is reasonable in light of the gravity of a practitioner's violations.

Section 10.51 defines disreputable conduct for which a practitioner may be censured, suspended, or disbarred. Such disreputable conduct includes the filing of a complaint against Internal Revenue Service personnel under section 1203 of the Internal Revenue Service Restructuring and Reform Act of 1998, if the practitioner knows the complaint is false. Similarly, disreputable conduct also includes knowingly advancing frivolous arguments in collection due process hearings, or in connection with offers in compromise, installment agreements, or the appeals process. Additionally, the definition of disreputable conduct is amended, as proposed, to include conviction of any felony involving conduct that renders the practitioner unfit to practice before the Internal Revenue Service.

The final regulations incorporate provisions for the destruction of documents by the Director of Practice. Section 10.53 of the final regulations requires the Director of Practice to destroy reports as soon as permissible under the applicable record control schedules approved by the National Archives and Records Administration and designated in the Internal Revenue Manual.

Evidence that alleges practitioner misconduct, but which is on its face without merit, should not be maintained in a manner that falsely conveys a willingness of the Director of Practice to use such evidence at an indefinite time in the future. This same principle applies to evidence that merits investigation, but is eventually determined to be insufficient to justify the initiation of disciplinary proceedings. If the currently applicable records control schedule proves to be unsuitable in assuring fairness to practitioners, or if it proves to be unworkable given the demands placed upon the Director of Practice, the Internal Revenue Service will initiate the public process required to request a change of the records control schedule through the National Archives and Records Administration.

The final regulations adopt without change the consolidation of the virtually identical rules applicable to disciplinary proceedings against practitioners and appraisers that heretofore have been separately set out in separate subparts. The final regulations consolidate the rules regarding sanctions of practitioners and appraisers under subpart D.

The final regulations adopt the proposed rules of subpart D regarding the conduct of disciplinary proceedings largely without change. In response to the request of a commentator, § 10.76 has been modified to specifically provide that the standard of proof in Circular 230 proceedings is that of a preponderance of the evidence, if the sanction sought by the Director of Practice is censure or a suspension of less than six month's duration. If the Director of Practice seeks a sanction of disbarment or a suspension of six months or longer or the disqualification of an appraiser, the standard of proof is clear and convincing evidence. The Treasury Department and Internal Revenue Service conclude that the preponderance of evidence standard is justified in the case of the less severe sanctions of censure and suspension of a short duration. When the Director of Practice seeks a more significant sanction, the clear and convincing evidence standard is adopted to protect the interests of the practitioner.

These regulations are effective on July 26, 2002.

It has been determined that these regulations are not a significant regulatory action as defined in Executive Order 12866. Therefore, a regulatory assessment is not required. It is hereby certified that these regulations will not have a significant economic impact on a substantial number of small entities because the general requirements, including the collection of information requirements, of these regulations are substantially the same as the requirements of the regulations that these regulations replace. Persons authorized to practice have long been required to comply with certain standards of conduct when practicing before the Internal Revenue Service. These regulations do not alter the basic nature of the obligations and responsibilities of these practitioners. These regulations clarify those obligations in response to public comments and judicial decisions, and make other modifications to reflect the development of electronic media. Therefore, a regulatory flexibility analysis under the Regulatory Flexibility Act (5 U.S.C. chapter 6) is not required. Pursuant to section 7805(f) of the Internal Revenue Code, this notice of proposed rulemaking was submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small businesses.

The principal authors of these regulations are Richard S. Goldstein and Brinton T. Warren, of the Office of Associate Chief Counsel (Procedure and Administration), Administrative Provisions and Judicial Practice Division.

We did not publish a notice of proposed rulemaking (NPRM) for this regulation. In keeping with 5 U.S.C. 553(b)(B) and 553(d)(3), the Coast Guard finds that good cause exists for not publishing a NPRM and for making this rule effective less than 30 days after publication in the Federal Register . The event will begin on Saturday, August 3, 2002. There is not sufficient time to allow for an appropriate notice and comment period, prior to the event. Because of the danger inherent in high-speed boat races, special local regulations are necessary to provide for the safety of participants, spectator craft and other vessels transiting the event area. For the safety concerns noted, it is in the public interest to have these regulations in effect during the event. In addition, advance notifications will be made via the Local Notice to Mariners, marine information broadcasts, and area newspapers.

On August 3 and August 4, 2002, the Kent Narrows Racing Association will sponsor the “Thunder on the Narrows” powerboat races, on the waters of Prospect Bay, Kent Island Narrows, Maryland. The event will consist of 75 Hydroplanes and Jersey Speed Skiffs racing in heats counter-clockwise around an oval racecourse. A large fleet of spectator vessels is anticipated. Due to the need for vessel control during the races, vessel traffic will be temporarily restricted to provide for the safety of spectators, participants and transiting vessels.

The Coast Guard is establishing temporary special local regulations on specified waters of Prospect Bay. The temporary special local regulations will be enforced from 9:30 a.m. to 6:30 p.m. local time on both August 3 and August 4, 2002. The effect will be to restrict general navigation in the regulated areas during the event. Except for participants in the “Thunder on the Narrows” powerboat races and vessels authorized by the Coast Guard Patrol Commander, no person or vessel may enter or remain in the regulated area. The Patrol Commander will allow non-participating vessels to transit the event area between races. These regulations are needed to control vessel traffic during the event to enhance the safety of participants, spectators and transiting vessels.

This rule is not a “significant regulatory action” under section 3(f) of Executive Order 12866, Regulatory Planning and Review, and does not require an assessment of potential costs and benefits under section 6(a)(3) of that Order. The Office of Management and Budget has not reviewed it under that Order. It is not “significant” under the regulatory policies and procedures of the Department of Transportation (DOT) (44 FR 11040; February 26, 1979).

Although this rule prevents traffic from transiting a portion of Prospect Bay during the event, the effect of this rule will not be significant due to the limited duration of the regulation, the fact that the Patrol Commander will allow non-participating vessels to transit the event area between races, and the extensive advance notifications that will be made to the maritime community via the Local Notice to Mariners, marine information broadcasts, and area newspapers, so mariners can adjust their plans accordingly.

Under the Regulatory Flexibility Act (5 U.S.C. 601-612), we considered whether this rule would have a significant economic impact on a substantial number of small entities. The term “small entities” comprises small businesses, not-for-profit organizations that are independently owned and operated and are not dominant in their fields, and governmental jurisdictions with populations of less than 50,000.

The Coast Guard certifies under 5 U.S.C. 605(b) that this rule will not have a significant economic impact on a substantial number of small entities.

This rule will affect the following entities, some of which may be small entities: the owners or operators of vessels intending to transit or anchor in the effected portions of Prospect Bay during the event.

Although this rule prevents traffic from transiting or anchoring in a portion of Prospect Bay during the event, the effect of this rule will not be significant because of its limited duration, the fact that the Patrol Commander will allow non-participating vessels to transit the event area between races, and the extensive advance notifications that will be made to the maritime community via the Local Notice to Mariners, marine information broadcasts, and area newspapers, so mariners can adjust their plans accordingly.

Under section 213(a) of the Small Business Regulatory Enforcement Fairness Act of 1996 (Public Law 104-121), we want to assist small entities in understanding this temporary rule so that they can better evaluate its effects on them and participate in the rulemaking. If the rule would affect your small business, organization, or governmental jurisdiction and you have questions concerning its provisions or options for compliance, please contact the address listed under ADDRESSES .

Small businesses may send comments on the actions of Federal employees who enforce, or otherwise determine compliance with, Federal regulations to the Small Business and Agriculture Regulatory Enforcement Ombudsman and the Regional Small Business Regulatory Fairness Boards. The Ombudsman evaluates these actions annually and rates each agency's responsiveness to small business. If you wish to comment on actions by employees of the Coast Guard, call 1-888-REG-FAIR (1-888-734-3247).

This rule calls for no new collection of information under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520).

A rule has implications for federalism under Executive Order 13132, Federalism, if it has a substantial direct effect on State law or local governments and would either preempt State law or impose a substantial direct cost of compliance on them. We have analyzed this rule under that Order and have determined that it does not have implications for federalism.

The Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1531-1538) requires Federal agencies to assess the effects of their discretionary regulatory actions. In particular, the Act addresses actions that may result in the expenditure by a State, local, or tribal government, in the aggregate, or by the private sector of $100,000,000 or more in any one year. Though this rule will not result in such an expenditure, we do discuss the effects of this rule elsewhere in this preamble.

This rule will not effect a taking of private property or otherwise have taking implications under Executive Order 12630, Governmental Actions and Interference with Constitutionally Protected Property Rights.

This rule meets applicable standards in sections 3(a) and 3(b)(2) of Executive Order 12988, Civil Justice Reform, to minimize litigation, eliminate ambiguity, and reduce burden.

We have analyzed this rule under Executive Order 13045, Protection of Children from Environmental Health Risks and Safety Risks. This rule is not an economically significant rule and does not create an environmental risk to health or risk to safety that may disproportionately affect children.

This rule does not have tribal implications under Executive Order 13175, Consultation and Coordination with Indian Tribal Governments, because it does not have a substantial and direct effect on one or more Indian tribes, on the relationship between the Federal Government and Indian tribes, or on the distribution of power and responsibilities between the Federal Government and Indian tribes.

We have analyzed this rule under Executive Order 13211, Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use. We have determined that it is not a “significant energy action” under that Order because it is not a “significant regulatory action” under Executive Order 12866 and is not likely to have a significant adverse effect on the supply, distribution, or use of energy. It has not been designated by the Administrator of the Office of Information and Regulatory Affairs as a significant energy action. Therefore, it does not require a Statement of Energy Effects under Executive Order 13211.

We prepared an “Environmental Assessment” in accordance with Commandant Instruction M16475.1C, and determined that this rule will not significantly affect the quality of the human environment. The “Environmental Assessment” and “Finding of No Significant Impact” is available in the docket where indicated under ADDRESSES .

The Route 1 & 9 Bridge has a vertical clearance of 35 feet at mean high water, and 40 feet at mean low water in the closed position. The existing drawbridge operating regulations require the bridge to open on signal at all times.

The bridge owner, New Jersey Department of Transportation, requested a temporary deviation from the drawbridge operating regulations to facilitate scheduled structural maintenance, on the bridge.

This deviation from the operating regulations allows the bridge owner to require a two-hour advance notice for bridge openings from July 12, 2002 through September 9, 2002.

This deviation from the operating regulations is authorized under 33 CFR 117.35, and this work will be performed with all due speed in order to return the bridge to normal operation as soon as possible.

We did not publish a notice of proposed rulemaking (NPRM) for this regulation. Under 5 U.S.C. 553(b)(B), the Coast Guard finds that good cause exists for not publishing an NPRM. Under 5 U.S.C. 553(d)(3), the Coast Guard finds that good cause exists for making this rule effective less than 30 days after publication in the Federal Register . Publishing a NPRM would be contrary to public interest since immediate action is necessary to ensure the safety of vessels and spectators gathering in the vicinity of the fireworks launching area. Due to uncertainties related to planning, the event sponsor, the Astoria Fireworks Committee, was unable to provide the Coast Guard with notice of the final details until less than 30 days prior to the date of the event. If normal notice and comment procedures were followed, this rule would not become effective until after the date of the event. For this reason, following normal rulemaking procedures in this case would be impracticable and contrary to the public interest. Although this has not been an annual event, the location of this fireworks display is a locally accepted standard and safety zones have been adopted at this site with no negative public comment.

The Coast Guard is establishing a temporary safety zone to allow a safe fireworks display. The fireworks display is scheduled to start at 10 p.m. (PDT) on August 10, 2002. This event will result in a number of vessels congregating near the fireworks launching area. The safety zone is needed to provide for the safety of spectators and their watercraft from the inherent safety hazards associated with the fireworks display. Without providing for an adequate safety zone, the public could be exposed to falling burning debris or stray within blast range should a catastrophic accident occur on the launching barge. This safety zone will be enforced by representatives of the Captain of the Port, Portland, Oregon. The Captain of the Port may be assisted by other federal and local agencies.

The Captain of the Port, Portland, Oregon, is taking this action to safeguard watercraft and their occupants from safety hazards associated with the fireworks display. The safety zone will encompass all waters of the Columbia River at Astoria, Oregon within a 500-yard radius of the fireworks barge that will be in the vicinity of Green Buoy “37” that is in approximate position 46°11′46″ north latitude, 123°50′01″ west longitude [NAD 83]. Entry into this safety zone is prohibited unless authorized by the Captain of the Port.

This rule is not a “significant regulatory action” under section 3(f) of Executive Order 12866, Regulatory Planning and Review, does not require an assessment of potential costs and benefits under section 6(a)(3) of that Order. The Office of Management and Budget has not reviewed this rule under that Order. This rule is not “significant” under the regulatory policies and procedures of the Department of Transportation (DOT) (44 FR 11040; February 26, 1979). The Coast Guard expects the economic impact of this rule to be so minimal that a full Regulatory Evaluation under paragraph 10e of the regulatory policies and procedures act of DOT is unnecessary. This expectation is based on the fact that the regulated area established by the rule would encompass less than one mile of the Columbia for a period of only two hours.

Under the Regulatory Flexibility Act (5 U.S.C. 601-612), we considered whether this rule would have a significant economic impact on a substantial number of small entities. The term “small entities” include small businesses, not-for-profit organizations that are independently owned and operated and are not dominant in their fields, and governmental jurisdictions with populations of less than 50,000. This rule will affect the following entities, some of which may be small entities: the owners or operators of vessels intending to transit a portion of the Columbia River from 9:00 p.m. (PDT) to 11:00 p.m. (PDT) on August 10, 2002. This rule will not have significant economic impact on a substantial number of small entities for the following reasons. This rule will be in effect for only two hours in the evening when vessel traffic is low. Traffic will be allowed to pass through the zone with the permission of the Captain of the Port or his designated representatives on scene, if safe to do so. Because the impacts of this rule are expected to be so minimal, the Coast Guard certifies under 5 U.S.C. 605(b) of the Regulatory Flexibility Act (5 U.S.C. 601-612) that this rule will not have a significant economic impact on a substantial number of small entities.

Under section 213(a) of the Small Business Regulatory Enforcement Fairness Act of 1996 (Public Law 104-121), we want to assist small entities in understanding the rule so that they can better evaluate its effects on them and participate in the rulemaking process. If the rule will affect your small business, organization, or governmental jurisdiction and you have questions concerning its provisions or options for compliance, please contact the person listed in the FOR FURTHER INFORMATION CONTACT section.

This rule calls for no new collection of information under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520).

We have analyzed this rule under Executive Order 13132, Federalism, and have determined that this final rule does not have implications for federalism under that Order.

The Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1531-1538) governs the issuance of Federal regulations that require unfunded mandates. An unfunded mandate is a regulation that requires a State, local, or tribal government or the private sector to incur direct costs without the Federal Government's having first provided the funds to pay those unfunded mandate costs. This rule will not impose an unfunded mandate.

This rule will not effect a taking of private property or otherwise have taking implications under Executive Order 12630, Governmental Actions and Interference with Constitutionally Protected Property Rights.

This rule meets applicable standards in sections 3(a) and 3(b)(2) of Executive Order 12988, Civil Justice Reform, to minimize litigation, eliminate ambiguity, and reduce burden.

We have analyzed this rule under Executive Order 13045, Protection of Children from Environmental Health Risks and Safety Risks. This rule is not an economically significant rule and does not concern an environmental risk to health or risk to safety that may disproportionately affect children.

This rule does not have tribal implications under Executive Order 13175, Consultation and Coordination with Indian tribal governments, because it does not have a substantial direct effect on one or more Indian tribes, on the relationship between the federal government and Indian tribes, or on the distribution of power and responsibilities between the federal government and Indian tribes.

We have analyzed this rule under Executive Order 13211, Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use. We have determined that it is not a “significant energy action” under that Order because it is not a “significant regulatory action” under Executive Order 12866 and is not likely to have a significant adverse effect on the supply, distribution, or use of energy. It has not been designated by the Administrator of the Office of Information and Regulatory Affairs as a significant energy action. Therefore, it does not require a Statement of Energy Effects under Executive Order 13211.

The Coast Guard considered the environmental impact of this rule and concluded that, under figure 2-1, paragraph (34)(g) of Commandant Instruction M16475.1C, this rule is categorically excluded from further environmental documentation. A “Categorical Exclusion” is provided for temporary safety zones of less than one week in duration. This rule establishes a safety zone with a duration of two hours.

As part of its review of the Schedule for Rating Disabilities (38 CFR part 4), VA published a proposal to amend that portion of the Schedule pertaining to ankylosis and limitation of motion of the fingers and thumb. The proposed rule was published in the Federal Register on November 2, 2001 (66 FR 55614). Interested persons were invited to submit written comments on or before January 2, 2002. We received one comment, from the Disabled American Veterans.

We proposed to change the name of the “middle finger” to “long finger” in the diagnostic codes pertaining to digit ankylosis and limitation of motion. The commenter suggested that we make the same change in diagnostic codes for finger amputations. In response, we have made that change. In addition, in current Plate III, one finger is labeled “middle finger,” and we will be revising that as part of the overall revision of the orthopedic system to “long finger”. Similarly, the commenter suggested that we change “median transverse fold of palm” to “proximal transverse crease of palm” in 38 CFR 4.71, as we proposed to do in § 4.71a. We have also made that change.

We proposed to evaluate an ankylosed digit as amputation when both joints are ankylosed, and either is in extension or “full” flexion. The commenter felt that the proposed ratings do not adequately provide for the disability that occurs when a finger ankylosed in flexion obstructs the other fingers and reduces the strength of the hand in gripping or grasping motions. The commenter expressed the belief that this disability is worse than an amputation and should receive a higher evaluation.

Digits that inhibit the use of other fingers are sometimes amputated if they inhibit hand function. Since 38 CFR 4.68, “Amputation rule,” however, prohibits an evaluation exceeding that which would be assigned if the finger were amputated, we have adopted another way of addressing this problem. In our judgment, if finger flexion deformity interferes with the function of other fingers or hand function overall, assessment of the other fingers or the hand overall should be taken into account in rating. This is both more appropriate than providing a higher evaluation for the ankylosed finger itself and consistent with the requirements of § 4.68. Provisions #2 and #5 of this portion of the rating schedule would apply in this situation. However, to assure that raters address any additional disability due to ankylosis of a single digit, we have revised the notes following the diagnostic codes for ankylosis of individual digits, which currently direct raters to consider rating as amputation, to read “Also consider whether evaluation as amputation is warranted and whether an additional evaluation is warranted for resulting limitation of motion of other digits or interference with overall function of the hand”. In our judgment, this will be sufficient to alert raters to the possibility of additional disability due to a single ankylosed digit.

VA appreciates the comment submitted in response to the proposed rule. Based on the rationale stated in the proposed rule and in this document, the proposed rule is adopted with the changes noted.

This document contains no provisions constituting a collection of information under the Paperwork Reduction Act (44 U.S.C. 3501-3520).

The Secretary hereby certifies that this regulatory amendment will not have a significant economic impact on a substantial number of small entities as they are defined in the Regulatory Flexibility Act (RFA), 5 U.S.C. 601-612. The reason for this certification is that this amendment would not directly affect any small entities. Only VA beneficiaries could be directly affected. Therefore, pursuant to 5 U.S.C. 605(b), this amendment is exempt from the initial and final regulatory flexibility analysis requirements of sections 603 and 604.

This regulatory amendment has been reviewed by the Office of Management and Budget under the provisions of Executive Order 12866, Regulatory Planning and Review, dated September 30, 1993.

The Catalog of Federal Domestic Assistance program numbers are 64.104 and 64.109.

Throughout this document wherever “we,” “us,” or “our” are used we mean EPA. This SUPPLEMENTARY INFORMATION section is organized as follows:

We are approving the State of Minnesota's request to redesignate the Ramsey County PM nonattainment area to attainment of the PM NAAQS. We are also approving the maintenance plan for this area into the Minnesota PM SIP.

MPCA believes that the Ramsey County PM nonattainment area is eligible for redesignation because we have approved the Saint Paul PM SIP and monitors in the nonattainment area have not recorded any exceedances of the PM NAAQS since May 1995. The redesignation request submittal consists primarily of a maintenance plan and air quality monitoring data. The submittal contains text describing how the statutory requirements were met.

Consistent with the Act's redesignation requirements of section 107(d)(3)(E), EPA developed procedures for redesignation of nonattainment areas that are in an EPA September 4, 1992 memorandum titled, “Procedures for Processing Requests to Redesignate Areas to Attainment.” This EPA guidance document contains a number of requirements that a state must meet before it can request a change in designation for a federally designated nonattainment area. That memorandum and EPA's June 27, 2002 Technical Support Document set forth the rationale in support of the redesignation of the Ramsey County PM nonattainment area to an attainment status.

There are two components involved in making this demonstration: (1) Ambient air quality monitoring representative of the area of highest concentration must show no more than one exceedance annually; and (2) EPA approved air quality modeling must show that the area in question meets the applicable standard. The 24-hour primary PM standard is 150 micrograms per cubic meter (μg/m 3 ), with no more than one expected exceedance per year. The annual primary PM standard is 50 μg/m 3 expected annual arithmetic mean. The secondary PM standards are identical to the primary standards.

MPCA submitted ambient air monitoring data for the years 1998-2000 and the period of January-September 2001, from two PM monitoring sites in the nonattainment area located at 1450 Red Rock Road and 1200 Warner Road. This data has been quality assured and is available for review in the Aerometric Information Retrieval System (AIRS), monitor numbers 271230866 and 271230870 respectively. No monitored exceedances of the PM NAAQS have occurred in Ramsey County since May 20, 1995.

MPCA initially submitted the modeling demonstration to EPA in 1991, 1992, and 1993. MPCA performed the modeling in accordance with the EPA document titled “Guideline on Air Quality Models, (Revised), including Supplement A,” 1987. The Industrial Source Complex—Short Term (ISCST) model was used for the analysis. The demonstration explicitly modeled maximum allowable emissions for all industrial sources, included an estimate of actual emissions for the diffuse area sources such as public roadways, and added in a concentration representative of local background sources. The analysis showed that, with all control measures in operation, modeled concentrations combined with background PM concentrations did not violate the NAAQS. A more detailed discussion of the modeling demonstration can be found in the June 25, 1993 proposed rulemaking on the Saint Paul PM SIP revision (58 FR 34297). We concluded on February 15, 1994 (59 FR 7218) that the air dispersion modeling met the appropriate requirements of the Act.

Due to exceedances recorded at the Red Rock Road monitor between 1992 and 1995, MPCA recognized that the PM SIP submitted in 1992 no longer sufficiently characterized the area. The State determined that the exceedances were attributable to shifts and increases in local source activity (such as traffic newly occurring on unpaved surfaces) which had occurred since development of the prior plan, and not to any deficiencies in the prior plan. The State worked with EPA and the companies involved to address the new violations with sufficient additional controls to support an updated modeled attainment demonstration. MPCA submitted SIP revisions to EPA on February 9, 1996 and July 22, 1998, that included additional control measures and updated modeling to address these exceedances.

The revised modeling incorporated all the actual Red Rock Road facilities' stack and emissions data. It also updated the modeling of other nearby PM sources within 2 to 4 kilometers of the Red Rock Road monitor. The modeling analysis demonstrated attainment and maintenance of the PM NAAQS in the Red Rock Road area. Additional information can be found in our August 13, 1999 approval of the Saint Paul PM SIP (62 FR 39120).

MPCA submitted PM SIP revisions in 1991, 1992 and 1993 to fulfill the requirements of Section 110 and Part D of the Act. The enforceable elements of the State's submittals were administrative orders for nine facilities in the Saint Paul area. We approved Minnesota's submittals as satisfying the applicable requirements for the Ramsey County PM nonattainment area on February 15, 1994 (59 FR 7218). In addition, MPCA submitted supplemental SIP revisions for the Red Rock Road portion of the nonattainment area in 1996 and 1998. These submittals contained additional emission limits and/or control measures for certain facilities located along Red Rock Road, and a revised modeled attainment demonstration for the Red Rock Road area. Changes to emissions that occurred at some of the facilities, including sources in the 2-4 kilometer range of the Red Rock Road area, were included in the revised modeling demonstration. We approved the Red Rock Road supplementary PM SIP on August 13, 1999 (64 FR 44131).

Air quality improvement in the Ramsey County PM nonattainment area is attributed to PM emission limits and operating restrictions imposed on the facilities that contributed to the nonattainment status. These limits have been incorporated into the state PM SIP, through the use of non-expiring Administrative Orders or through non-expiring Title I conditions found in Title V or federally enforceable State permits that contain the requirements of an original Administrative Order, and are therefore permanent and enforceable. The PM dispersion modeling, conducted as part of the Saint Paul PM SIP revisions, predicts that the control measures included in the SIP are sufficient to provide for attainment and maintenance of the PM NAAQS.

Section 110(a)(2) of the Act contains the general requirements for nonattainment plans. Part D contains the general requirements applicable to all areas that are designated nonattainment based on a violation of the NAAQS. These requirements are satisfied by EPA's February 15, 1994 and August 13, 1999 approvals of the nonattainment plans that Minnesota submitted for the control of PM emissions in the Ramsey County area.

A Prevention of Significant Deterioration (PSD) program will replace the requirements of the part D new source review program after redesignation of the area. To ensure that the PSD program will become fully effective immediately upon redesignation, either EPA must delegate the federal PSD program to the state or the state must make any needed modifications to its rules to have the approved PSD program apply to the affected area upon redesignation. We delegated the PSD program to the State of Minnesota on March 26, 1979, and amended the delegation on October 15, 1980 and November 3, 1988.

Section 107(d)(3)(E) of the Act states that, for an area to be redesignated, EPA must fully approve a maintenance plan that meets the requirements of section 175A. Section 175A(a) of the Act requires states to submit a SIP revision that provides for the maintenance of the NAAQS in the area for at least 10 years after approval of the redesignation. The basic components needed to ensure proper maintenance of the NAAQS are: attainment inventory, maintenance demonstration, verification of continued attainment, ambient air monitoring network, and a contingency plan. Further, section 175A(b) requires states to submit a SIP revision 8 years after redesignation that provides for the maintenance of the NAAQS in the area for 10 years after the expiration of the first 10-year period required by section 175A(a). EPA is approving the maintenance plan in today's action as discussed below.

a. Attainment Inventory. The air dispersion modeling included in the state's SIP submittals contains the emission inventory of PM sources in the Ramsey County nonattainment area.

b. Maintenance Demonstration and Verification of Continued Attainment. The modeling analyses submitted by MPCA demonstrate attainment and maintenance of the PM NAAQS. The PM emitting sources involved in the Ramsey County PM redesignation are meeting the PM maximum allowable emission limits identified in the modeling. Protection of the NAAQS is further assured because actual PM emissions are generally less than the allowable PM emissions considered in the modeling.

MPCA will monitor growth in the area mainly through administration of the MPCA's permitting program, keeping track of new facility permit applications and permit amendment requests and ensuring compliance with the MPCA's permitting rules. The State permitting process requires any PM source potentially emitting 25 tons a year to demonstrate, through dispersion modeling, that attainment of the NAAQS is met before the source may obtain a permit.

c. Monitoring Network. Once an area has been redesignated, the State must continue to operate an appropriate air quality monitoring network, in accordance with 40 CFR part 58, to verify the attainment status of the area. The maintenance plan should contain provisions for continued operation of air quality monitors that will provide such verification. In its submittal, the State commits to continue to operate and maintain the network of PM monitoring stations and to report the data in AIRS to demonstrate ongoing compliance with the PM NAAQS.

d. Contingency Plan. Section 175A of the Act requires that the maintenance plan include contingency provisions to promptly correct any violation of the NAAQS that occurs after redesignation of the area. MPCA included contingency measures for the Ramsey County PM nonattainment area in the Administrative Orders contained in its August 31, 1992, submittal. These measures are eligible to be used as the maintenance plan contingency measures, because the State was able to attain the PM NAAQS with the limitations and control measures already contained in the SIP approved by EPA in 1994 and the additional measures approved by EPA into the SIP in 1999.

We have evaluated the state's submittal and have determined that it meets the applicable requirements of the Act, EPA regulations, and EPA policy. Therefore, we are approving the State of Minnesota's request to redesignate the Saint Paul, Ramsey County PM nonattainment area to attainment of the PM NAAQS. We are also approving the maintenance plan for the Ramsey County area into the Minnesota PM SIP.

The EPA is publishing this action without prior proposal because we view this as a noncontroversial amendment and anticipate no adverse comments. However, in the proposed rules section of this Federal Register publication, we are publishing a separate document that will serve as the proposal to approve the state plan if relevant adverse comments are filed. This rule will be effective September 24, 2002 without further notice unless we receive relevant adverse written comments by August 26, 2002. If we receive such comments, we will withdraw this action before the effective date by publishing a subsequent document that will withdraw the final action. We will then address all public comments received in a subsequent final rule based on the proposed action. The EPA will not institute a second comment period. Any parties interested in commenting on this action should do so at this time. If we do not receive any comments, this action will be effective September 24, 2002.

Under Executive Order 12866, “Regulatory Planning and Review” (58 FR 51735, October 4, 1993), this action is not a “significant regulatory action” and therefore is not subject to review by the Office of Management and Budget. For this reason, this action is also not subject to Executive Order 13211, “Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use” (66 FR 28355, May 22, 2001). This action merely approves state law as meeting federal requirements and imposes no additional requirements beyond those imposed by state law. Accordingly, the Administrator certifies that this rule will not have a significant economic impact on a substantial number of small entities under the Regulatory Flexibility Act (5 U.S.C. 601 et seq. ). Because this rule approves pre-existing requirements under state law and does not impose any additional enforceable duty beyond that required by state law, it does not contain any unfunded mandate nor does it significantly or uniquely affect small governments, as described in the Unfunded Mandates Reform Act of 1995 (Public Law 104-4).

This rule also does not have tribal implications because it will not have a substantial direct effect on one or more Indian tribes, on the relationship between the federal government and Indian tribes, or on the distribution of power and responsibilities between the federal government and Indian tribes, as specified by Executive Order 13175, “Consultation and Coordination with Indian Tribal Governments” (65 FR 67249, November 9, 2000). This action also does not have federalism implications because it will not have substantial direct effects on the states, on the relationship between the national government and the states, or on the distribution of power and responsibilities among the various levels of government, as specified in Executive Order 13132, “Federalism” (64 FR 43255, August 10, 1999). This action merely approves a state rule implementing a federal standard, and does not alter the relationship or the distribution of power and responsibilities established in the Clean Air Act. This rule also is not subject to Executive Order 13045 “Protection of Children from Environmental Health Risks and Safety Risks” (62 FR 19885, April 23, 1997), because it is not a significant regulatory action under Executive Order 12866.

Section 12(d) of the National Technology Transfer and Advancement Act of 1995 (NTTA), 15 U.S.C. 272, requires federal agencies to use technical standards that are developed or adopted by voluntary consensus to carry out policy objectives, so long as such standards are not inconsistent with applicable law or otherwise impracticable. In reviewing SIP submissions, EPA's role is to approve state choices, provided that they meet the criteria of the Act. Absent a prior existing requirement for the state to use voluntary consensus standards, EPA has no authority to disapprove a SIP submission for failure to use such standards, and it would thus be inconsistent with applicable law for EPA to use voluntary consensus standards in place of a SIP submission that otherwise satisfies the provisions of the Act. Therefore, the requirements of section 12(d) of the NTTA do not apply.

As required by section 3 of Executive Order 12988 (61 FR 4729, February 7, 1996), in issuing this rule, EPA has taken the necessary steps to eliminate drafting errors and ambiguity, minimize potential litigation, and provide a clear legal standard for affected conduct. EPA has complied with Executive Order 12630 (53 FR 8859, March 15, 1988) by examining the takings implications of the rule in accordance with the “Attorney General's Supplemental Guidelines for the Evaluation of Risk and Avoidance of Unanticipated Takings” issued under the executive order, and has determined that the rule's requirements do not constitute a taking. This rule does not impose an information collection burden under the provisions of the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq. ).

The Congressional Review Act, 5 U.S.C. 801 et seq. , as added by the Small Business Regulatory Enforcement Fairness Act of 1996, generally provides that before a rule may take effect, the agency promulgating the rule must submit a rule report, which includes a copy of the rule, to each House of the Congress and to the Comptroller General of the United States. EPA will submit a report containing this rule and other required information to the U.S. Senate, the U.S. House of Representatives, and the Comptroller General of the United States prior to publication of the rule in the Federal Register . A major rule cannot take effect until 60 days after it is published in the Federal Register . This action is not a “major rule” as defined by 5 U.S.C. 804(2).

Under section 307(b)(1) of the Clean Air Act, petitions for judicial review of this action must be filed in the United States Court of Appeals for the appropriate circuit by September 24, 2002. Filing a petition for reconsideration by the Administrator of this final rule does not affect the finality of this rule for the purposes of judicial review nor does it extend the time within which a petition for judicial review may be filed, and shall not postpone the effectiveness of such rule or action. This action may not be challenged later in proceedings to enforce its requirements. ( See section 307(b)(2).)

You may be potentially affected by this action if you are an agricultural producer, food manufacturer, or pesticide manufacturer. Potentially affected categories and entities may include, but are not limited to:

This listing is not intended to be exhaustive, but rather provides a guide for readers regarding entities likely to be affected by this action. Other types of entities not listed in the table could also be affected. The North American Industrial Classification System (NAICS) codes have been provided to assist you and others in determining whether or not this action might apply to certain entities. If you have questions regarding the applicability of this action to a particular entity, consult the person listed under FOR FURTHER INFORMATION CONTACT .

1. Electronically . You may obtain electronic copies of this document, and certain other related documents that might be available electronically, from the EPA Internet Home Page at http://www.epa.gov/. To access this document, on the Home Page select “Laws and Regulations,” “Regulations and Proposed Rules,” and then look up the entry for this document under the “ Federal Register —Environmental Documents.” You can also go directly to the Federal Register listings at http://www.epa.gov/fedrgstr/. A frequently updated electronic version of 40 CFR part 180 is available at http://www.access.gpo.gov/nara/cfr/cfrhtml_00/Title_40/40cfr180_0 0.html , a beta site currently under development.

2. In person . The Agency has established an official record for this action under docket control number OPP-2002-0145. The official record consists of the documents specifically referenced in this action, and other information related to this action, including any information claimed as Confidential Business Information (CBI). This official record includes the documents that are physically located in the docket, as well as the documents that are referenced in those documents. The public version of the official record does not include any information claimed as CBI. The public version of the official record, which includes printed, paper versions of any electronic comments submitted during an applicable comment period is available for inspection in the Public Information and Records Integrity Branch (PIRIB), Rm. 119, Mall #2, 1921 Jefferson Davis Hwy., Arlington, VA, from 8:30 a.m. to 4 p.m., Monday through Friday, excluding legal holidays. The PIRIB telephone number is (703) 305-5805.

EPA, on its own initiative, in accordance with sections 408(e) and 408(l)(6) of the Federal Food, Drug, and Cosmetic Act (FFDCA), 21 U.S.C. 346a, is establishing tolerances for residues of the insecticide bifenthrin, (2-methyl [1,1′-biphenyl]-3-yl) methyl-3-(2-chloro- 3,3,3-trifluoro-1-propenyl)-2,2-dimethylcyclopropane carboxylate, in or on orchardgrass, forage and orchardgrass, hay at 0.05 part per million (ppm). These tolerances will expire and are revoked on June 30, 2004. EPA will publish a document in the Federal Register to remove the revoked tolerance from the Code of Federal Regulations.

Section 408(l)(6) of the FFDCA requires EPA to establish a time-limited tolerance or exemption from the requirement for a tolerance for pesticide chemical residues in food that will result from the use of a pesticide under an emergency exemption granted by EPA under section 18 of FIFRA. Such tolerances can be established without providing notice or period for public comment. EPA does not intend for its actions on section 18 related tolerances to set binding precedents for the application of section 408 and the new safety standard to other tolerances and exemptions. Section 408(e) of the FFDCA allows EPA to establish a tolerance or an exemption from the requirement of a tolerance on its own initiative, i.e., without having received any petition from an outside party.

Section 408(b)(2)(A)(i) of the FFDCA allows EPA to establish a tolerance (the legal limit for a pesticide chemical residue in or on a food) only if EPA determines that the tolerance is “safe.” Section 408(b)(2)(A)(ii) defines “safe” to mean that “there is a reasonable certainty that no harm will result from aggregate exposure to the pesticide chemical residue, including all anticipated dietary exposures and all other exposures for which there is reliable information.” This includes exposure through drinking water and in residential settings, but does not include occupational exposure. Section 408(b)(2)(C) requires EPA to give special consideration to exposure of infants and children to the pesticide chemical residue in establishing a tolerance and to “ensure that there is a reasonable certainty that no harm will result to infants and children from aggregate exposure to the pesticide chemical residue. . . .”

Section 18 of FIFRA authorizes EPA to exempt any Federal or State agency from any provision of FIFRA, if EPA determines that “emergency conditions exist which require such exemption.” This provision was not amended by the Food Quality Protection Act (FQPA). EPA has established regulations governing such emergency exemptions in 40 CFR part 166.

Oregon produces nearly all of the nation's orchardgrass seed, which is primarily used as a high protein pasture grass. The key pest of orchardgrass in Oregon is the orchardgrass billbug, which lays eggs into the stem where they hatch and are unreachable by topical insecticides. The effect of drought conditions in fields as seen in 2001 serves to magnify damage and loss associated with this pest. Chlorpyrifos once provided good efficacy against orchardgrass billbug; however, efficacy has recently dropped below acceptable levels. In addition, crop practices for long developing seed crops such as orchardgrass, and lack of readily available market for potential alternate seed and/or rotational vegetable crops preclude any cultural practices which might mitigate this pest situation. Significant yield losses, and subsequently economic losses, are expected without adequate control. EPA has authorized under FIFRA section 18 the use of bifenthrin on orchardgrass for control of orchardgrass billbug in Oregon. After having reviewed the submission, EPA concurs that emergency conditions exist for this State.

As part of its assessment of this emergency exemption, EPA assessed the potential risks presented by residues of bifenthrin in or on orchardgrass forage and hay. In doing so, EPA considered the safety standard in FFDCA section 408(b)(2), and EPA decided that the necessary tolerances under FFDCA section 408(l)(6) would be consistent with the safety standard and with FIFRA section 18. Consistent with the need to move quickly on the emergency exemption in order to address an urgent non-routine situation and to ensure that the resulting food is safe and lawful, EPA is establishing these tolerances without notice and opportunity for public comment as provided in section 408(l)(6). Although these tolerances will expire and are revoked on June 30, 2004, under FFDCA section 408(l)(5), residues of the pesticide not in excess of the amounts specified in the tolerances remaining in or on orchardgrass forage and hay after that date will not be unlawful, provided the pesticide is applied in a manner that was lawful under FIFRA, and the residues do not exceed the level that was authorized by these tolerances at the time of that application. EPA will take action to revoke these tolerances earlier if any experience with, scientific data on, or other relevant information on this pesticide indicate that the residues are not safe.

Because these tolerances are being approved under emergency conditions, EPA has not made any decisions about whether bifenthrin meets EPA's registration requirements for use on orchardgrass or whether permanent tolerances for this use would be appropriate. Under these circumstances, EPA does not believe that these tolerances serve as a basis for registration of bifenthrin by a State for special local needs under FIFRA section 24(c). Nor do these tolerances serve as the basis for any State other than Oregon to use this pesticide on this crop under section 18 of FIFRA without following all provisions of EPA's regulations implementing section 18 as identified in 40 CFR part 166. For additional information regarding the emergency exemption for bifenthrin, contact the Agency's Registration Division at the address provided under FOR FURTHER INFORMATION CONTACT .

EPA performs a number of analyses to determine the risks from aggregate exposure to pesticide residues. For further discussion of the regulatory requirements of section 408 and a complete description of the risk assessment process, see the final rule on Bifenthrin Pesticide Tolerances (62 FR 62961, November 26, 1997) (FRL-5754-7).

Consistent with section 408(b)(2)(D), EPA has reviewed the available scientific data and other relevant information in support of this action. EPA has sufficient data to assess the hazards of bifenthrin and to make a determination on aggregate exposure, consistent with section 408(b)(2), for time-limited tolerances for residues of bifenthrin in or on orchardgrass hay and forage at 0.05 ppm.

No orchardgrass residue data were submitted for this request. The proposed use rate of bifenthrin for orchardgrass is approximately the same as that registered for use on alfalfa grown for seed. Therefore, the data from alfalfa was translated to orchardgrass for this section 18 use. The established tolerances for meat and milk commodities are adequate to cover any residues which may result from this section 18 use. Based upon previous feeding studies, the secondary residues in meat and milk will not exceed the established tolerances as a result of this section 18 use.

Residues of bifenthrin in/on orchardgrass are not expected to increase dietary exposure. Since orchardgrass is not consumed by humans, any exposure to residues of bifenthrin from this emergency exemption use will result from the consumption of meat or milk. The use of bifenthrin in orchardgrass is not expected to result in exceedances of the tolerances that already exist for meat and milk. Therefore, establishing the orchardgrass tolerances will not increase the most recent estimated aggregate risks resulting from the use of bifenthrin, as discussed in the Federal Register for September 27, 2001 (66 FR 49300) (FRL-6801-5) final rule establishing a tolerance for residues of bifenthrin in/on sweet potatoes, because in that prior action, risk was estimated assuming all meat and milk commodities contained tolerance level residues. Refer to the September 27, 2001 Federal Register document for a detailed discussion of the aggregate risk assessments and determination of safety. EPA relies upon that risk assessment and the findings made in the Federal Register document in support of this action. Below is a brief summary of the aggregate risk assessment.

EPA has evaluated the available toxicity data and considered its validity, completeness, and reliability as well as the relationship of the results of the studies to human risk. EPA has also considered available information concerning the variability of the sensitivities of major identifiable subgroups of consumers, including infants and children. A summary of the toxicological dose and endpoints for bifenthrin for use in human risk assessment is discussed in Unit IV.A. of the final rule mentioned above, published in the Federal Register of September 27, 2001 (66 FR 49300) (FRL-6801-5).

EPA assessed risk scenarios for bifenthrin under acute, chronic, and short- and intermediate-term exposures.

The Dietary Exposure Evaluation Model (DEEM®) analysis evaluated the individual food consumption as reported by respondents in the USDA 1994-1996 nationwide Continuing Surveys of Food Intake by Individuals (CSFII) and accumulated exposure to the chemical for each commodity.

The following assumptions were made for the acute exposure assessments: A probabilistic Monte Carlo analysis (Tier 3) was used; PCT (% crop treated) and anticipated residues were used for registered uses, and 100% crop treated was assumed for all other uses.

Using these exposure assessments, the EPA concluded that exposure to bifenthrin from food will utilize 60% of the acute population adjusted dose (aPAD) for the U.S. population, 40% for females 13 years and older, 75% for all infants <1 year old, and 99.7% of the aPAD for children 1 to 6 years old. In addition, despite the potential for acute dietary exposure to bifenthrin in drinking water, after calculating drinking water levels of concern (DWLOCs) and comparing them to conservative model estimated environmental concentrations (EECs) of bifenthrin in surface and ground water, EPA does not expect the aggregate exposure to exceed 100% of the aPAD, as shown in the following Table 1.

The following assumptions were made for the chronic exposure assessments: The Agency used anticipated residue values which were determined from field trial data collected from studies conducted with maximum label rates and minimum preharvest intervals. Mean anticipated residue values were calculated. 100% crop treated was assumed for all crops except hops (43%) and cottonseed oil and meal (4%).

Using these exposure assessments, the EPA concluded that exposure to bifenthrin from food will utilize 3% of the chronic population adjusted dose (cPAD) for the US population, 3% for females 13 years and older, and 8.2% of the cPAD for children 1 to 6 years old. Based on the use pattern, chronic residential exposure to residues of bifenthrin is not expected. In addition, despite the potential for chronic dietary exposure to bifenthrin in drinking water, after calculating DWLOCs and comparing them to conservative model EECs of bifenthrin in surface and ground water, EPA does not expect the aggregate exposure to exceed 100% of the cPAD, as shown in the following Table 2.

Bifenthrin has been classified as a Group C chemical (possible human carcinogen) based upon urinary bladder tumors in mice. No Q* was assigned because the Reference dose (RfD) approach was recommended for cancer risk assessment. Based on this recommendation, a quantitative dietary cancer risk assessment was not performed since dietary risk concerns due to long-term consumption of bifenthrin are adequately addressed by the chronic exposure analysis using the RfD.

Short- and intermediate-term aggregate exposure takes into account residential exposure plus chronic exposure to food and water (considered to be a background exposure level). Bifenthrin is currently registered for use(s) that could result in short-term residential exposure and the Agency has determined that it is appropriate to aggregate chronic food and water and short-term exposures for bifenthrin. EPA has concluded that food and residential exposures aggregated result in aggregate margin of exposure (MOEs) of 940 for adults, 350 for children (1-6 years old), and 470 for infants < 1 year old. These aggregate MOEs do not exceed the Agency's level of concern for aggregate exposure to food and residential uses. In addition, short-term DWLOCs were calculated and compared to the EECs for chronic exposure of bifenthrin in ground water and surface water. After calculating DWLOCs and comparing them to the EECs for surface and ground water, EPA does not expect short-term aggregate exposure to exceed the Agency's level of concern, as shown in the following Table 3:

Based on these risk assessments, EPA concludes that there is a reasonable certainty that no harm will result to the general population, and to infants and children from aggregate exposure to bifenthrin residues.

Adequate enforcement methodology is available to enforce the tolerance expression. The method may be requested from: Calvin Furlow, PRRIB, IRSD (7502C), Office of Pesticide Programs, Environmental Protection Agency, 1200 Pennsylvania Ave., NW, Washington, DC 20460; telephone number: (703) 305-5229; e-mail address: furlow.calvin@epa.gov.

There are no Codex maximum residue limits (MRLs) established for bifenthrin on grass forage and hay. Therefore, no compatibility problems exist for the proposed tolerances.

One application may be made. A maximum of 0.10 pound of active ingredient may be applied per acre using ground equipment. Bifenthrin is not to be applied within 30 days of grazing, feeding, or harvesting (cutting) forage or hay.

Therefore, the tolerances are established for residues of bifenthrin, (2-methyl [1,1′-biphenyl]-3-yl) methyl-3-(2-chloro-3,3,3-trifluoro-1-propenyl)-2,2-dimethylcyclopropane carboxylate, in or on orchardgrass forage, and orchardgrass hay at 0.05 ppm.

Under section 408(g) of the FFDCA, as amended by the FQPA, any person may file an objection to any aspect of this regulation and may also request a hearing on those objections. The EPA procedural regulations which govern the submission of objections and requests for hearings appear in 40 CFR part 178. Although the procedures in those regulations require some modification to reflect the amendments made to the FFDCA by the FQPA of 1996, EPA will continue to use those procedures, with appropriate adjustments, until the necessary modifications can be made. The new section 408(g) provides essentially the same process for persons to “object” to a regulation for an exemption from the requirement of a tolerance issued by EPA under new section 408(d), as was provided in the old FFDCA sections 408 and 409. However, the period for filing objections is now 60 days, rather than 30 days.

You must file your objection or request a hearing on this regulation in accordance with the instructions provided in this unit and in 40 CFR part 178. To ensure proper receipt by EPA, you must identify docket control number OPP-2002-0145 in the subject line on the first page of your submission. All requests must be in writing, and must be mailed or delivered to the Hearing Clerk on or before September 24, 2002.

1. Filing the request . Your objection must specify the specific provisions in the regulation that you object to, and the grounds for the objections (40 CFR 178.25). If a hearing is requested, the objections must include a statement of the factual issues(s) on which a hearing is requested, the requestor's contentions on such issues, and a summary of any evidence relied upon by the objector (40 CFR 178.27). Information submitted in connection with an objection or hearing request may be claimed confidential by marking any part or all of that information as CBI. Information so marked will not be disclosed except in accordance with procedures set forth in 40 CFR part 2. A copy of the information that does not contain CBI must be submitted for inclusion in the public record. Information not marked confidential may be disclosed publicly by EPA without prior notice.

Mail your written request to: Office of the Hearing Clerk (1900), Environmental Protection Agency, 1200 Pennsylvania Ave., NW., Washington, DC 20460. You may also deliver your request to the Office of the Hearing Clerk in Rm. C400, Waterside Mall, 401 M St., SW., Washington, DC 20460. The Office of the Hearing Clerk is open from 8 a.m. to 4 p.m., Monday through Friday, excluding legal holidays. The telephone number for the Office of the Hearing Clerk is (202) 260-4865.

2. Tolerance fee payment . If you file an objection or request a hearing, you must also pay the fee prescribed by 40 CFR 180.33(i) or request a waiver of that fee pursuant to 40 CFR 180.33(m). You must mail the fee to: EPA Headquarters Accounting Operations Branch, Office of Pesticide Programs, P.O. Box 360277M, Pittsburgh, PA 15251. Please identify the fee submission by labeling it “Tolerance Petition Fees.”

EPA is authorized to waive any fee requirement “when in the judgement of the Administrator such a waiver or refund is equitable and not contrary to the purpose of this subsection.” For additional information regarding the waiver of these fees, you may contact James Tompkins by phone at (703) 305-5697, by e-mail at tompkins.jim@epa.gov, or by mailing a request for information to Mr. Tompkins at Registration Division (7505C), Office of Pesticide Programs, Environmental Protection Agency, 1200 Pennsylvania Ave., NW., Washington, DC 20460.

If you would like to request a waiver of the tolerance objection fees, you must mail your request for such a waiver to: James Hollins, Information Resources and Services Division (7502C), Office of Pesticide Programs, Environmental Protection Agency, 1200 Pennsylvania Ave., NW., Washington, DC 20460.

3. Copies for the Docket . In addition to filing an objection or hearing request with the Hearing Clerk as described in Unit VII.A., you should also send a copy of your request to the PIRIB for its inclusion in the official record that is described in Unit I.B.2. Mail your copies, identified by the docket control number OPP-2002-0145, to: Public Information and Records Integrity Branch, Information Resources and Services Division (7502C), Office of Pesticide Programs, Environmental Protection Agency, 1200 Pennsylvania Ave., NW., Washington, DC 20460. In person or by courier, bring a copy to the location of the PIRIB described in Unit I.B.2. You may also send an electronic copy of your request via e-mail to: opp-docket@epa.gov. Please use an ASCII file format and avoid the use of special characters and any form of encryption. Copies of electronic objections and hearing requests will also be accepted on disks in WordPerfect 6.1/8.0 or ASCII file format. Do not include any CBI in your electronic copy. You may also submit an electronic copy of your request at many Federal Depository Libraries.

A request for a hearing will be granted if the Administrator determines that the material submitted shows the following: There is a genuine and substantial issue of fact; there is a reasonable possibility that available evidence identified by the requestor would, if established resolve one or more of such issues in favor of the requestor, taking into account uncontested claims or facts to the contrary; and resolution of the factual issues(s) in the manner sought by the requestor would be adequate to justify the action requested (40 CFR 178.32).

This final rule establishes a time limited tolerance under FFDCA section 408. The Office of Management and Budget (OMB) has exempted these types of actions from review under Executive Order 12866, entitled Regulatory Planning and Review (58 FR 51735, October 4, 1993). Because this rule has been exempted from review under Executive Order 12866 due to its lack of significance, this rule is not subject to Executive Order 13211, Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use (66 FR 28355, May 22, 2001). This final rule does not contain any information collections subject to OMB approval under the Paperwork Reduction Act (PRA), 44 U.S.C. 3501 et seq. , or impose any enforceable duty or contain any unfunded mandate as described under Title II of the Unfunded Mandates Reform Act of 1995 (UMRA) (Public Law 104-4). Nor does it require any special considerations under Executive Order 12898, entitled Federal Actions to Address Environmental Justice in Minority Populations and Low-Income Populations (59 FR 7629, February 16, 1994); or OMB review or any Agency action under Executive Order 13045, entitled Protection of Children from Environmental Health Risks and Safety Risks (62 FR 19885, April 23, 1997). This action does not involve any technical standards that would require Agency consideration of voluntary consensus standards pursuant to section 12(d) of the National Technology Transfer and Advancement Act of 1995 (NTTAA), Public Law 104-113, section 12(d) (15 U.S.C. 272 note). Since tolerances and exemptions that are established on the basis of a FIFRA section 18 exemption under FFDCA section 408, such as the tolerance in this final rule, do not require the issuance of a proposed rule, the requirements of the Regulatory Flexibility Act (RFA) (5 U.S.C. 601 et seq. ) do not apply. In addition, the Agency has determined that this action will not have a substantial direct effect on States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government, as specified in Executive Order 13132, entitled Federalism (64 FR 43255, August 10, 1999). Executive Order 13132 requires EPA to develop an accountable process to ensure “meaningful and timely input by State and local officials in the development of regulatory policies that have federalism implications.” “Policies that have federalism implications” is defined in the Executive order to include regulations that have “substantial direct effects on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government.” This final rule directly regulates growers, food processors, food handlers, and food retailers, not States. This action does not alter the relationships or distribution of power and responsibilities established by Congress in the preemption provisions of FFDCA section 408(n)(4). For these same reasons, the Agency has determined that this rule does not have any “tribal implications” as described in Executive Order 13175, entitled Consultation and Coordination with Indian Tribal Governments (65 FR 67249, November 6, 2000). Executive Order 13175, requires EPA to develop an accountable process to ensure “meaningful and timely input by tribal officials in the development of regulatory policies that have tribal implications.” “Policies that have tribal implications” is defined in the Executive order to include regulations that have “substantial direct effects on one or more Indian tribes, on the relationship between the Federal Government and the Indian tribes, or on the distribution of power and responsibilities between the Federal Government and Indian tribes.” This rule will not have substantial direct effects on tribal governments, on the relationship between the Federal Government and Indian tribes, or on the distribution of power and responsibilities between the Federal Government and Indian tribes, as specified in Executive Order 13175. Thus, Executive Order 13175 does not apply to this rule.

The Congressional Review Act, 5 U.S.C. 801 et seq. , as added by the Small Business Regulatory Enforcement Fairness Act of 1996, generally provides that before a rule may take effect, the agency promulgating the rule must submit a rule report, which includes a copy of the rule, to each House of the Congress and to the Comptroller General of the United States. EPA will submit a report containing this rule and other required information to the U.S. Senate, the U.S. House of Representatives, and the Comptroller General of the United States prior to publication of this final rule in the Federal Register . This final rule is not a “major rule” as defined by 5 U.S.C. 804(2).

You may be affected by this action if you are an agricultural producer, food manufacturer, or pesticide manufacturer. Potentially affected categories and entities may include, but are not limited to:

This listing is not intended to be exhaustive, but rather provides a guide for readers regarding entities likely to be affected by this action. Other types of entities not listed in the table could also be affected. The North American Industrial Classification System (NAICS) codes have been provided to assist you and others in determining whether or not this action might apply to certain entities. If you have questions regarding the applicability of this action to a particular entity, consult the person listed under FOR FURTHER INFORMATION CONTACT .

1. Electronically . You may obtain electronic copies of this document, and certain other related documents that might be available electronically, from the EPA Internet Home Page at http://www.epa.gov/. To access this document, on the Home Page select “Laws and Regulations,” “Regulations and Proposed Rules,” and then look up the entry for this document under the “ Federal Register —Environmental Documents.” You can also go directly to the Federal Register listings at http://www.epa.gov/fedrgstr/. A frequently updated electronic version of 40 CFR part 180 is available at http://www.access.gpo.gov/nara/cfr/cfrhtml_00/Title_40/40cfr180_00.html.

2. In person . The Agency has established an official record for this action under docket ID number OPP-2002-0142. The official record consists of the documents specifically referenced in this action, and other information related to this action, including any information claimed as Confidential Business Information (CBI). This official record includes the documents that are physically located in the docket, as well as the documents that are referenced in those documents. The public version of the official record does not include any information claimed as CBI. The public version of the official record, which includes printed, paper versions of any electronic comments submitted during an applicable comment period is available for inspection in the Public Information and Records Integrity Branch (PIRIB), Rm. 119, Crystal Mall #2, 1921 Jefferson Davis Hwy., Arlington, VA, from 8:30 a.m. to 4 p.m., Monday through Friday, excluding legal holidays. The PIRIB telephone number is (703) 305-5805.

In the Federal Register of June 21, 2000 (65 FR 38550) (FRL-6589-5), EPA issued a notice pursuant to section 408(d)(3) of the Federal Food, Drug, and Cosmetic Act (FFDCA), 21 U.S.C. 346a(d)(3), as amended by the Food Quality Protection Act (FQPA) (Public Law 104-170), announcing the filing of a pesticide tolerance petition (PP OF6144) by AgroFrech, Inc. (formerly BioTechnologies for Horticulture, Inc.), 100 Independence Mall West, Philadelphia, PA 19106-2399. As required by section 408(d)(2)(A)(i)(I), this notice included a summary of the petition prepared by the petitioner AgroFresh, Inc. There were no comments received in response to the notice of filing.

Section 408(c)(2)(A)(i) of the FFDCA allows EPA to establish an exemption from the requirement for a tolerance (the legal limit for a pesticide chemical residue in or on a food) only if EPA determines that the tolerance is “safe.” Section 408(c)(2)(A)(ii) defines “safe” to mean that “there is a reasonable certainty that no harm will result from aggregate exposure to the pesticide chemical residue, including all anticipated dietary exposures and all other exposures for which there is reliable information.” This includes exposure through drinking water and in residential settings, but does not include occupational exposure. Section 408(b)(2)(C) requires EPA to give special consideration to exposure of infants and children to the pesticide chemical residue in establishing a tolerance and to “ensure that there is a reasonable certainty that no harm will result to infants and children from aggregate exposure to the pesticide chemical residue. . . .” Additionally, section 408(b)(2)(D) requires that the Agency consider “available information” concerning the cumulative effects of a particular pesticide's residues and “other substances that have a common mechanism of toxicity.”

EPA performs a number of analyses to determine the risks from aggregate exposure to pesticide residues. First, EPA determines the toxicity of pesticides. Second, EPA examines exposure to the pesticide through food, drinking water, and through other exposures that occur as a result of pesticide use in residential settings.

Consistent with section 408(b)(2)(D) of FFDCA, EPA has reviewed the available scientific data and other relevant information in support of this action and considered its validity, completeness, and reliability and the relationship of this information to human risk. EPA has also considered available information concerning the variability of the sensitivities of major identifiable subgroups of consumers, including infants and children. The end-use product, a white powder, when mixed with water or a buffer solution releases the gas 1-MCP. The active ingredient acts an inhibitor to ethylene, by blocking the attachment of ethylene to tissue, and thus, prolongs the life of the food commodity treated.

Toxicity studies submitted in support of the tolerance exemption petition, and the Agency reviews are compiled in the official record established for this action under the docket ID number OPP-2002-0142.

1. Acute toxicity (MRIDs 444647-04 to 08) . 1-MCP exhibits low acute toxicity. It is a category IV biopesticide. The rat oral LD 50 is greater than 5,000 milligrams/kilograms (mg/kg), the rabbit dermal LD 50 is greater than 2,000 mg/kg and the rat inhalation LC 50 is greater than 2.5 milligram/liter (mg/L) (or greater than 1,126 parts per million (ppm) v/v active ingredient in air). No deaths or clinical signs of systemic toxicity were observed following these acute exposures. 1-MCP produces minimal irritation of skin and eyes in rabbits and 1-MCP is not a skin sensitizer. No hypersensitivity incidents were observed following exposure to 1-MCP.

2. Genotoxicity (MRID 444647-09) . 1-MCP was not mutagenic when tested as a gas in several short-term in vitro/in vivo assays, including a bacterial reverse mutation assay (Ames test), an in vitro mammalian point mutation assay in Chinese hamster ovary cells, an in vitro cytogenetics assay in human lymphocytes and an in vivo mouse micronucleus assay following inhalation exposure. In addition, 1-MCP is not mutagenic when tested as a suspension in cell media in the Ames test and in the in vitro mouse lymphoma forward mutation assay (MRID 444647-10) and is not mutagenic in the in vivo mouse micronucleus assay (MRID 444747-11) following oral exposure (gavage).

3. Developmental toxicity (MRID 454586-08) . 1-MCP produces no developmental toxicity when tested in a standard developmental toxicity study in the rat via inhalation at concentrations up to and including 2.3 mg a.i./L (or 543 mg a.i./kg/day, 6 hr exposure/day). The no observed adverse effect level (NOAEL) for maternal toxicity was 0.24 mg a.i./L (56 mg a.i./kg/day, 6 hr exposure/day).

4. Subchronic toxicity (MRID 456090-01) . 1-MCP was tested in a 90-day inhalation study at doses of 0.05, 0.24 and 2.3 mg a.i./kg in the rat. The NOAEL is 0.05 mg a.i./L (equivalent to 9 to 15 mg a.i./kg/day), based on minimal to mild effects on spleen and kidney histopathology at 0.24 mg a.i./L (equivalent to 39 to 66 mg a.i./kg/day). In this study there was no evidence of neurotoxicity, no effects on the respiratory tract and no effects on pathology of any endocrine or reproductive organs up to and including the highest dose tested of 2.3 mg a.i./L (or equivalent to 380 to 640 mg a.i./kg/day).

5. AgroFresh (the applicant) submitted a waiver request for the immune response data requirements based on the current toxicological data submitted on 1-MCP. The review of the 3-month inhalation rat study (mentioned in the previous paragraph) indicates, no effects on thymus weight and no effects on the histopathology of the thymus, bone marrow or spleen that would be attributed to an impact on the immune system were seen. There were no effects on white blood cell differential parameters (including monocytes, lymphocytes, segmented neutrophils or eosinophils) and no basophils were observed which may be indicative of an allergic reaction. The Agency concluded that 1-MCP did not induce dysfunction or inappropriate suppressive responses in components of the immune system. As a result, immune response data requirements were waived.

6. Other . 1-MCP has a mode of action in plants which is a non-persistent and non-toxic mode of action. 1-MCP prevents the natural chemical, ethylene, from binding to ethylene receptors in plants. This mode of action is not relevant in animals, since ethylene receptors are not present in animal tissues.

In examining aggregate exposure, FFDCA section 408 directs EPA to consider available information concerning exposures from the pesticide residue in food and all other non-occupational exposures, including drinking water from ground water or surface water and exposure through pesticide use in gardens, lawns, or buildings (residential and other indoor uses).

1. Food — From food and feed uses . The primary source for human exposure to 1-MCP will be from ingestion of the following raw food commodities and the processed food commodities derived from: apples, melons, tomatoes, pears, avocadoes, mangoes, papayas, kiwifruit, plums, apricots and persimmons. Studies submitted (MRID 456090-02) showed residues in treated apples to be extremely low (average residue was 0.004 ppm using an exaggerated treatment rate of 1,200 parts per billion (ppb) versus the 1,000 ppb proposed label rate). A worst-case scenario (using the 0.004 ppm average residue concentration found in treated apples and assuming that concentration is present in 100% of the diet regardless of crops treated) indicates that a daily diet of 1.5 kg/day could contain 0.006 mg 1-MCP. For the general population (assuming an average body weight of 60 kg), this would represent a daily intake of 0.0001 mg 1-MCP/kg body weight which is 90,000 to 150,000-fold less than the 9-15 mg/kg NOAEL indicated in the 90-day inhalation study.

Residues in other treated commodities are expected to be similar or even lower since the highest treatment rate is recommended for apples. Processing would be expected to further lower the residue levels in processed food commodities.

2. Drinking water exposure . Since 1-MCP will only be used on post-harvested fruits and vegetables in enclosed storage areas, there is little if any, potential for drinking water exposure.

The potential for non-dietary exposure to 1-MCP for the general population, is unlikely because potential use sites are commercial, agricultural, and horticultural. 1-MCP is currently registered for indoor, nonfood commercial use on flowers and ornamentals. The Agency has approved that use, based on the data submitted that show little potential for significant non-occupational exposure to the general population.

1. Dermal exposure . 1-MCP will only be sold enclosed in a generator for treatment of raw agricultural commodities. The generator will not release 1-MCP until the applicator has exited the storage area and entrances to the treatment area have been sealed. At the end of the treatment period, the storage area will be vented before workers are permitted to reenter the area. This label mitigating language would eliminate the potential for dermal exposure to handlers or applicators.

2. Inhalation exposure . As mentioned in the previous paragraph, the use of this product according to the label instructions would result in little, if any, inhalation exposure to handlers or applicators.

The Agency has considered the cumulative effects of 1-MCP and other substances in relation to a common mechanism of toxicity. These considerations include the possible cumulative effects of such residues on infants and children. There is no indication of mammalian toxicity at the maximum doses tested, of this or other products containing 1-MCP.

1. U.S. population . There is reasonable certainty that no harm will result from aggregate exposure to residues of 1-MCP to the U.S. population. This includes all anticipated dietary exposures and all other exposures for which there is reliable information. The Agency has arrived at this conclusion based on the very low levels of mammalian toxicity (no toxicity at the maximum doses tested, Toxicity Categories III and IV) and the minimum exposure associated with 1-MCP's use.

2. Infants and children . FFDCA section 408 provides that EPA shall apply an additional tenfold margin of exposure (safety) for infants and children in the case of threshold effects to account for prenatal and postnatal toxicity and the completeness of the data base unless EPA determines that a different margin of exposure (safety) will be safe for infants and children. Margins of exposure (safety) are often referred to as uncertainty (safety) factors. In this instance, based on all the available information, the Agency concludes that 1-MCP is practically non-toxic to mammals, including infants and children. Thus, there are no threshold effects of concern and, as a result the provision requiring an additional margin of safety does not apply. Further, based on the lack of observed developmental toxicity and extremely low exposure, there is reasonable certainty that no harm to infants, children, or adults will result from aggregate exposure to 1-MCP residues. Exemption of 1-MCP from the requirements of a tolerance should pose no significant risk to humans or the environment

EPA is required under the FFDCA as amended by FQPA to develop a screening program to determine whether certain substances (including all pesticide active and other ingredients) “may have an effect in humans that is similar to an effect produced by a naturally-occurring estrogen, or other such endocrine effects as the Administrator may designate.” Following the recommendations of its Endocrine Disruptor Screening and Testing Advisory Committee (EDSTAC), EPA determined that there is no scientific basis for including, as part of the program, the androgen- and thyroid hormone systems in addition to the estrogen hormone system. EPA also adopted EDSTAC's recommendation that the program include evaluations of potential effects in wildlife. For pesticide chemicals, EPA will use FIFRA and, to the extent that effects in wildlife may help determine whether a substance may have an effect in humans, FFDCA authority to require wildlife evaluations. As the science develops and resources allow, screening of additional hormone systems may be added to the Endocrine Disruptor Screening Program(EDSP). When the appropriate screening and/or testing protocols being considered under the Agency's Endocrine Disruptor Screening Program have been developed, 1-MCP may be subjected to additional screening and/or testing to better characterize effects related to endocrine disruption.

Based on available data, no endocrine system-related effects have been identified with consumption of 1-MCP. In addition, 1-MCP does not share any structural similarity to any known endocrine disruptive chemical.

EPA is establishing an exemption from the requirement of a tolerance without any numerical limitation for the reasons stated above, including 1-MCP's lack of mammalian toxicity. For the same reasons, the Agency has concluded that an analytical method is not required for enforcement purposes for 1-MCP.

No Codex maximum residue levels are established for residues of 1-MCP in or on any food or feed crop. There are no established tolerances or exemptions from tolerance for 1-MCP in the United States. The Agency has classified 1-MCP as a biochemical pesticide.

Based on the toxicology data submitted, there is reasonable certainty no harm will result from aggregate exposure of residues of 1-MCP to the U.S. population, including infants and children, when the proposed product is used in accordance with label instructions and good agricultural practices. This includes all anticipated dietary exposures and all other exposures for which reliable data were submitted, accepted and reviewed. The Agency has arrived at this conclusion based on the data submitted demonstrating no toxicity at the maximum doses tested. As a result, EPA establishes an exemption from tolerance requirements pursuant to FFDCA 408(c) and (d) for residues of 1-MCP in or on all food commodities.

Under section 408(g) of the FFDCA, as amended by the FQPA, any person may file an objection to any aspect of this regulation and may also request a hearing on those objections. The EPA procedural regulations which govern the submission of objections and requests for hearings appear in 40 CFR part 178. Although the procedures in those regulations require some modification to reflect the amendments made to the FFDCA by the FQPA of 1996, EPA will continue to use those procedures, with appropriate adjustments, until the necessary modifications can be made. The new section 408(g) provides essentially the same process for persons to “object” to a regulation for an exemption from the requirement of a tolerance issued by EPA under new section 408(d), as was provided in the old FFDCA sections 408 and 409. However, the period for filing objections is now 60 days, rather than 30 days.

You must file your objection or request a hearing on this regulation in accordance with the instructions provided in this unit and in 40 CFR part 178. To ensure proper receipt by EPA, you must identify docket ID number OPP-2002-0142 in the subject line on the first page of your submission. All requests must be in writing, and must be mailed or delivered to the Hearing Clerk on or before September 24, 2002.

1. Filing the request . Your objection must specify the specific provisions in the regulation that you object to, and the grounds for the objections (40 CFR 178.25). If a hearing is requested, the objections must include a statement of the factual issues(s) on which a hearing is requested, the requestor's contentions on such issues, and a summary of any evidence relied upon by the objector (40 CFR 178.27). Information submitted in connection with an objection or hearing request may be claimed confidential by marking any part or all of that information as CBI. Information so marked will not be disclosed except in accordance with procedures set forth in 40 CFR part 2. A copy of the information that does not contain CBI must be submitted for inclusion in the public record. Information not marked confidential may be disclosed publicly by EPA without prior notice.

Mail your written request to: Office of the Hearing Clerk (1900), Environmental Protection Agency, 1200 Pennsylvania Ave., NW., Washington, DC 20460. You may also deliver your request to the Office of the Hearing Clerk in Rm. C400, Waterside Mall, 401 M St., SW., Washington, DC 20460. The Office of the Hearing Clerk is open from 8 a.m. to 4 p.m., Monday through Friday, excluding legal holidays. The telephone number for the Office of the Hearing Clerk is (202) 260-4865.

2. Tolerance fee payment . If you file an objection or request a hearing, you must also pay the fee prescribed by 40 CFR 180.33(i) or request a waiver of that fee pursuant to 40 CFR 180.33(m). You must mail the fee to: EPA Headquarters Accounting Operations Branch, Office of Pesticide Programs, P.O. Box 360277M, Pittsburgh, PA 15251. Please identify the fee submission by labeling it “Tolerance Petition Fees.”

EPA is authorized to waive any fee requirement “when in the judgement of the Administrator such a waiver or refund is equitable and not contrary to the purpose of this subsection.” For additional information regarding the waiver of these fees, you may contact James Tompkins by phone at (703) 305-5697, by e-mail at tompkins.jim@epa.gov, or by mailing a request for information to Mr. Tompkins at Registration Division (7505C), Office of Pesticide Programs, Environmental Protection Agency, 1200 Pennsylvania Ave., NW., Washington, DC 20460.

If you would like to request a waiver of the tolerance objection fees, you must mail your request for such a waiver to: James Hollins, Information Resources and Services Division (7502C), Office of Pesticide Programs, Environmental Protection Agency, 1200 Pennsylvania Ave., NW., Washington, DC 20460.

3. Copies for the Docket . In addition to filing an objection or hearing request with the Hearing Clerk as described in Unit IX.A., you should also send a copy of your request to the PIRIB for its inclusion in the official record that is described in Unit I.B.2. Mail your copies, identified by docket ID number OPP-2002-0142, to: Public Information and Records Integrity Branch, Information Resources and Services Division (7502C), Office of Pesticide Programs, Environmental Protection Agency, 1200 Pennsylvania Ave., NW., Washington, DC 20460. In person or by courier, bring a copy to the location of the PIRIB described in Unit I.B.2. You may also send an electronic copy of your request via e-mail to: opp-docket@epa.gov. Please use an ASCII file format and avoid the use of special characters and any form of encryption. Copies of electronic objections and hearing requests will also be accepted on disks in WordPerfect 6.1/8.0 or ASCII file format. Do not include any CBI in your electronic copy. You may also submit an electronic copy of your request at many Federal Depository Libraries.

A request for a hearing will be granted if the Administrator determines that the material submitted shows the following: There is a genuine and substantial issue of fact; there is a reasonable possibility that available evidence identified by the requestor would, if established resolve one or more of such issues in favor of the requestor, taking into account uncontested claims or facts to the contrary; and resolution of the factual issues(s) in the manner sought by the requestor would be adequate to justify the action requested (40 CFR 178.32).

This final rule establishes an exemption from the tolerance requirement under FFDCA section 408(d) in response to a petition submitted to the Agency. The Office of Management and Budget (OMB) has exempted these types of actions from review under Executive Order 12866, entitled Regulatory Planning and Review (58 FR 51735, October 4, 1993). Because this rule has been exempted from review under Executive Order 12866 due to its lack of significance, this rule is not subject to Executive Order 13211, Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use (66 FR 28355, May 22, 2001). This final rule does not contain any information collections subject to OMB approval under the Paperwork Reduction Act (PRA), 44 U.S.C. 3501 et seq. , or impose any enforceable duty or contain any unfunded mandate as described under Title II of the Unfunded Mandates Reform Act of 1995 (UMRA) (Public Law 104-4). Nor does it require any special considerations under Executive Order 12898, entitled Federal Actions to Address Environmental Justice in Minority Populations and Low-Income Populations (59 FR 7629, February 16, 1994); or OMB review or any Agency action under Executive Order 13045, entitled Protection of Children from Environmental Health Risks and Safety Risks (62 FR 19885, April 23, 1997). This action does not involve any technical standards that would require Agency consideration of voluntary consensus standards pursuant to section 12(d) of the National Technology Transfer and Advancement Act of 1995 (NTTAA), Public Law 104-113, section 12(d) (15 U.S.C. 272 note). Since tolerances and exemptions that are established on the basis of a petition under FFDCA section 408(d), such as the tolerance exemption in this final rule, do not require the issuance of a proposed rule, the requirements of the Regulatory Flexibility Act (RFA) (5 U.S.C. 601 et seq. ) do not apply. In addition, the Agency has determined that this action will not have a substantial direct effect on States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government, as specified in Executive Order 13132, entitled Federalism (64 FR 43255, August 10, 1999). Executive Order 13132 requires EPA to develop an accountable process to ensure “meaningful and timely input by State and local officials in the development of regulatory policies that have federalism implications.” “Policies that have federalism implications” is defined in the Executive order to include regulations that have “substantial direct effects on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government.” This final rule directly regulates growers, food processors, food handlers and food retailers, not States. This action does not alter the relationships or distribution of power and responsibilities established by Congress in the preemption provisions of FFDCA section 408(n)(4). For these same reasons, the Agency has determined that this rule does not have any “tribal implications ” as described in Executive Order 13175, entitled Consultation and Coordination with Indian Tribal Governments (65 FR 67249, November 6, 2000). Executive Order 13175, requires EPA to develop an accountable process to ensure “meaningful and timely input by tribal officials in the development of regulatory policies that have tribal implications.” “Policies that have tribal implications” is defined in the Executive order to include regulations that have “substantial direct effects on one or more Indian tribes, on the relationship between the Federal Government and the Indian tribes, or on the distribution of power and responsibilities between the Federal Government and Indian tribes.” This rule will not have substantial direct effects on tribal governments, on the relationship between the Federal Government and Indian tribes, or on the distribution of power and responsibilities between the Federal government and Indian tribes, as specified in Executive Order 13175. Thus, Executive Order 13175 does not apply to this rule.

The Congressional Review Act, 5 U.S.C. 801 et seq. , as added by the Small Business Regulatory Enforcement Fairness Act of 1996, generally provides that before a rule may take effect, the agency promulgating the rule must submit a rule report, which includes a copy of the rule, to each House of the Congress and to the Comptroller General of the United States. EPA will submit a report containing this rule and other required information to the U.S. Senate, the U.S. House of Representatives, and the Comptroller General of the United States prior to publication of this final rule in the Federal Register . This final rule is not a “major rule” as defined by 5 U.S.C. 804(2).

On June 20, 2001, we published a final rule in the Federal Register (66 FR 33030-33031) that granted an emergency waiver of the Medicare end-stage renal disease (ESRD) conditions of coverage to permit the transplant team of an approved renal transplant center to furnish covered kidney transplant services in three specific hospitals in the Houston, Texas area during a state of emergency. The state of emergency (a natural disaster due to flooding) resulted in a severe health and safety threat to hospitals in the entire Houston, Texas area, including ESRD facilities that were approved to furnish kidney transplant services. Waivers of the conditions of coverage were granted to Memorial Hermann-Memorial City Hospital, Memorial Hermann Southwest Hospital, and Memorial Hermann Southeast Hospital to permit an approved transplant team to furnish kidney transplant services in the three hospitals, effective June 15, 2001, through the earlier of December 15, 2001, or until Memorial Hermann Hospital, the primary kidney transplant center, reopened.

Memorial Hermann Hospital is now reopened. In the June 20, 2001 final rule, we amended the Medicare regulations to include a new § 405.2175 that incorporated the waiver provisions. In § 405.2175, we specified that we would publish a rule removing the waiver provisions from the regulations after the waiver expired. The waiver has expired and we are removing the provisions from the Medicare regulations.

We ordinarily publish a notice of proposed rulemaking in the Federal Register and invite public comment on a proposed rule. The notice of proposed rulemaking includes a reference to the legal authority under which the rule is proposed, and the terms and substances of the proposed rule or a description of the subjects and issues involved. This procedure can be waived, however, if an agency finds good cause that a notice-and-comment procedure is impracticable, unnecessary, or contrary to the public interest and incorporates a statement of the findings and its reasons in the rule issued.

Further, we generally provide for final rules to be effective no sooner than 30 days after the date of publication unless we find good cause under 5 U.S.C. 553(d)(3) to waive the 30-day delay of the effective date. The purpose of the 30-day waiting period between publication of an administrative agency final rule and its effective date is to give affected parties reasonable time to adjust their behavior before the final rule takes place.

The state of emergency under which we granted a waiver of the ESRD conditions of coverage is now over in the Houston, Texas area, and Memorial Hermann Hospital is reopened to furnish kidney transplant services. We announced in the June 20, 2001 final rule our intention to remove the emergency waiver when the waiver expired, as well as our intention to publish a rule removing § 405.2175 from our regulations after the waiver expired. We find good cause to waive a notice-and-comment procedure to remove the waiver provisions from the regulation. We believe that a notice-and-comment procedure is unnecessary because the June 20, 2001 final rule puts the public on notice that the waiver of the conditions for coverage for the specifically named hospitals was created to address a public health crisis in Houston and it was to be of limited duration (it was to remain in effect until no later than December 15, 2001). This rule merely conforms the Medicare regulation to the mandate expressed by the agency on June 20. Therefore, we are waiving notice-and-comment procedures under 5 U.S.C. 553(b)(3)(B).

Given the fact that the waiver has already expired by its own terms, we find good cause to waive the 30-day delay in the effective date established by 5 U.S.C. 553(d)(3). We believe that delaying the effective date of this regulation is unnecessary since it does not require the public to adjust its behavior before the final rule takes place.

In the October 10, 2000 technical correction (65 FR 60104), we amended the regulations text to make technical corrections to those parts of the regulation unrelated to the skilled nursing facilities (SNFs) exception procedures that were inadvertently changed. In the regulations text corrected under 42 CFR 413.30(d), we stated that we were removing the words “the type of” from the first sentence. It was our intention to remove these words; however, we referenced the first sentence, and these words were found in the second sentence. We note that the regulations text as published in the Code of Regulations (CFR) actually accurately reflects the change that was intended in the correction notice of October 10, 2000. Therefore, we are not amending the regulations text in this technical correction.

In addition, in the most recent publication of the CFR in § 413.30(d), the word “as” has been inadvertently removed from the third sentence. In the October 10, 2000 technical correction, we did not intend to make any changes that would have resulted in the removal of the word “as” after the phrase “has operated” in the third sentence of § 413.30(d). We are reinserting the word as no change was intended.

We are making the necessary technical correction to the regulations text to restore the text to conform to the stated purpose of the correction notice.

We ordinarily publish a notice of proposed rulemaking in the Federal Register to provide a period for public comment before the provisions of a rule such as this take effect. We can waive this procedure, however, if we find good cause that a notice and comment procedure is impracticable, unnecessary, or contrary to the public interest and incorporate a statement of the finding and its reasons in the notice issued.

We find it unnecessary to undertake notice and comment rulemaking because this document merely provides a technical correction to the regulations and does not make any substantive changes to the regulations. Therefore, for good cause, we waive notice and comment procedures.

Comments received timely will be available for public inspection in Room C5-16-03, 7500 Security Blvd., Baltimore, Maryland 21244-1850, generally beginning approximately 3 weeks after the document has been published. Members of the public who are interested in reviewing timely public comments are asked to schedule an appointment by calling (410) 786-9994 Monday through Friday from 8:30 a.m. to 5 p.m.

Copies: To order copies of the Federal Register containing this document, send your request to: New Orders, Superintendent of Documents, P.O. Box 371954, Pittsburgh, PA 15250-7954. Specify the date of the issue requested and enclose a check or money order payable to the Superintendent of Documents, or enclose your Visa or Master Card number and expiration date. Credit card orders can also be placed by calling the order desk at (202) 512-1800 or by faxing to (202) 512-2250. The cost for each copy is $9. As an alternative, you can view and photocopy the Federal Register document at most libraries designated as Federal Depository Libraries and at many other public and academic libraries throughout the country that receive the Federalgister .

This Federal Register document is also available from the Federal Register online database through GPO Access, a service of the U.S. Government Printing Office. The Web site address is http://www.access.gpo.gov/nara.

Title I of the Health Insurance Portability and Accountability Act of 1996 (HIPAA) added a new title XXVII to the PHS Act to establish various reforms to the group and individual health insurance markets. The group market reforms are contained under Part A of title XXVII, which includes, among other things, guaranteed availability of coverage to small group market employers and renewability of coverage in the small and large group markets; limitations on pre-existing condition exclusion periods; special enrollment periods under certain circumstances; and prohibition of discrimination against individual participants and beneficiaries based on health status.

Part A of title XXVII was amended by the Newborns' and Mothers' Health Protection Act of 1996 (NMHPA), the Mental Health Parity Act of 1996 (MHPA), and the Women's Health and Cancer Rights Act of 1998 (WHCRA), which added new sections 2704, 2705 and 2706 (subpart 2 of Part A of title XXVII), respectively. NMHPA provides protections for mothers and newborn children for hospital stays following childbirth. MHPA, which applies to group health plans sponsored by employers with more than 50 employees, provides for parity between annual and lifetime dollar limits applicable to mental health benefits, and annual and lifetime dollar limits applicable to medical and surgical benefits. WHCRA requires group health plans that provide medical and surgical benefits for mastectomies to cover, among other things, reconstructive surgery and prostheses following a mastectomy.

Section 2721(b)(2) of the PHS Act, as added by HIPAA and implemented at 45 CFR 146.180, permits non-Federal governmental employers to elect to exempt self-funded portions of their group health plans (that is, benefits not provided through health insurance coverage) from most of the requirements of title XXVII of the PHS Act. (This practice is sometimes referred to in this preamble as “opting out of HIPAA.”) However, health plans cannot be exempted from certification and disclosure of creditable coverage requirements under section 2701(e) of the PHS Act.

We received numerous inquiries as to whether non-Federal governmental entities may “opt out” of various requirements added by NMHPA, MHPA and WHCRA, which were enacted after the initial HIPAA legislation. Section 2721(b)(2) of the PHS Act permits a plan sponsor of a self-funded non-Federal governmental plan to elect to exempt its group health plan from the requirements of “subparts 1 through 3” of Part A of title XXVII (except with respect to section 2701(e) of subpart 1). Therefore, the requirements of sections 2704, 2705 and 2706, which comprise subpart 2 of Part A of title XXVII, fall within the scope of section 2721(b)(2).

The regulation at § 146.150(d)(2), which was intended to track the statute (section 2711(d)(2) of the PHS Act), misstates a statutory requirement. Under section 2711(d)(2), an issuer that denies group health insurance coverage to any small employer in a State on the basis that the issuer does not have financial reserves necessary to underwrite additional coverage, is prohibited from offering additional coverage in the small group market in the State for a period of 180 days after the date coverage is denied, or until the issuer demonstrates to the applicable State authority, if required under State law, that the issuer has sufficient financial reserves to underwrite additional coverage, “whichever is later.” However, § 146.150(d)(2) is worded in a way that the issuer is required to wait 180 days after it demonstrates renewed financial capacity before it may offer additional coverage in the small group market.

Section 146.150(d)(2), which was simply intended to track the statute, is revised to correctly reflect section 2711(d)(2) of the PHS Act. Because the revision is a technical correction that is required by statute, the effective date of this revision is as if it was included in the regulations published on April 8, 1997 in the Federal Register at 62 FR 16894; that is, on June 7, 1997.

(For ease of reference, unless otherwise specified, the acronym “HIPAA,” as used subsequently in this preamble, refers to title I of HIPAA, as well as to NMHPA, MHPA, and WHCRA, and “HIPAA requirements” refers to requirements of all of these statutes.)

We received two letters of comment in response to the April 8, 1997 interim final rule with comment period published in the Federal Register (62 FR 16894) that pertained exclusively to 45 CFR 146.180 “Treatment of non-Federal governmental plans.”

Comment: One commenter noted that there appeared to be an inconsistency in HIPAA between an amendment made to the PHS Act, and another amendment made to the Internal Revenue Code (the Code). The PHS Act, as amended by HIPAA, provides that non-Federal governmental plans are subject to HIPAA (while permitting self-funded non-Federal governmental plans to elect to be exempted); the Internal Revenue Code, as amended by HIPAA, states that HIPAA amendments to the Code do not apply to governmental plans. The commenter requested that we clarify whether the PHS Act or the Code is the appropriate authority.

Response: The group market provisions of HIPAA made parallel amendments to the PHS Act, the Internal Revenue Code, and the Employee Retirement Income Security Act (ERISA). However, the HIPAA provisions of each statute generally apply to a different set of entities. In particular, the PHS Act applies to health insurance issuers and non-Federal governmental plans, and the Code applies to employer-sponsored group health plans (including church plans) except governmental plans. The fact that the Code does not reference non-Federal governmental plans simply means that the Code is not the source of HIPAA requirements for those plans. Rather, the PHS Act is the source of those requirements. Thus, non-Federal governmental plans are subject to HIPAA (except to the extent that the plan sponsor has elected to exempt a self-funded plan under section 2721(b)(2) of the PHS Act), and authority for enforcing HIPAA requirements with respect to non-Federal governmental plans rests with HHS in accordance with section 2722(b)(1)(B) of the PHS Act.

Comment: The commenter stated that § 146.180 should be amended to clarify that an election to exempt a plan from HIPAA means that the plan becomes subject to State law, including any applicable provisions that might parallel the requirements of HIPAA. The commenter noted that governmental plans are exempted from ERISA, and, accordingly, some States regulate their State and local plans. The commenter cited section 2723(a) of the PHS Act, presumably as the authority for adopting the suggested change.

Response: We adopt the recommendation, but not on the basis of section 2723(a). Section 2723(a) of the PHS Act addresses the preemption of State laws“ * * * solely relating to health insurance issuers in connection with group health insurance coverage. * * *” Self-funded plans are not provided through health insurance issuers. Section 2721(b)(2) of the PHS Act permits only plan sponsors of self-funded non-Federal governmental plans to elect to exempt their plans from HIPAA requirements.

There is nothing in section 2721(b)(2) that prevents a State, by law, regulation, or other State action having the effect of law, from establishing State requirements for non-Federal governmental plans that parallel HIPAA requirements, or from simply limiting the extent to which its non-Federal governmental employers may elect to exempt their self-funded plans from HIPAA requirements. States are free to regulate group health plans of non-Federal governmental employers because governmental group health plans, unlike group health plans sponsored by private employers, are exempt from ERISA requirements under section 4(b)(1) of ERISA. (Section 514(a) of ERISA preempts State laws relating to employee benefit plans, including group health plans, that are subject to ERISA.) We amend 45 CFR 146.180 by adding a new paragraph (l) Construction to make clear that HIPAA does not interfere with a State's right to regulate non-Federal governmental plans. (This change is referenced in section IV.L. of this preamble.)

This regulation amends § 146.180 by redesignating existing paragraphs and adding new text to this section. For reference purposes, a redesignation table is provided at the end of this section for specific citations under § 146.180.

We amend § 146.180 by revising paragraph (a) and adding four new paragraphs. New paragraph (a)(1) summarizes the former prefatory text of § 146.180 and adds WHCRA requirements to the list of HIPAA requirements from which a non-Federal governmental plan sponsor may elect to exempt its self-funded plan.

New paragraph (a)(2)(i) clarifies that an exemption election cannot circumvent a HIPAA requirement to the extent the requirement applied to the plan before the effective date of the exemption election. Examples are provided.

New paragraph (a)(2)(ii) clarifies that if a group health plan is co-sponsored by two or more employers, only those participants and dependents enrolled in the plan through the non-Federal governmental employer or employers that have opted out of HIPAA are affected by the opt-out election. This limitation is in accordance with the express language of section 2721(b)(2) of the PHS Act, which permits only “* * * the plan sponsor of a nonfederal governmental plan” to opt out of HIPAA with regard to self-funded plans. To the extent a plan is sponsored by an employer that is not a governmental employer, the plan is not a “non-Federal governmental plan,” which is defined at § 144.103 to mean “a governmental plan established or maintained for its employees by the government of any State or political subdivision thereof, or by any agency or instrumentality of either.” Similarly, to the extent a plan is co-sponsored by governmental employers, not all of which have elected to opt out of HIPAA, HIPAA applies with respect to enrollees of the non-Federal governmental employers that have not opted out.

New paragraph (a)(3) deals with stop-loss or excess risk coverage. In general, the purchase of stop-loss or excess risk coverage by a self-funded non-Federal governmental plan has no effect on the plan sponsor's ability to opt out of HIPAA. However, if coverage offered by an issuer as stop-loss or excess risk coverage is regulated as group health insurance coverage under State law that has not been preempted by ERISA or otherwise invalidated by any court, then for purposes of § 146.180, the non-Federal governmental plan that purchases the coverage is considered to be fully insured. In that event, the plan is not permitted to opt out of HIPAA.

Accordingly, a sponsor of a non-Federal governmental plan that wishes to opt out of HIPAA should ensure that the stop-loss policy being considered is not regulated as group health insurance coverage by the State. Paragraph (a)(3) applies solely for purposes of § 146.180.

New paragraph (a)(4) clarifies that nothing in part 146 imposes collective bargaining obligations on any party to the collective bargaining process. However, as stated in the preamble to our initial HIPAA regulations published on April 8, 1997 in the Federal Register (62 FR 16906), § 146.180 does not preempt State and local collective bargaining laws. While neither title XXVII of the PHS Act nor this regulation mandates that HIPAA protections be collectively bargained, State or local law may do so.

(A model election document is provided under section V. of this preamble as an example to assist the reader.) Paragraph (b) is amended to list the requirements pertaining to the form and manner of an opt-out election under a new paragraph (b)(1). Paragraph (b)(1)(iii) incorporates existing paragraphs (d)(1) and (2) (with the exception of the parenthetical statement in the existing (d)(2), which is incorporated in a new paragraph (b)(2)). Paragraph (b)(1)(iii) requires an election document to include a statement specifying the beginning and ending dates of the applicable election period. That period may be a single specified plan year, or, in the case of a collectively bargained plan, the “term of the agreement” as defined in paragraph (b)(2) (discussed below). In order to facilitate administrative efficiency, paragraph (b)(1)(iv) requires the election document to include the name and telephone number of a person CMS may contact regarding the election.

New paragraph (b)(2) defines “term of the agreement,” and clarifies the extent to which an opt-out election applies to the initial plan year under a collective bargaining agreement and the last plan year governed by the agreement. Except as provided in new paragraphs (b)(2)(i) and (ii), paragraph (b)(2) provides that for purposes of the opt-out provision, “term of the agreement” means all plan years governed by a single collective bargaining agreement.

For the last plan year governed by a collective bargaining agreement, it has come to our attention that a collective bargaining agreement may expire before the last plan year governed by the agreement expires. In that event, we interpret the statutory reference to an opt-out election applying “for the term of such agreement” to mean that the election applies to the last plan year (in its entirety) governed by a particular collective bargaining agreement. For instance, a collective bargaining agreement may expire on December 31 and the last group health plan year governed by that agreement may expire on June 30 of the following year. If, in this example, the plan sponsor decided not to renew its opt-out election, HIPAA requirements would not take effect in the middle of the plan year (that is, on January 1), but rather on July 1, the first day of the plan year following expiration of the last plan year governed by the prior collective bargaining agreement.

For purposes of the opt-out provision, new paragraph (b)(2), which incorporates and revises the parenthetical statement of existing paragraph (d)(2), may effectively extend the last plan year under a prior collective bargaining agreement or shorten the initial plan year under a new agreement. Paragraph (b)(2)(i) provides that if the last plan year governed by a collective bargaining agreement expires during the bargaining process for a new agreement, the term of the prior agreement continues until the latest of the following dates, as applicable: the date agreement is reached for the new agreement, the date of ratification of the agreement, or other closure of the collective bargaining process. Under paragraph (b)(2)(ii), the term of the new agreement begins at that point.

This rule revises the existing rule, which provided that the parties to the collective bargaining process had to “agree” that the prior agreement continued until the new agreement took effect. For purposes of the opt-out provision, we are revising the rule by deleting the precondition that the parties must agree to the extension, because the collective bargaining process should not, by default, cause HIPAA requirements that were not previously in effect to take effect, nor, conversely, to effectively permit a plan sponsor, for the period preceding closure of the collective bargaining process for a new agreement, to retroactively opt out of HIPAA requirements that continue to be in effect under a prior agreement.

Under section 2721(b)(2) of the PHS Act, the opt-out decision is vested solely in the plan sponsor (in the absence of applicable State law or regulation). Thus, it is our position that in instances when collective bargaining for a new agreement extends beyond the contract expiration date under which a plan was exempt from HIPAA requirements, those requirements should not take effect by default (merely because the union does not agree that the prior agreement is extended), and thereby prevent a plan sponsor from electing to opt out of those requirements under the new agreement. This situation could arise in the case of a collectively bargained plan that is exempt from HIPAA requirements under the special effective date rule of section 102(c)(3) of HIPAA and § 146.125(a)(2) of the implementing regulations, and in the case where a plan was exempt from HIPAA requirements under a prior opt-out election.

The special effective date rule provides that for a group health plan that is governed by one or more collective bargaining agreements that were ratified before enactment of HIPAA (that is, before August 21, 1996), the requirements of title I of HIPAA do not take effect until the last of those collective bargaining agreements expires. The last of the collective bargaining agreements ratified before August 21, 1996 may expire before closure is reached for a new agreement. Also, the period of time during which a plan is exempt from HIPAA requirements under a prior opt-out election could expire before closure is reached for a new agreement and the opt-out election is renewed.

We believe that the rule permitting a HIPAA exemption to continue during the collective bargaining process for a new agreement does not unduly affect enrollees because the plan was previously exempt from HIPAA requirements. (Of course, if collective bargaining that continues beyond the beginning of a plan year leads to an agreement that the plan will comply with one or more HIPAA requirements that legitimately did not apply to the plan under the prior agreement, the plan must comply with the requirement(s) retroactively to the first day of the initial plan year governed by the new agreement.) The special rules for the term of the agreement under paragraphs (b)(2)(i) and (ii) apply only for purposes of § 146.180; that is, only for HIPAA requirements from which a plan opts out under the new agreement.

On the other hand, to the extent a plan was subject to HIPAA requirements under a prior agreement, a plan sponsor's decision to opt out of HIPAA for those requirements must have prospective effect in order to ensure that enrollees that have benefited from those HIPAA requirements cannot be disadvantaged retroactively. This situation could arise in the case of a collectively bargained plan that is subject to HIPAA because the plan sponsor had not previously opted out, as well as in the case of a plan that is generally exempt from HIPAA requirements under the special effective date rule discussed above, but that was amended solely to conform the plan to any HIPAA requirement, as permitted under section 102(c)(3) of HIPAA and § 146.125(a)(2) of the implementing regulations.

When a plan has been in compliance with one or more HIPAA requirements, there is a greater need to strike a balance between the interests of the plan and the interests of enrollees. For a collectively bargained plan that is in compliance with HIPAA, we believe that enrollees expect the plan to continue to comply with those requirements unless otherwise notified. The same is true of new enrollees. Permitting a plan in that situation, following closure of the collective bargaining process, to retroactively opt out of HIPAA to the first day of the plan year could seriously disadvantage enrollees.

For instance, under the prior collective bargaining agreement, a plan was in compliance with HIPAA. An enrollee with a serious medical condition enrolls in the plan under the HIPAA special enrollment period rules during ongoing collective bargaining with respect to a new agreement. Two months later, after a collective bargaining agreement has been reached, the plan sponsor opts out of the special enrollment period requirements effective with the beginning of the first plan year governed by the new agreement. Conceivably, in the absence of this rule, the plan could attempt to disenroll the individual retroactively, causing great financial harm to that individual. (This situation would not arise in the case where a plan under the prior agreement was exempt from the special enrollment period rules because, under that exemption, the individual would not have been entitled to a special enrollment period.) Thus, the definition of “term of the agreement” in paragraph (b)(2) precludes the possibility that someone who properly benefitted under HIPAA could be retroactively deprived of that benefit.

New paragraph (b)(3) clarifies that we do not arbitrate disputes regarding whether an opt-out election complies with all of a plan sponsor's rules. These disputes must be resolved by the parties to the election or by the courts. Also, paragraph (b)(3) clarifies that if a plan must comply with one or more HIPAA requirements for a given plan year or period of plan coverage, the plan sponsor is free to opt out of those requirements for a subsequent plan year or period of plan coverage. For instance, a plan may comply with HIPAA requirements because the plan sponsor declined to opt out, or decided after opting out to rescind its election in whole or in part. Also, a plan might have to comply with HIPAA requirements because its opt-out election is invalidated in whole or in part by CMS (refer to sections IV.J. & K of this preamble) or by a court order. Such occurrences do not inhibit a plan sponsor's ability to opt out of HIPAA requirements for subsequent plan years.

A new paragraph (c) is added to specify the mailing address for a non-Federal governmental employer to mail its opt-out election.

Under paragraph (d)(1), which incorporates existing paragraph (c)(1), we made a minor revision to the filing deadline for an opt-out election for a plan that is not governed by a collective bargaining agreement. Since under the existing rule we had to receive the election document before the first day of the plan year, new paragraph (d)(1) now provides that, subject to a good cause extension, the election document must be filed (that is, mailed) before the first day of the plan year.

In new paragraph (d)(2), which incorporates existing paragraph (c)(2), we revise the filing deadline for a plan that is governed by a collective bargaining agreement. The existing regulation stipulates that an election must be received by us within 30 days after certain events associated with collective bargaining. New paragraph (d)(2) provides that, subject to an extension based on good cause, an election for a plan governed by a collective bargaining agreement must be filed (that is, mailed) before the first day of the first plan year governed by the agreement, or by the 45th day after the latest of the following dates, as applicable, if the 45th day falls on or after the first day of the plan year: the date of the agreement between the governmental employer and union officials; the date of ratification of the agreement; or the date impasse resolution, arbitration, or other closure of the collective bargaining process is finalized when agreement is not reached. (Paragraph (d)(2) incorporates these dates via cross reference to paragraph (b)(2)(i).) The date of impasse resolution, arbitration or other closure of the collective bargaining process is included to make clear that a non-Federal governmental plan sponsor is not foreclosed under HIPAA from opting out in the event agreement is not reached with the union through collective bargaining.

Paragraph (d)(3) specifies that we will use the postmark on the envelope in which the election is submitted to verify timely filing.

Paragraph (d)(4), which incorporates existing paragraph (c)(3), clarifies that we may extend the filing deadlines established in paragraphs (d)(1) and (d)(2) by finding good cause if a plan substantially complies with the requirements of paragraph (f) of this regulation to notify enrollees of an opt-out election at the time of enrollment and on an annual basis. For example, we could find that good cause exists for extending an election filing deadline in a case where a plan is not in violation of paragraph (f) and a plan sponsor states that there was a miscommunication between the plan sponsor and another entity that administers the plan regarding which entity was to file the election document with us.

Under certain situations, we may find good cause even if the plan sponsor does not make a specific request. For example, the sponsor of a self-funded non-Federal governmental plan decides to opt out of HIPAA for an upcoming plan year that begins on January 1. During the annual open enrollment period, all employees are given a plan brochure that contains a prominently printed notice that the plan will be exempt from HIPAA requirements for the upcoming plan year. After the plan year begins, all new enrollees are provided notice of the opt-out election at the time of enrollment. Five months into the plan year, the Personnel Department discovers that it did not file an election document with us. It belatedly files the document, which includes a statement that the plan has complied with the enrollee notification requirements of paragraph (f) of this regulation. However, the plan sponsor does not request an extension of the filing deadline for good cause. In this case, we may find that good cause exists to accept the election as being timely filed.

We believe that extending the filing deadlines in situations such as these is appropriate. Enrollees are entitled to the group health plan benefit package offered by the plan sponsor. As long as a plan has complied with the enrollee notification requirements regarding an opt-out election, extending the election filing deadlines does not disadvantage enrollees beyond the extent to which they are disadvantaged directly by the statute, which permits non-Federal governmental employers that sponsor self-funded plans to opt out of HIPAA.

Paragraph (d)(5), which incorporates and revises existing paragraph (c)(4), provides that, absent an extension based on good cause, if an election is not timely filed, the plan becomes subject to HIPAA requirements for the entire plan year to which the election would have applied, or, in the case of a plan governed by collective bargaining, for any plan year under the agreement for which the election is not timely filed.

For a collectively bargained plan, in paragraph (d)(5) we revise the requirement of existing paragraph (c)(4) that provides that failure to file a timely election subjects the plan to HIPAA requirements for the term of the collective bargaining agreement. It is our position that it is inequitable to penalize a plan governed by collective bargaining to a greater extent than other plans, which, in the case of untimely filing, must comply with HIPAA requirements only for the single plan year to which the election would have applied. Therefore, in the case of a collectively bargained plan, the plan must comply with HIPAA requirements only for plan years for which the election is not timely filed.

For instance, a collective bargaining agreement governs a group health plan for a period of 5 years, but the plan sponsor does not submit its opt-out election to us until after the third plan year has begun. The plan complies with the enrollee notification requirements of paragraph (f) of this regulation beginning with the third plan year governed by the agreement. The plan must comply with HIPAA requirements solely with respect to the first 2 plan years governed by the collective bargaining agreement. Under the revised regulation, the election is considered to be filed timely with regard to the remaining 3 plan years.

This paragraph provides that, in response to a notice from us, a plan sponsor, or the entity that filed the election if other than the plan sponsor, must submit additional information by the end of the plan year or 45 days after the date of the written notification, whichever is later. We will use the postmark on the envelope in which the additional information is submitted to verify timely filing. We may invalidate an election in the event of a failure to respond timely.

(A model enrollee notice is provided under section V. of this preamble as an example to assist the reader.)

This paragraph consolidates existing paragraphs (f) and (g). Paragraph (f)(1)(i) provides that a plan must notify enrollees of an opt-out election and explain the consequences of the election. If the dependents of a participant reside with the participant, the plan need only provide a notice to the participant.

Paragraph (f)(1)(ii) provides that the opt-out notice must be in writing, and, subject to notice rules associated with the initial plan year under an opt-out election, must be given to enrollees at the time of enrollment, and on an annual basis, which generally means that the notice to plan enrollees must be provided no later than the last day of each plan year for which there is an election. Thus, in general, the annual notice may be provided to plan enrollees prior to the beginning of a plan year—for instance, during an annual open enrollment period—or at any time during a plan year. Also, paragraph (f)(1)(iii) clarifies that a notice provided to an enrollee at the time of enrollment can also serve as the initial annual notice for that enrollee. That is, a plan is not required to give an enrollee more than one notice with respect to a given plan year.

Paragraph (f)(2) sets forth new special rules applicable to notices associated with the initial plan year under an opt-out election. For a plan not governed by a collective bargaining agreement, paragraph (f)(2)(i) states that a plan must provide the annual notice to all enrollees before the first day of that plan year, and at the time of enrollment to individuals who enroll during that plan year.

For a collectively bargained plan, paragraph (f)(2)(ii) states that the plan must provide the annual notice for the initial plan year under an election before the first day of that plan year, or within 30 days after the latest of the following dates, as applicable, if the 30th day falls on or after the first day of the plan year: the date of the agreement between the governmental employer and union officials; the date of ratification of the agreement; or the date impasse resolution, arbitration, or other closure of the collective bargaining process is finalized when agreement is not reached. (Paragraph (f)(2)(ii) incorporates these dates via cross reference to paragraph (b)(2)(i)). Also, the plan must provide a notice at the time of enrollment to all individuals who enroll on or after the first day of the plan year when closure of the collective bargaining process is reached prior to the beginning of the plan year, or to individuals who enroll on or after the date of closure of the collective bargaining process, if that date falls on or after the first day of the plan year.

For the initial plan year that is subject to an opt-out election, this regulation requires that the annual notice be provided “up front” to ensure that plan enrollees are informed from the beginning that their rights under HIPAA are limited. This is consistent with the intent of the statute that enrollees have this knowledge from the beginning, that is, from “the time of enrollment.” This rule ensures that individuals who are already enrolled in the plan when the initial opt-out election takes effect will not be deprived of important information relevant to their health benefits, and the rule will help to eliminate situations where an enrollee assumes he or she is protected under HIPAA only to discover later that he or she is not.

For instance, if an enrollee who has had a mastectomy would be eligible to switch to other coverage, but declines to do so because she expects to have WHCRA protections under the non-Federal governmental plan, clearly she would be disadvantaged upon learning several months later (after it is too late to switch coverage) that she does not have those protections. Similarly, if someone covered under the plan expects to adopt a child, he or she may be relying on the fact that there are special enrollment rights under HIPAA, perhaps only to discover after the child is adopted that the plan sponsor has opted out of the special enrollment period requirements.

However, for a plan that is governed by collective bargaining, a plan may not be able to provide the initial opt-out notice by the beginning of the plan year because of ongoing collective bargaining. Under section 2721(b)(2) of the PHS Act, a plan must notify enrollees of the “fact and consequences” of an opt-out election. When a plan sponsor's intention to opt out of HIPAA is subject to collective bargaining, an (initial) election does not in “fact” exist until the collective bargaining process with respect to the election is completed. Therefore, when closure of the collective bargaining process occurs after the beginning of the initial plan year to which the election is to apply, a plan cannot disseminate a notice regarding the “fact” of that election prior to the point of closure.

In that event, individuals who enroll in the plan on or after the first day of the initial plan year that is to be subject to an opt-out election, but before closure of the collective bargaining process, are not entitled to an opt-out notice at the time of enrollment because the election in “fact” does not exist at that point. However, these individuals are afforded some protection by the rule in paragraph (b)(2) that prohibits an opt-out election from taking effect retroactively. (Refer to the previous discussion under item IV.B of this preamble.) Also, these individuals along with other enrollees will receive the annual notice, which must be provided within 30 days after closure of the collective bargaining process. Individuals who enroll on or after the date of closure of the collective bargaining process must be given a notice at the time of enrollment.

New paragraph (f)(3) incorporates existing paragraph (g) for notice content. A new paragraph (f)(3)(v) requires that the notice to plan enrollees regarding the opt-out election include a statement informing plan enrollees that the plan will provide for certification and disclosure of creditable coverage for covered employees and their dependents who lose coverage under the plan. This requirement is designed to benefit plan enrollees by ensuring that plans inform them of their rights regarding certification and disclosure of creditable coverage, regardless of the plan sponsor's decision to exempt the plan from other HIPAA requirements.

(A model election renewal document is provided under section V. of this preamble as an example to assist the reader.)

New paragraph (g)(1) incorporates existing paragraph (e), and states that election renewals are subject to the timeliness standards in paragraph (d). Paragraph (g)(2) addresses the form and manner of renewing an election.

Paragraph (g)(3) specifies that if an opt-out election renewal includes a HIPAA requirement from which the plan sponsor did not elect to exempt the plan for the preceding plan year, the advance notification requirements that apply to initial elections (paragraph (f)(2)) also apply for the additional HIPAA requirements from which the plan sponsor is electing to exempt the plan. As in the case of initial elections, this rule requires that the annual notice be provided “up front” to ensure that plan enrollees are informed from the beginning that the plan sponsor is electing to exempt the plan from certain HIPAA requirements from which the plan was not exempted under the previous opt-out election.

Paragraph (g)(4) specifies new special rules regarding the renewal of an election under a collective bargaining agreement. Paragraph (g)(4)(i) requires that if protracted negotiations for a new agreement result in an extension of the term of the prior agreement under which an opt-out election was in effect (Refer to the previous discussion in section IV.B of this preamble), the plan sponsor must comply with the enrollee notification requirements of paragraph (f)(1), and file an election renewal with us in accordance with the time frames specified in paragraph (d)(2).

Also, if a non-Federal governmental employer provides coverage to employees and dependents under a single group health plan, but enters into separate collective bargaining agreements of varying lengths with various bargaining units, paragraph (g)(4)(ii) specifies that in the case of an election renewal, the timeliness standards of paragraph (d)(2) apply to the plan as governed by the agreement that results in the earliest filing date.

Existing paragraph (h) is retained with minor editorial changes.

This paragraph revises existing paragraphs (i)(1) and (2). New paragraph (i)(1) generally provides that a substantial failure to comply with the enrollee notification requirements of paragraph (f) or the certification and disclosure requirements of paragraph (h) results in the invalidation of an opt-out election with respect to all plan enrollees for the entire plan year.

We determine whether a non-Federal governmental plan has substantially failed to comply based on a review of all relevant facts and circumstances, including the previous record of compliance, gravity of the violation, and whether the plan takes corrective action, as warranted, within 30 days of learning of the violation. However, in general, a failure to provide the opt-out notice to an enrollee at the time of enrollment or on an annual basis is considered to be a substantial failure to comply. In the case of a substantial failure that is limited to certain individuals, CMS may permit the election to remain in effect if the plan agrees not to apply the election with respect to the affected individuals for the plan year with respect to which the failure has occurred and so informs those individuals in writing.

New paragraph (i)(1) further specifies that in the case of a plan that is sponsored by multiple employers, the invalidation applies only for the employer(s) responsible for the substantial failure, and not for other employers that complied with the requirements of paragraphs (f) or (h), unless the plan chooses to cancel its election entirely. For example, if 10 non-Federal governmental employers co-sponsor a plan, and one employer substantially fails to comply with the requirements of paragraph (f), the invalidation applies only with respect to enrollees of that one employer (unless the plan chooses to cancel its election entirely).

Examples illustrating the rules of new paragraph (i)(1) are provided in new paragraph (i)(2).

Paragraph (j) specifies the rules that apply if we invalidate an opt-out election.

Existing paragraph (i) (3) is redesignated and revised as new paragraph (k). Paragraph (k) cross-refers to part 150 of 45 CFR under which we enforce HIPAA requirements that apply to non-Federal governmental plans, including imposing a civil money penalty on a plan or plan sponsor when a non-Federal governmental plan is subject to the requirements of part 146 and fails to comply with one or more of those requirements. All non-Federal governmental plans must comply with requirements pertaining to certification and disclosure of creditable coverage under section 2701(e) of the PHS Act and § 146.115.

Paragraph (k) applies not only to a plan for which an election has not been filed, or for which an election has been invalidated, but also to a plan that has selectively opted out of HIPAA requirements and fails to comply with any requirements that are not subject to the opt-out election. For instance, a plan opts out of the preexisting condition exclusion limitations only, but also fails to comply with requirements pertaining to special enrollment periods. We enforce the special enrollment period rules under part 150.

This paragraph clarifies that States are not precluded from restricting the extent to which their non-Federal governmental employers may opt out of HIPAA. (Refer to our response to public comments on the April 8, 1997 interim final rule with comment period published in the Federal Register (62 FR 16894) that appears under section III. of this preamble.)

To assist non-Federal governmental employers that wish to exercise their option to exempt their self-funded plans from requirements of title XXVII of the PHS Act, we have developed a model election/election renewal document, and a model notice to plan enrollees. Use of these model documents, which are presented below, is not required. However, use of these model documents will satisfy applicable requirements of § 146.180(b)(1), (f)(3) and (g)(2). We encourage you to access these model documents at our Web site at http://www.cms.hhs.gov/hipaa1.

The following may be submitted on plan sponsor's or plan administrator's letterhead:

1. Limitations on preexisting condition exclusion periods.

2. Special enrollment periods.

3. Prohibitions against discriminating against individual participants and beneficiaries based on health status.

4. Standards relating to benefits for mothers and newborns.

5. Parity in the application of certain limits to mental health benefits.

6. Required coverage for reconstructive surgery following mastectomies.

This election has been made in conformity with all rules of the plan sponsor, including any public hearing, if required. I certify that the undersigned is authorized to submit this election on behalf of (name of plan). A copy of the notice to plan enrollees is enclosed. (In the case of an election renewal, in lieu of enclosing a copy of an updated notice to plan enrollees, the plan sponsor may include a statement that the notice has been, or will be, provided to plan enrollees in accordance with 45 CFR 146.180(f).) If CMS has any questions regarding this election, please contact (name) at (phone number).

NASA published an interim rule in the Federal Register at 66 FR 36490 on July 12, 2001, revising NFS section 1804.470 and the clause at 1852.204-76, Security Requirements for Unclassified Information Technology Resources. These sections address security requirements for unclassified IT resources. The action implemented The Computer Security Act of 1987 and Appendix III of the Office of Management and Budget (OMB) Circular No. A-130, Security of Federal Automated Information Resources, which require adequate security be provided for all Agency information collected, processed, transmitted, stored, or disseminated. NFS section 1804.470 contains the requirement for all NASA contractors and subcontractors to comply with Federal and NASA policies in safeguarding unclassified NASA data held via information technology (IT).

Public comments were received from one source. The comments were considered in developing this final rule.

Changes are made in this final rule to section 1804.470-1, Scope, to reference Federal policies that are implemented through NASA's Procedures and Guidelines (NPG) 2810.1, Security of Information Technology, and amend paragraph (d)(3)(i) of the clause at 1852.204-76 to remove the exemption of certain information contained in Standard Form 85P, Questionnaire for Public Trust Positions.

NASA understands that the FAR Council is working with the OMB Committee on Executive Branch Information Systems Security under the President's Critical Infrastructure Protection Board on the development of a government-wide IT security clause. The purpose of this work is to ensure that IT security requirements are included in all applicable Federal government contracts. Upon completion of this government-wide effort, NASA will modify its rule, as may be necessary, to ensure consistency with the FAR coverage.

This is not a significant regulatory action, and therefore, was not subject to review under Section 6(b) of Executive Order 12866, Regulatory Planning and Review, dated September 30, 1993. This rule is not a major rule under 5 U.S.C. 804

NASA certifies that this rule will not have a significant economic impact on a substantial number of small entities within the meaning of the Regulatory Flexibility Act (5 U.S.C. 601 et seq. ), because this rule only clarifies existing requirements and does not impose any new requirements.

This rule clarifies existing requirements that were previously approved by the Office of Management and Budget (OMB) under OMB Control No. 2700-0098.