This rule is issued under Marketing Agreement Nos. 85 and 124 and Order Nos. 916 and 917, both as amended (7 CFR parts 916 and 917), regulating the handling of nectarines and peaches grown in California, respectively, hereinafter referred to as the “orders.” The marketing agreements and orders are effective under the Agricultural Marketing Agreement Act of 1937, as amended (7 U.S.C. 601-674), hereinafter referred to as the “Act.”

The Department of Agriculture (USDA) is issuing this rule in conformance with Executive Order 12866.

This rule has been reviewed under Executive Order 12988, Civil Justice Reform. Under the marketing orders now in effect, California nectarine and peach handlers are subject to assessments. Funds to administer the orders are derived from such assessments. It is intended that the assessment rates as issued herein will be applicable to all assessable nectarines and peaches beginning on March 1, 2003, and continue until amended, suspended, or terminated. This rule will not preempt any State or local laws, regulations, or policies, unless they present an irreconcilable conflict with this rule.

The Act 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 file with USDA 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 law and request a modification of the order or to be exempted therefrom. Such handler is afforded the opportunity for a hearing on the petition. After the hearing USDA 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 his or her principal place of business, has jurisdiction to review USDA's ruling on the petition, provided an action is filed not later than 20 days after the date of the entry of the ruling.

This rule increases the assessment rates established for the committees for the 2003-04 and subsequent fiscal periods from $0.19 to $0.20 per 25-pound container or container equivalent of nectarines and peaches.

The nectarine and peach marketing orders provide authority for the committees, with the approval of USDA, to formulate an annual budget of expenses and collect assessments from handlers to administer the programs. The members of the Nectarine Administrative Committee (NAC) and Peach Commodity Committee (PCC) are producers of California nectarines and peaches, respectively. They are familiar with the committees' needs, and with the costs for goods and services in their local area and are, thus, in a position to formulate appropriate budgets and assessment rates. The assessment rates are formulated and discussed in public meetings. Thus, all directly affected persons have an opportunity to participate and provide input.

The NAC recommended, for the 2002-03 fiscal period, and USDA approved, an assessment rate of $0.19 that would continue in effect from fiscal period to fiscal period unless modified, suspended, or terminated by USDA upon recommendation and information submitted by the committee or other information available to USDA.

The NAC met on May 1, 2003, and recommended 2003-04 expenditures of $4,173,438 and an assessment rate of $0.20 per 25-pound container or container equivalent of nectarines on a 7 to 1 vote. In comparison, last year's budgeted expenditures were $4,671,342. The assessment rate of $0.20 is $0.01 higher than the rate currently in effect.

The dissenting voter stated that the growers he represented did not support increasing the assessment rate. However, later in the meeting, following a discussion about the development of a nectarine fruit beverage, the dissenter indicated he no longer opposed the assessment increase because the CTFA intended to fund beverage development. He further stated that funds used to create more outlets for nectarines will provide a service to the industry.

The rate increase was recommended to ensure that the NAC could meet its 2003-04 anticipated expenses and carry over a financial reserve that will provide adequate funds at the beginning of the 2004 season before assessment collections begin. A financial reserve carryover of about $400,000 is desirable because major expense outlays for seasonal promotions and other activities occur before assessments are received. Increasing the assessment rate from $0.19 to $0.20 per 25-pound container is expected to provide about $220,400 in additional assessment revenue, and will allow the NAC to start the 2004 season with about $438,374.

The major expenditures recommended by the NAC for the 2003-04 fiscal period include $226,121 for salaries and benefits, $142,612 for general expenses and industry activities, $1,210,220 for inspection, $138,929 for research, and $2,263,061 for domestic and international promotion. Budgeted expenses for these items in 2002-03 were $505,000 for salaries and benefits, $309,039 for general expenses and industry activities, $1,050,000 for inspection, $138,018 for research, and $2,574,160 for domestic and international promotion.

The 2002-03 and 2003-04 budgeted expenses differ somewhat because the NAC reorganized some expense categories for 2003-2004. NAC's total expenses are significantly lower this fiscal year compared to last fiscal year.

The 2003-04 NAC assessment rate was derived after considering the total NAC expenses of $4,173,438; the estimated assessable nectarines of 22,004,000 25-pound containers or container equivalents; the estimated income from other sources, such as interest; and the need for an adequate financial reserve to carry the NAC into the 2004 season. The committee decided that a financial reserve of $400,000 is necessary to meet its obligations in the early part of each season, before handler assessments are billed and received. To meet these goals, the NAC recommended an assessment rate of $0.20 per 25-pound containers or container equivalent. According to the committee, that assessment rate will result in an adequate financial reserve, yet one well within the maximum permitted by the order (one year's expenses; § 916.42).

The PCC recommended, for the 1996-97 fiscal period, and USDA approved, an assessment rate of $0.19 that would continue in effect from fiscal period to fiscal period unless modified, suspended, or terminated by USDA upon recommendation and information submitted by the committee or other information available to USDA.

The PCC also met on May 1, 2003, and recommended 2003-04 expenditures of $4,086,316 and an assessment rate of $0.20 per 25-pound container or container equivalent of peaches on a vote of 12 to 1. In comparison, last year's budgeted expenditures were $4,678,883. The assessment rate of $0.20 is $0.01 higher than the rate currently in effect.

The dissenting voter stated that the growers he represented did not support increasing the assessment rate, and he, therefore, could not support the increase.

The rate increase was recommended to ensure that the PCC could meet its 2003-04 anticipated expenses and carry over a financial reserve for the PCC which will provide adequate funds at the beginning of the 2004 season before assessment collections begin. A financial reserve carryover of $500,000 is desirable because major expense outlays for seasonal promotions and other activities occur before assessments are received. Increasing the assessment rate from $0.19 to $0.20 per 25-pound container is expected to provide about $213,360 in additional assessment revenue, and will allow the PCC to start the 2004 season with about $530,586.

The major expenditures recommended by the PCC for the 2003-04 fiscal period include $226,121 for salaries and benefits, $144,743 for general expenses and industry activities, $1,206,414 for inspection, $138,930 for research, and $2,211,346 for domestic and international promotion. Budgeted expenses for these items in 2002-03 were $505,000 for salaries and benefits, $206,747 for general expenses, $1,100,000 for inspection, $142,186 for research, and $2,529,036 for domestic and international promotion.

The 2002-03 and 2003-04 budgeted expenses differ somewhat because the PCC reorganized some expense categories for 2003-2004. PCC's total expenses are significantly lower this fiscal year compared to last fiscal year.

The 2003-04 PCC assessment rate was derived after considering the total PCC expenses of $4,086,316; the estimated assessable peaches of 21,336,000 25-pound containers or container equivalents; the estimated income from other sources, such as interest; and the need for an adequate reserve to carry the PCC into the 2004 season. The committee decided that a financial reserve of $500,000 is necessary to meet its obligations in the early part of each season, before handler assessments are billed and received. To meet these goals, the PCC recommended an assessment rate of $0.20 per 25-pound container or container equivalent. According to the committee, that assessment rate will result in an adequate financial reserve, yet one well within the maximum permitted by the order (one year's expenses; § 917.38).

The assessment rates established in this rule will continue in effect indefinitely unless modified, suspended, or terminated by USDA upon recommendation and information submitted by the committees or other available information.

Although these assessment rates will be in effect for an indefinite period, the committees will continue to meet prior to or during each fiscal period to recommend a budget of expenses and consider recommendations for modification of the assessment rates. The dates and times of committee meetings are available from the committees' website or USDA. Committee meetings are open to the public and interested persons may express their views at these meetings. USDA will evaluate the committees' recommendations and other available information to determine whether modification of the assessment rate for each committee is needed. Further rulemaking will be undertaken as necessary. The committee's 2003-04 budget and those for subsequent fiscal periods will be reviewed and, as appropriate, approved by USDA.

Pursuant to requirements set forth in the Regulatory Flexibility Act (RFA), the Agricultural Marketing Service (AMS) has considered the economic impact of this rule on small entities. Accordingly, AMS has prepared this initial regulatory flexibility analysis.

The purpose of the RFA is to fit regulatory actions to the scale of business subject to such actions in order that small businesses will not be unduly or disproportionately burdened. Marketing orders issued pursuant to the Act, and the rules issued thereunder, are unique in that they are brought about through group action of essentially small entities acting on their own behalf. Thus, both statutes have small entity orientation and compatibility.

There are approximately 300 California nectarine and peach handlers subject to regulation under the orders covering nectarines and peaches grown in California, and about 1,800 producers of these fruits in California. Small agricultural service firms, which include handlers, are defined by the Small Business Administration [13 CFR 121.201] as those whose annual receipts are less than $5,000,000. Small agricultural producers are defined by the Small Business Administration as those having annual receipts of less than $750,000. A majority of these handlers and producers may be classified as small entities.

The committees' staff has estimated that there are less than 20 handlers in the industry who could be defined as other than small entities. For the 2002 season, the committees' staff estimated that the average handler price received was $9.00 per container or container equivalent of nectarines or peaches. A handler would have to ship at least 556,000 containers to have annual receipts of $5,000,000. Given data on shipments maintained by the committees' staff and the average handler price received during the 2002 season, the committees' staff estimates that small handlers represent approximately 94 percent of all the handlers within the industry.

The committees' staff has also estimated that less than 20 percent of the producers in the industry could be defined as other than small entities. For the 2002 season, the committees' estimated the average producer price received was $4.00 per container or container equivalent for nectarines and peaches. A producer would have to produce at least 187,500 containers of nectarines and peaches to have annual receipts of $750,000.

With data maintained by the committees' staff and the average producer price received during the 2002 season, the committees' staff estimates that small producers represent more than 80 percent of the producers within the industry. With an average producer price of $4.00 per container or container equivalent, and a combined packout of nectarines and peaches of 43,340,000 containers, the value of the 2002 packout level is estimated to be $173,360,000. Dividing this total estimated grower revenue figure by the estimated number of producers (1,800) yields an estimate of average revenue per producer of about $96,311 from the sales of peaches and nectarines.

This rule will increase the assessment rates established for the committees and collected from handlers for the 2003-04 and subsequent fiscal periods from $0.19 to $0.20 per 25-pound container or container equivalent of nectarines and peaches. The committees recommended 2003-04 expenditures of $4,173,438 for nectarines and expenditures of $4,086,316 for peaches and an assessment rate of $0.20 per 25-pound container or container equivalent of nectarines and peaches. The assessment rate of $0.20 is $0.01 higher than the current rate.

The quantity of assessable nectarines for the 2003-04 fiscal year is estimated at 22,004,000 25-pound container or container equivalents. Thus, the $0.20 rate should provide $4,400,800 in assessment income. Income derived from handler assessments will be adequate to cover budgeted expenses and permit an adequate reserve.

The major expenditures recommended by the NAC for the 2003-04 year include $226,121 for salaries and benefits, $142,612 for general expenses and industry activities, $1,210,220 for inspection, $138,929 for research, and $2,263,061 for domestic and international promotion.

Budgeted expenses for these items in 2002-03 were $505,000 for salaries and benefits, $309,039 for general expenses and industry activities, $1,050,000 for inspection, $138,018 for research, and $2,574,160 for domestic and international promotion.

The NAC recommended an increase in the assessment rate to meet anticipated 2003-04 expenses and preserve an acceptable financial reserve. A reserve of $400,000 is needed to fund expenses for the following year until assessments for that year are received. The NAC reviewed and recommended 2003-04 expenditures of $4,173,438 and the increased assessment rate.

The quantity of assessable peaches for the 2003-04 fiscal year is estimated at 21,336,000 25-pound container or container equivalents. Thus, the $0.20 rate should provide $4,267,200 in assessment income. Income derived from handler assessments will be adequate to cover budgeted expenses and permit a small increase in reserves.

The major expenditures recommended by the PCC for the 2003-04 year include $226,121 for salaries and benefits, $144,743 for general expenses and industry activities, $1,206,414 for inspection, $138,930 for research, and $2,211,346 for domestic and international promotion.

Budgeted expenses for these items in 2002-03 were $505,000 for salaries and benefits, $206,747 for general expenses, $1,100,000 for inspection, $142,186 for research, and $2,529,036 for domestic and international promotion.

The PCC recommended an increase in the assessment rate to meet anticipated 2003-04 expenses and preserve an acceptable financial reserve. A reserve of $500,000 to $550,000 is needed to fund expenses for the following year until assessments for that year are received. The PCC reviewed and recommended 2003-04 expenditures of $4,086,316 and the increased assessment rate.

Prior to arriving at these budgets, the committees considered information and recommendations from various sources, including, but not limited to: The Executive Committee, the Research Subcommittee, the International Programs Subcommittee, the Grade and Size Subcommittee, and the Domestic Promotion Subcommittee.

Each of the committees then reviewed the proposed expenses; the total estimated assessable 25-pound containers or container equivalents; and the estimated income from other sources, such as interest income, prior to recommending a final assessment rate. The NAC decided that an assessment rate of $0.20 per 25-pound container or container equivalent will allow it to meet its 2003-04 expenses and carry over an operating reserve of about $438,374, which is in line with the committee's financial needs. The PCC decided that an assessment rate of $0.20 per 25-pound container or container equivalent will allow it to meet its 2003-04 expenses and carry over an operating reserve of $530,586, which is in line with the committee's financial needs. The committees then recommended this rate to USDA with one dissenting vote from each committee.

A review of historical and preliminary information pertaining to the upcoming fiscal period indicates that the grower price for the 2003-04 seasons could range between $4.00 and $6.00 per 25-pound container or container equivalent. Therefore, the estimated assessment revenue for the 2003-04 fiscal period as a percentage of total grower revenue could range between 3.33 and 5.0 percent.

This action increases the assessment obligation imposed on handlers. While assessments impose some additional costs on handlers, the costs are minimal and uniform on all handlers. Some of the additional costs may be passed on to producers. However, these costs would be offset by the benefits derived from the operation of the marketing orders. In addition, the committees' meetings were widely publicized throughout the California nectarine and peach industries and all interested persons were invited to attend the meetings and participate in the committees' deliberations on all issues. Like all committee meetings, the May 1, 2003, meetings were public meetings and all entities of all sizes were able to express views on this issue. Finally, interested persons are invited to submit information on the regulatory and informational impacts of this action on small businesses.

This rule will impose no additional reporting or recordkeeping requirements on either small or large handlers. As with all Federal marketing order programs, reports and forms are periodically reviewed to reduce information requirements and duplication by industry and public sector agencies.

USDA has not identified any relevant Federal rules that duplicate, overlap, or conflict with this rule.

A small business guide on complying with fruit, vegetable, and specialty crop marketing agreements and orders may be viewed at: http://www.ams.usda.gov/fv/moab.html. Any questions about the compliance guide should be sent to Jay Guerber at the previously mentioned address in the FOR FURTHER INFORMATION CONTACT section.

A 60-day comment period is provided to allow interested persons to respond to this rule. All written comments received will be considered before a final decision is made on this matter.

After consideration of all relevant material presented, including the Committees' recommendations, and other information, it is found that this interim final rule, as hereinafter set forth, will tend to effectuate the declared policy of the Act.

Pursuant to 5 U.S.C. 553, it is also found and determined upon good cause that it is impracticable, unnecessary and contrary to the public interest to give preliminary notice prior to putting this rule into effect and that good cause exists for not postponing the effective date of this rule until 30 days after publication in the Federal Register because: (1) The 2003-04 fiscal periods began on March 1, 2003, and the marketing orders require that the rates of assessment for each fiscal period apply to all assessable nectarines and peaches handled during such fiscal period; (2) the committees need to have sufficient funds to pay their expenses which are incurred on a continuous basis; and (3) handlers are aware of this action which was recommended by the committees at public meetings and is similar to other assessment rate actions issued in past years; (4) this interim final rule provides a 60-day comment period, and all comments timely received will be considered prior to finalization of this rule.

On December 17, 1999, the Agricultural Marketing Service published a final rule consolidating the Federal milk marketing orders and changing the Class I differentials contained therein. Subsequent to adoption of this final regulation, on November 15, 2001, Broomfield became Colorado's 64th county as a result of an amendment to the Colorado State constitution.

This document amends the regulations by adding the county of Broomfield, CO, to both parts 1000 and 1032 in the General Provisions of Federal milk marketing orders and the Central marketing area, respectively.

The Proposal

On January 10, 2003, the OCC published a notice of proposed rulemaking (NPRM) to amend 12 CFR part 24.1 Part 24 implements 12 U.S.C. 24 (Eleventh), which authorizes national banks to make investments designed primarily to promote the public welfare, including the welfare of low- and moderate-income communities and families, subject to certain percentage-of-capital limitations. The NPRM sought to eliminate unnecessary regulatory requirements associated with these investments and thus make it easier for national banks to use the public welfare investment authority that the statute and regulation provide, consistent with statutory requirements and safety and soundness considerations.

The NPRM comment period closed March 11, 2003, and we received 10 comments. Commenters included banks, a banking trade association, community groups, and individuals. The majority of the commenters supported the proposed changes. A summary of the comments and a description of the final rule follows.

The NPRM proposed adding a new definition of “community and economic development entity” to replace the current definition of “community development corporation.” A community development corporation was defined in the former regulation as a corporation established by one or more insured financial institutions (with or without other investors) “to make one or more investments that meet the requirements of § 24.3.” 2 The proposal defined a community and economic development entity (CDE) as an entity—such as a national bank community development subsidiary, community development financial institution, limited liability company, or limited partnership—that makes investments or conducts activities that primarily benefit low- and moderate-income individuals or areas or other areas targeted for redevelopment. In our view, this proposed definition better reflected the scope of the statute and its legislative history, neither of which restricts the entities in which a national bank may invest to a particular form of organization, provided the bank is not exposed to unlimited liability.

None of the commenters objected to the substance of this proposed definition. Several, however, pointed out that the abbreviation “CDE” could cause confusion because that term is used in the context of the New Markets Tax Credit to refer to an entity that may have similar activities but must meet additional qualifications. To avoid this confusion, the final rule abbreviates the term “community and economic development entity” as “CEDE.”

In addition, the final rule modifies the definition of “CEDE” to reflect a change to § 24.3. As explained below, the final rule modifies § 24.3 to permit a national bank to make an investment that either primarily benefits low- and moderate-income individuals or areas or other areas targeted for redevelopment or would receive consideration as a “qualified investment” under the CRA regulations. The final rule accordingly defines a CEDE as an entity that makes investments or conducts activities that primarily benefit low- and moderate-income individuals, low- and moderate-income areas, or other areas targeted by a governmental entity for redevelopment or that would receive consideration as “qualified investments” under the CRA.

Finally, because an investment in a small farm may receive CRA consideration under certain circumstances, the final rule modifies the definition of “small business” to include a reference to small farms. Thus, under the final rule, a “small business” is “a business, including a small farm or minority-owned business, that meets the qualifications for Small Business Administration Development Company or Small Business Investment Company programs in 13 CFR 121.301.”

Section 24 (Eleventh) authorizes national banks to make investments “designed primarily to promote the public welfare, including the welfare of low- and moderate-income communities or families (such as through the provision of housing, services, or jobs).” Section 24.3 of the prior rule implemented this authority by providing that a national bank may make an investment under part 24 if two conditions were met. The first, set forth in the former rule at § 24.3(a), was that the investment primarily benefit low- and moderate-income individuals, low- and moderate-income areas, or other areas targeted for redevelopment by providing or supporting one or more of four enumerated public welfare activities.3 The second condition, set forth in the former rule at § 24.3(b), was that the bank demonstrate non-bank community support for, or participation in, the investment.4 The NPRM proposed simplifying the text of § 24.3(a) and deleting § 24.3(b).

1. Simplifying former § 24.3(a). Proposed § 24.3 would have permitted a national bank to make a part 24 investment if the investment primarily benefited low- and moderate-income individuals or areas or government-targeted redevelopment areas. The proposal deleted the four enumerated public welfare activities set forth in former § 24.3(a)(1)-(4) because they were merely illustrative of the types of investments a national bank may make under this part. In fact, the last is a catch-all provision that would cover all part 24 investments not covered by the first three. As we explained in the preamble to the proposal, the list is unnecessary in light of § 24.6, which sets forth examples of public welfare investments a national bank may make under part 24.

Several commenters proposed further revisions to § 24.3. These commenters suggested that we either eliminate the requirement that an investment primarily benefit low- and moderate-income individuals or areas, or change the regulation so that these individuals or areas need not be the only, or even the primary, beneficiaries of such investments. These commenters note that the “primary benefit” test is not required by statute and that many investment activities that do not meet this test nonetheless promote the public welfare. Several bank commenters also noted that some investments that would receive consideration under the CRA as “qualified investments” do not necessarily satisfy the requirements of part 24. This comment was made, in particular, with respect to small business investments that do not meet part 24's “primary benefit” test.

We believe that the elimination of the “primary benefit” test in its entirety is inappropriate. First, the primary benefit test provides an objective criterion—the benefit to low- and moderate-income individuals or areas or targeted redevelopment areas—for determining whether an investment “primarily promotes the public welfare” under the statute. Eliminating this objective test would create significant uncertainty concerning what types of investments are permitted under part 24. Second, removal of the primary benefit test may dilute the public welfare purpose of the statute by weakening the incentive for national banks to identify investments that are sound and profitable but not widely perceived as such.5

However, we believe that many of the benefits of the commenters' suggestions can be achieved by including, as an alternative to investments that satisfy the primary benefit test, investments that would receive consideration as “qualified investments” under the CRA regulations. The CRA regulations provide their own set of objective criteria. Under the CRA regulations, a qualified investment must have as its primary purpose community development, which is defined to include affordable housing; community services targeted to low- or moderate-income individuals; activities that promote economic development by financing small businesses or farms; or activities that stabilize low or moderate-income geographies.6 The final rule incorporates these standards by modifying § 24.3 to permit a bank to make a part 24 investment if the investment primarily benefits low- and moderate-income individuals or areas or government-targeted redevelopment areas or would receive consideration as a “qualified investment” under the CRA regulations. 7 Examples of such investments are included in new § 24.6.

2. Eliminating former § 24.3(b) (the community support requirement).

The NPRM proposed deleting the community support requirement because it is not required by statute or the comparable rules that apply to other financial institutions that have Federal statutory investment authority similar to section 24 (Eleventh) 8 , and the OCC's experience in implementing part 24 suggests that investments that otherwise meet the requirements of part 24 will receive the support of the communities benefitted.

The OCC received several comments from banks in support of the proposed deletion of this requirement. These commenters echoed our statement in the preamble to the NPRM that most investments that otherwise meet the requirements of part 24 will receive the support of the communities benefited. In addition, the supporting commenters said that mandating community involvement may limit management's ability to realize its own business strategy.

The OCC received no comments voicing opposition to the proposed deletion of the community support requirement either banks or community groups. The final rule therefore deletes the community support requirement.

Section 24.4 of the rule implements the investment limits imposed by 12 U.S.C. 24 (Eleventh). Under both the regulation and the statute, a national bank's aggregate public welfare investments may not exceed 5 percent of its capital and surplus, unless the bank is at least adequately capitalized and the OCC determines that a higher amount will pose no significant risk to the deposit insurance fund. In no case, however, may a bank's aggregate outstanding part 24 investments exceed 10 percent of its capital and surplus.9

The OCC proposed amending § 24.4 to clarify that a bank should follow generally accepted accounting principles (GAAP) when calculating the aggregate amount of its part 24 investments, unless otherwise directed or permitted in writing by the OCC for prudential or safety and soundness reasons. We received two comments on this proposal seeking a further explanation of this clarification.

National banks prepare statements and reports required to be filed with the OCC using accounting standards that are consistent with GAAP. Under GAAP, the valuation method applied to an investment in an entity depends on the nature of the investment 10 and the degree of the investor's control reflected by the percentage that the investment represents in the entity. Generally, investments over 50 percent are fully consolidated; investments between 20 and 50 percent are valued according to the equity method; and investments under 20 percent may be valued at cost, unless the asset becomes permanently impaired. There are certain circumstances, however, when the application of a particular GAAP valuation method to a part 24 investment may lead to unintended results.

For example, if the equity method of GAAP is applied to a part 24 investment, the value of a bank's part 24 investment carried on the bank's books would be originally recorded at cost but subsequently adjusted periodically to reflect the bank's proportionate share of the investment's earnings or losses, and decreased by any cash dividends or similar distributions from the investment. The use of the equity method would mean that the valuation of the bank's part 24 investment would fluctuate with the profits and losses of the investment. As the investment's profits increase under the equity method, the carrying value of the bank's investment would also increase. Consequently, even if the bank's investment was within the part 24 investment limits when made, this increase in the carrying value under the equity method could cause the investment to later exceed the investment limits.

Conversely, if the part 24 investment incurred losses, the value of the bank's investment would decrease, which would permit the bank to make additional investments without exceeding the investment limit. Thus, although the equity method may better reflect the current value of the bank's investment, its application could limit the investment capacity of banks with the most profitable part 24 investment programs while, contrary to safety and soundness, increasing the investment capacity of banks that make unprofitable part 24 investments.

In such circumstances, it may be appropriate for a bank to use a different method to calculate the aggregate amount of its part 24 investments. For example, under the cost method, the actual cost of a bank's part 24 investment would be used in determining compliance with the statutory investment limit. No further adjustments would be required. As a result, as long as the part 24 investment was within the investment limits when made (and assuming there has been no change in the bank's capital and surplus), a bank's compliance with these limits would be unaffected by profits or losses on the investment.

In order to provide flexibility where the application of a specific GAAP valuation method would be inappropriate, the final rule follows the proposal and amends § 24.4 to provide that a bank should follow GAAP when calculating the aggregate amount of its part 24 investments, unless otherwise directed or permitted in writing by the OCC for prudential or safety and soundness reasons.

An eligible national bank may make qualifying public welfare investments without prior notification to, or approval by, the OCC by submitting a self-certification letter to the OCC within 10 working days after it makes the investment. For all other investments under part 24, a national bank must submit an investment proposal application to the OCC for prior approval. Unless otherwise notified in writing by the OCC, the proposed investment is deemed approved 30 calendar days from the date on which the OCC receives the proposal application.11

To emphasize that eligible national banks are not required to seek prior approval of eligible public welfare investments, the NRPM proposed changing the title of § 24.5 to “Public welfare investment after-the-fact notice and prior approval procedures,” and changed references in the section from “self-certification” to “after-the-fact notice.” The OCC further proposed to simplify the part 24 investment notification processes and make them more consistent with the notification processes established under 12 CFR part 5 for certain equity investments. Under those provisions of part 5, a national bank's written after-the-fact notice of certain equity investments must set forth simply “a description, and the amount, of the bank's investment.”12

The NPRM proposed revising § 24.5 to make it more consistent with the part 5 equity investment notification procedures and to remove unnecessary administrative impediments to national bank public welfare investments. Thus, the proposal provided that a national bank may make an investment without prior notification to the OCC if the bank submits an after-the-fact notice to the OCC that includes: a description of the bank's investment; the amount of the investment; the percentage of the bank's capital and surplus represented by the current investment being self-certified and by the bank's aggregate outstanding part 24 investments, including the investment being self-certified; and a certification that the investment complies with the requirements of §§ 24.3 and 24.4.

The NPRM also proposed applying these modified requirements to the investment prior approval process described in § 24.5(b). As a result, the after-the-fact notices and the investment proposals submitted in accordance with these modified requirements would be significantly less burdensome to prepare than are the materials submitted under the current rule while still providing the OCC with sufficient information to determine whether an investment is consistent with safe and sound practices.13

The OCC received no comments opposed to these streamlined procedures and several comments in favor of them. Several commenters suggested, however, that we further streamline the self-certification process. One commenter proposed eliminating the required inclusion in the self-certification letter of the percentage of the bank's capital and surplus represented by the current investment and by the bank's aggregate outstanding investments. This commenter noted that neither part 5 nor the FRB's rule requires this information. On the other hand, this information is necessary to enable the OCC to ascertain whether a bank is complying with the statutory investment limit, and requiring its inclusion poses minimal additional burden because the bank itself must calculate the percentage of its capital and surplus represented by the current investment and by its aggregate outstanding investments in order to determine whether it is in compliance with the rule's investment limits. The final rule thus retains this requirement.

A bank commenter also suggested that we eliminate two other differences between the part 24 procedures and the procedures set forth in the FRB's rule. First, the bank suggested that the OCC change the requirement that a bank must notify the OCC within 10 days of making an investment to be consistent with the 30-day period permitted by the FRB. Second, the bank proposed that we eliminate the requirement that a bank must be well-capitalized in order to submit after-the-fact notices because the FRB only requires that a bank be adequately capitalized. We decline to adopt in part 24 the timing and capitalization requirements applied by the FRB in its community development investment regulation. The requirements in part 24 are consistent with requirements applied in connection with certain equity investments under part 5 and achieve the twin objectives of minimizing burden while providing adequate safeguards. The OCC believes that changing these requirements in the context of part 24 may have the unintended consequence of increasing burden on banks by imposing a new and different set of rules applicable to a subset of investments that national banks may make. For these reasons, we have retained the current requirements.

The OCC has revised the sample form (OCC form CD-1) for investment notification and prior approval to reflect the streamlined requirements set forth in this final rule. This sample form is added to the final rule as Appendix 1, is available for downloading on the OCC's Web site at http://www.occ.treas.gov/cdd/pt24toppage.htm, and will be available through the OCC's Community Development Division.14

The NPRM proposed revising § 24.6 to provide additional examples of the types of investments that meet the requirements of § 24.3. For ease of reference, this list is organized by type of activity (such as affordable housing, economic development and job creation, and investments in community and economic development entities). As we explained in the preamble to the NPRM, this list is merely illustrative of the types of investments a bank may make under this part, and national banks are not limited to the listed investments in creating or expanding their public welfare investment programs. The expanded list of eligible investments would help to streamline the notice and application processes, however, by making clear the scope of investments that are eligible and reducing the need for staff to do case-by-case reviews of the permissibility of such investments.

Two commenters suggested additions to this list of examples consistent with the view that we should eliminate or reduce the emphasis in § 24.3 on whether an investment primarily benefits low- and moderate-income persons or areas. Because the final rule amends § 24.3 to permit banks to make investments that would receive consideration as “qualified investments” under the CRA regulations, the final rule includes an additional example in § 24.6 of such an investment.

This example, set forth at § 24.6(b)(2), is of an investment that finances small businesses or small farms that, although not located in low- and moderate-income areas, create a significant number of permanent jobs for low- or moderate-income individuals. As explained in the Interagency Questions and Answers Regarding Community Reinvestments,15 a national bank would receive positive CRA consideration for such an investment,16 but would not have been permitted to make it under former § 24.3 because the small businesses or small farms are not located in a low- or moderate-income area or redevelopment area and a majority of the permanent jobs created are not for low- and moderate-income individuals.

As explained above, this rulemaking expands the investment opportunities available to national banks under part 24 by modifying § 24.3 to permit a bank to make a part 24 investment if the investment primarily benefits low- and moderate-income individuals or areas or government-targeted redevelopment areas or would receive consideration as a “qualified investment” under the CRA regulations. With the expanded examples of qualifying investments, it becomes increasingly important that the bank be able to readily demonstrate that the investment meets the criteria for an eligible investment under part 24. Where a bank relies on an investment being a “qualified investment” under the CRA regulations in order to be eligible under part 24, this means that the bank's records of its part 24 investment must clearly support the investment as a “qualified investment” under the standards of the CRA regulations. The final rule therefore amends § 24.7(b) to emphasize that a national bank “maintain in its files information adequate to demonstrate that its investments meet the standards set out in § 24.3 and that the bank is otherwise in compliance with the requirements of this part.”

As we have explained, the proposal changes the definition of “community development corporation” to “community and economic development entity” to better reflect the range of investment vehicles that may be used for making part 24 investments. The final rule revises the title of part 24 to reflect this change. Thus, the title of the final rule is “Community and Economic Development Entities, Community Development Projects, and Other Public Welfare Investments.”

The final rule also revises the authority statement of the rule (§ 24.1) to refer to “community and economic development entities” rather than “community development corporations.”

Pursuant to section 605(b) of the Regulatory Flexibility Act, 5 U.S.C. 605(b) (RFA), the regulatory flexibility analysis otherwise required under section 604 of the RFA is not required if the agency certifies that the rule will not have a significant economic impact on a substantial number of small entities and publishes its certification and a short, explanatory statement in the Federal Register along with its rule.

Pursuant to section 605(b) of the RFA, the OCC hereby certifies that this rulemaking will not have a significant economic impact on a substantial number of small entities. The OCC has reviewed the impact this final rule will have on small national banks. For purposes of this Regulatory Flexibility Analysis and final rule, the OCC defines “small national banks” to be those banks with less than $150 million in total assets. Based on that review, the OCC certifies that the final rule will not have a significant economic impact on a substantial number of small entities. The final rule would reduce regulatory burden on all national banks by simplifying the requirements and procedures applicable to part 24 investments. The economic impact of this final rule on national banks, regardless of size, is not expected to be significant, though some national banks may benefit from a modest reduction in compliance costs. Accordingly, a regulatory flexibility analysis is not needed.

The OCC has determined that this final rule is not a significant regulatory action under Executive Order 12866.

Section 202 of the Unfunded Mandates Reform Act of 1995, Pub. L. 104-4 (2 U.S.C. 1532) (Unfunded Mandates Act), requires that an agency prepare a budgetary impact statement before promulgating any rule likely to result in a federal mandate that may result in the expenditure by state, local, and tribal governments, in the aggregate, or by the private sector of $100 million or more in any one year. If a budgetary impact statement is required, section 205 of the Unfunded Mandates Act also requires an agency to identify and consider a reasonable number of regulatory alternatives before promulgating a rule. The OCC has determined that the final rule will not result in expenditures by state, local, and tribal governments, or by the private sector, of $100 million or more in any one year. Accordingly, this rulemaking requires no further analysis under the Unfunded Mandates Act.

In accordance with the requirements of the Paperwork Reduction Act of 1995, the OCC may not conduct or sponsor, and a respondent is not required to respond to, an information collection unless it displays a currently valid Office of Management and Budget (OMB) control number.

The information collection requirements contained in the notice of proposed rulemaking (68 FR 1394, January 10, 2003) were submitted to OMB for review and approved by OMB under OMB Control Number 1557-0194.

The OCC solicited comments for 60 days on the information collection requirements contained notice of proposed rulemaking. The OCC received no comments.

The revisions of the information collections contained in the final rule are unchanged from the proposed rule and are expected to reduce annual paperwork burden for respondents because it eliminates certain application and notification requirements. The information collection requirements in this final rule are contained in §§ 24.5(a) and 24.5(b). Section 24.5(a) requires a national bank to submit an after-the-fact notice of public welfare investments to the OCC. The time per response to complete an after-the-fact notice is estimated to be 1.5 hours and the number of respondents is estimated to be 195 national banks. Section 24.5(b) requires a national bank to submit an investment proposal to the OCC if the bank does not meet the requirements for after-the-fact notification. The time per response to complete an investment proposal is estimated to be 1.5 hours and the number of respondents is estimated to be 22.

Section 24.5(a)(4) contains an existing requirement for certain national banks to submit a letter requesting authority to submit after-the-fact notices of their investments. The time per response is approximately 30 minutes and the number of respondents is estimated to be four.

The likely respondents are national banks.

Estimated number of respondents: 221 hours.

Estimated number of responses: 221 responses.

Estimated total burden hours: 327.5 hours.

On July 1, 2003, the Federal Aviation Administration (FAA) issued airworthiness directive (AD) 2003-14-02, amendment 39-13221 (68 FR 41059, July 10, 2003), which applies to certain Bombardier Model CL-600-2B19 (Regional Jet series 100 & 440) airplanes. That AD requires a one-time inspection of the aft edge of the left and right main windshields to determine whether a certain placard is installed, and corrective actions if necessary. That AD was prompted by a significant number of cracking incidents that occurred in the inner and middle panes of the main windshields during taxi, takeoff, climb, cruise, and descent of the airplane. The actions required by that AD are intended to prevent stress-related cracking of the windshields, and subsequent excessive frequency of abnormal procedures specified in the airplane flight manual and/or an emergency descent be accomplished, which poses an increased risk to passengers and crew members.

As published, that AD contains several incorrect references to the affected airplane models. As discussed in the preamble of that AD, we intended to revise the applicability of the final rule to identify model designations as published in the most recent type certificate data sheet. However, Regional Jet series “400,” which does not exist, was inadvertently indicated in several references instead of the correct model designation Regional Jet series “440.” The correct model designation (Bombardier Model CL-600-2B19 (Regional Jet Series 100 & 440) airplanes) was listed in the title of the AD.

The FAA has determined that a correction to AD 2003-14-02 is necessary. The correction will properly specify model designations as published in the most recent type certificate data sheet for the affected models.

This document corrects the error and correctly adds the AD as an amendment to section 39.13 of the Federal Aviation Regulations (14 CFR 39.13).

The AD is reprinted in its entirety with the changes incorporated for the convenience of affected operators. The effective date of the AD remains August 14, 2003.

Since this action only specifies model designations as published in the most recent type certificate data sheet for the affected models, it has no adverse economic impact and imposes no additional burden on any person. Therefore, the FAA has determined that notice and public procedures are unnecessary.

A proposal to amend part 39 of the Federal Aviation Regulations (14 CFR part 39) to include an AD that is applicable to certain Bombardier Model CL-600-2B19 series airplanes was published in the Federal Register on May 20, 2002 (67 FR 35461). That action proposed to require a one-time inspection of the aft edge of the left and right main windshields to determine whether a certain placard is installed, and corrective actions if necessary.

Ivy Laboratories, Division of Ivy Animal Health, Inc., 8857 Bond St., Overland Park, KS 66214, filed a supplement to ANADA 200-346. The supplemental ANADA provides for the use of COMPONENT TE-200 (trenbolone acetate and estradiol), a subcutaneous implant containing 200 milligrams (mg) trenbolone acetate and 20 mg estradiol in steers fed in confinement for slaughter for increased rate of weight gain and improved feed efficiency. Ivy Laboratories' COMPONENT TE-200 is approved as a generic copy of Intervet, Inc.'s REVALOR-200, approved under NADA 140-992. The application is approved as of April 21, 2003, and the regulations are amended in 21 CFR 522.2477 to reflect the approval. The basis of approval is discussed in the freedom of information summary.

In accordance with the freedom of information provisions of 21 CFR part 20 and 21 CFR 514.11(e)(2)(ii), a summary of safety and effectiveness data and information submitted to support approval of this application may be seen in the Dockets Management Branch (HFA-305), Food and Drug Administration, 5630 Fishers Lane, rm. 1061, Rockville, MD 20852, between 9 a.m. and 4 p.m., Monday through Friday.

The agency has determined under 21 CFR 25.33(a)(1) that this action is of a type that does not individually or cumulatively have a significant effect on the human environment. Therefore, neither an environmental assessment nor an environmental impact statement is required.

This rule does not meet the definition of “rule” in 5 U.S.C. 804(3)(A) because it is a rule of “particular applicability.” Therefore, it is not subject to the congressional review requirements in 5 U.S.C. 801-808.

Background

This document amends the regulations relating to user fees to provide for the imposition of user fees for the processing of offers to compromise. The charging of user fees implements the Independent Offices Appropriations Act (IOAA), which is codified at 31 U.S.C. 9701. On November 6, 2002, a notice of proposed rulemaking (REG-103777-02) was published in the Federal Register. Approximately 149 comments were received. A public hearing on the regulations was held on February 13, 2003. The final regulations adopt the rules of the proposed regulations.

Section 7122 of the Internal Revenue Code (Code) gives the IRS the authority to compromise any civil or criminal case arising under the internal revenue laws, prior to the referral of that case to the Department of Justice. Section 7122 also directs the IRS to prescribe guidelines for officers and employees of the IRS to determine whether an offer to compromise is adequate and should be accepted. Guidelines are contained in § 301.7122-1. Pursuant to § 301.7122-1(b), an offer may be accepted if there is doubt as to liability, if there is doubt as to collectibility, or if acceptance will promote effective tax administration. Pursuant to § 301.7122-1(b)(3), offers may be accepted to promote effective tax administration if either: (1) The IRS determines that, although collection in full could be achieved, collection of the full liability would cause the taxpayer economic hardship within the meaning of § 301.6343-1, or (2) there are no other grounds for compromise and there are compelling public policy or equity considerations.

When an offer to compromise is received, an initial determination is made as to whether the offer is processable. Currently, an offer is returned as nonprocessable if the taxpayer is in bankruptcy, has not filed required tax returns, or has not submitted the offer to compromise on the proper form. Absent these conditions, the offer is accepted for processing and cannot be rejected without an independent administrative review of the decision to reject and, if the taxpayer chooses to appeal the rejection, independent review by the Office of Appeals. Even though an offer accepted for processing may later be returned to the taxpayer if the taxpayer fails to provide requested information or the IRS determines that the offer was submitted solely to delay collection, such an offer may not be returned before a managerial review of the proposed return is completed pursuant to § 301.7122-1(f)(5)(ii).

The final regulations establish a $150 user fee for the processing of certain offers to compromise tax liabilities pursuant to § 301.7122-1. The user fee will not apply to offers based solely on doubt as to liability and offers made by low income taxpayers whose incomes are at or below the poverty guidelines set by the Department of Health and Human Services (DHHS), or such other measure the IRS may adopt.

Offers based on doubt as to liability are excepted from the user fee based on the inequity of the IRS charging a fee to compromise an uncertain liability when a compromise is based upon a redetermination or reevaluation of the taxpayer's liability for a tax (and the agreed upon amount may, in fact, provide for the full payment of the amount actually owed).

Offers from low income taxpayers are excepted from the fee in light of section 7122(c)(3)(A), which prohibits the IRS from rejecting an offer from a low income taxpayer solely on the basis of the amount offered. Section 7122(c)(3)(A) literally applies to the rejection of an offer, rather than the return of an offer for failure to pay a user fee. Requiring payment of a user fee from a low income taxpayer would undermine section 7122(c)(3)(A) in cases where the taxpayer does not have the ability to pay the fee. Offers from low income taxpayers are therefore excepted.

Taxpayers with offers that do not fall within the doubt as to liability or low income exceptions will submit the user fee along with the offer to compromise. If the offer is accepted to promote effective tax administration or is accepted based on doubt as to collectibility and a determination that collecting more than the amount offered would create economic hardship within the meaning of §§ 301.6343-1, the fee will be applied to the amount of the offer or, if the taxpayer requests, refunded to the taxpayer. In other cases, the payment of the fee will be taken into account in determining the acceptable amount of the offer and therefore the taxpayer in total will pay no more than the taxpayer would have paid without the fee. While the fee will not be refunded if an offer is withdrawn, rejected, or returned as nonprocessable after acceptance for processing, no additional fee will be charged if a taxpayer resubmits an offer the IRS determines to have been rejected or returned in error.

Most of the comments on the proposed regulations did not favor the fee. The comments focused on three concerns: The fee would create an additional financial hardship on taxpayers who are already experiencing hardship; the income level for the low income exception to the fee was too low; and the fee should not be imposed until the offer to compromise is administered more effectively and efficiently. For the following reasons, these final regulations follow the proposed regulations without change.

The most frequent concern in the comments was that the fee would cause additional financial hardship for taxpayers who are already experiencing financial hardship. The exception for low income taxpayers, however, excludes those taxpayers most likely to be disadvantaged by the user fee. Further, the imposition of the fee on other taxpayers will not change the net amount paid by the taxpayer to reach a compromise; the fee will be taken into account when considering whether the amount offered is acceptable. Although taxpayers who must pay the fee will not receive a refund if the offer is withdrawn, rejected, or returned after being accepted for processing, the IRS will work closely with taxpayers to perfect incomplete or inadequate offers before returning or rejecting them.

A number of commentators were concerned that the DHHS poverty guidelines used for purposes of the low income exception are too low and recommended that the exception for low income taxpayers should be extended to 250% of the DHHS guidelines. The 250% level corresponds to one of the criteria used for funding low income taxpayer clinics: In order to receive funding pursuant to section 7526 of the Code, 90% of a clinic's clients must fall below 250% of the DHHS poverty level. The commentators pointed to the relationship between section 7526 and offers to compromise. Section 7526 was enacted contemporaneously with section 7122(c)(3), which prohibits the IRS from rejecting an offer from a low income taxpayer based on the amount of the offer. Commentators argued that imposing a user fee on taxpayers whose incomes are within 250% of the poverty level thwarts the objective of section 7526 to assist such taxpayers.

The DHHS poverty guidelines are retained as the measure of the exception for the low income taxpayer. The 250% criteria in section 7526 only applies for purposes of that section; it does not extend to offers to compromise under section 7122. Had Congress intended to extend the 250% criteria to offers in compromise under section 7122, it could have done so. The DHHS poverty guidelines are a reasonable standard for offers to compromise in light of the fact that the amount of the fee will be reflected in the amount of the offer. Although some taxpayers may not be able to pay the fee because the fee exceeds their collectible assets and income, the DHHS standard will generally cover such taxpayers. Further, the IRS retains the authority under the final regulations to adjust the definition of low income taxpayer. The IRS could, therefore, change the low income standard if, in practice, there are a significant number of taxpayers with incomes above the DHHS standard who are experiencing hardship as a result of the fee.

A number of commentators urged that the fee should not be imposed until inefficiencies and errors in the processing of offers to compromise are eliminated. In the past year, however, the IRS made substantial improvements to its offer in compromise program and is now able to process offers to compromise much more accurately, effectively and efficiently. The IRS acknowledges that further improvements are needed and is taking steps to achieve greater accuracy and efficiency, but the user fee is an integral part of that effort. The user fee should help reduce the number of frivolous offers and the number of offers that are either withdrawn, returned, or rejected because the offeror would not provide adequate information for the IRS to process the offer or would not offer an amount that reflects the taxpayer's ability to pay. Limiting the number of offers that will be withdrawn, returned, or rejected will enable the IRS to direct its resources towards the timely and efficient processing of acceptable offers. In addition, the final regulation was amended to make clear that no additional fee will be charged if a taxpayer resubmits an offer the IRS determines to have been rejected or returned in error after acceptance for processing.

The IOAA authorizes agencies to prescribe regulations that establish charges for services provided by the agency (user fees). The charges must be fair and be based on the costs to the Government, the value of the service to the recipient, the public policy or interest served, and other relevant facts. The IOAA provides that regulations implementing user fees are subject to policies prescribed by the President, which are currently set forth in OMB Circular A-25, 58 FR 38142 (July 15, 1993).

The OMB Circular encourages user fees for Government-provided services that confer benefits on identifiable recipients over and above those benefits received by the general public. Under the OMB Circular, an agency that seeks to impose a user fee for Government-provided services must calculate its full cost of providing those services. In general, the amount of a user fee should recover the cost of providing the special service, unless the Office of Management and Budget grants an exception. Pursuant to the guidelines in the OMB Circular, the IRS calculated its cost of providing services under the offer in compromise program. The IRS determined that the full cost of investigating doubt as to collectibility and effective tax administration offers averages $471 when streamlined procedures are used to investigate the financial condition of the taxpayer, and $3,983 when more detailed investigations are used. The IRS estimates that 70% of offers are processed under streamlined procedures. OMB granted an exception to the “full cost” requirement of the OMB Circular.

The Treasury, Postal Service, and General Government Appropriations Act of 1995, Public Law 103-329 (108 Stat. 2382) (the 1995 Appropriations Act) provides that the Secretary may establish new fees for services provided by the IRS where such fees are authorized by another law, such as the IOAA.

The user fees are implemented under the authority of the IOAA, the OMB Circular, and the 1995 Appropriations Act.

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 is hereby certified that these regulations will not have a significant economic impact on a substantial number of small entities. Accordingly, a regulatory flexibility analysis is not required. This certification is based on the information that follows. The economic impact of these regulations on any small entity will result from the entity being required to pay a fee prescribed by these regulations in order to obtain a particular service. The dollar amount of the fee is not, however, substantial enough to have a significant economic impact on any entity subject to the fee. Pursuant to section 7805(f) of the Code, the preceding notice of proposed rulemaking was submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small business.

The principal author of these regulations is G. William Beard, Office of Associate Chief Counsel (Procedure and Administration), Collection, Bankruptcy and Summonses Division.

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

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

Accordingly, this amendment (1) adds to appendix B to part 4044 the interest assumptions for valuing benefits for allocation purposes in plans with valuation dates during September 2003, (2) adds to appendix B to part 4022 the interest assumptions for the PBGC to use for its own lump-sum payments in plans with valuation dates during September 2003, and (3) adds to appendix C to part 4022 the interest assumptions for private-sector pension practitioners to refer to if they wish to use lump-sum interest rates determined using the PBGC's historical methodology for valuation dates during September 2003.

For valuation of benefits for allocation purposes, the interest assumptions that the PBGC will use (set forth in appendix B to part 4044) will be 4.90 percent for the first 20 years following the valuation date and 5.25 percent thereafter. These interest assumptions represent an increase (from those in effect for August 2003) of 0.50 percent for the first 20 years following the valuation date and are otherwise unchanged.

The interest assumptions that the PBGC will use for its own lump-sum payments (set forth in appendix B to part 4022) will be 3.50 percent for the period during which a benefit is in pay status and 4.00 percent during any years preceding the benefit's placement in pay status. These interest assumptions represent an increase (from those in effect for August 2003) of 0.50 percent for the period during which a benefit is in pay status and are otherwise unchanged.

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

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

Because of the need to provide immediate guidance for the valuation and payment of benefits in plans with valuation dates during September 2003, the PBGC finds that good cause exists for making the assumptions set forth in this amendment effective less than 30 days after publication.

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

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

Section 503(a) of the Act permits a State to assume primacy for the regulation of surface coal mining and reclamation operations on non-Federal and non-Indian lands within its borders by demonstrating that its State program includes, among other things, “* * * a State law which provides for the regulation of surface coal mining and reclamation operations in accordance with the requirements of the Act * * *; and rules and regulations consistent with regulations issued by the Secretary pursuant to the Act.” See 30 U.S.C. 1253(a)(1) and (7). On the basis of these criteria, the Secretary of the Interior conditionally approved the Pennsylvania program on July 30, 1982. You can find background information on the Pennsylvania program, including the Secretary's findings, the disposition of comments, and conditions of approval in the July 30, 1982, Federal Register (47 FR 33050). You can also find later actions concerning Pennsylvania's program and program amendments at 30 CFR 938.11, 938.12, 938.15 and 938.16.

By letter dated February 25, 2002, Pennsylvania sent us an amendment to its program (Administrative Record No. PA 878.02) under SMCRA (30 U.S.C. 1201 et seq.). The amendment includes changes to Title 25, Part I, Subpart D, Article IV, Chapters 210 Blaster's License, and 211 Storage, Handling and Use of Explosives. We announced receipt of the proposed amendment in the April 30, 2002, Federal Register (67 FR 21187). In the same document, we opened the public comment period and provided an opportunity for a public hearing or meeting on the amendment's adequacy. We did not hold a public hearing, as one was not requested. The public comment period ended on May 30, 2002. We received comments from two Federal agencies and from one State agency. The Federal agencies were the U.S. Department of Labor, Mine Safety and Health Administration's (MSHA) New Stanton Office and the U.S. Environmental Protection Agency (EPA), Region III. The State agency was the Pennsylvania Historical and Museum Commission (PHMC).

Following are the findings we made concerning the amendment under SMCRA and the Federal regulations at 30 CFR 732.15 and 732.17. We are approving the amendment as described below. Any revisions that we do not specifically discuss below concern nonsubstantive wording or editorial changes and are approved here without discussion.

Pennsylvania proposed minor wording and recodification changes to the following previously approved rules:

Because these changes are minor and do not affect the meaning or the application of the previously approved rules, we find that they will not make Pennsylvania's rules less effective than the corresponding Federal regulations.

The following rules that we previously approved as part of the Pennsylvania program have been eliminated in this rulemaking.

There are no Federal counterparts to the rules listed in the above table. Our review found that elimination of these sections does not make the Pennsylvania program less effective than the Federal regulations. We are approving their elimination.

In addition to the above sections, Pennsylvania also eliminated section 210.5(e) that we had also previously approved. This section provides that blasting operations near streams are prohibited when the effect of the blasting is liable to change the course or channel of any stream unless a permit is obtained from the Pennsylvania Department of Environmental Protection (PADEP). The Federal counterpart to this section is found in 30 CFR 816/817.67(a), which provides that blasting must be conducted to prevent, among other things, a change in the course, channel, or availability of surface water outside the permit area. Pennsylvania's approved program at 25 Pennsylvania Code (Pa. Code) 87.127(g) provides that blasting shall be prohibited in cases when the effect of the blasting is liable to change the course or channel of a stream. Because Pennsylvania's program still provides protection to streams from the effects of blasting that is no less effective than the Federal regulations, we find that elimination of section 210.5(e) is not inconsistent with the Federal regulations.

Pennsylvania added a definition for the term “blaster” in section 210.11. Both the State and Federal definition of “blaster” as defined in 30 CFR 850.5 include in the term that the person must have a blaster's license/certification and must be responsible for the blasting. Since this definition means the same as the term “blaster” in the Federal rules, we find it no less effective and we are approving this definition.

Pennsylvania also added definitions for terms in Chapter 211 that are not specifically defined in Federal regulations, but the use of the terms in the Federal regulations indicate they mean the same as Pennsylvania's definitions. In section 211.101, Pennsylvania added a definition for the term “air blast” which means, “An airborne shock wave resulting from an explosion, also known as air overpressure, which may or may not be audible.” The Federal regulations at 30 CFR 816/817.67(b) provide specific limits for monitoring and controlling air blast including a chart indicating the maximum limit, in decibels, for air blast. This limitation indicates that air blast is air overpressure as defined by Pennsylvania. As a result, we find this definition consistent with the Federal rules and we are approving it.

Pennsylvania also added a definition for the term, “blaster,” to section 211.101. The term was defined to be, “An individual who is licensed by the Department under Chapter 210 (relating to blasters' licenses) to detonate explosives and supervise blasting activities.” As discussed above with the definition found at Chapter 210, this definition is no less effective than the definition of blaster in the Federal regulations at 30 CFR 850.5. We are approving it.

Pennsylvania added a definition for the term, “flyrock,” to section 211.101. Pennsylvania defined flyrock as overburden, stone, clay, or other material ejected from the blast area by the force of the blast. There is no Federal definition for “flyrock.” The definition is consistent with the way we use the term in 30 CFR 816/817.67(c) which indicates that flyrock traveling in the air or along the ground shall not be cast from the blasting site. Pennsylvania's definition of “flyrock” serves to clarify its use in Chapter 211 and in 25 Pa. Code 87.127(f)(5). We are approving this addition.

Pennsylvania added a definition for the term, “peak particle velocity,” to section 211.101. Pennsylvania defined the term to mean, “A measure of the intensity of ground vibration, specifically the time rate of change of the amplitude of ground vibration.” This definition is consistent with the way we use the term peak particle velocity in 30 CFR 816/817.67 where we indicate ground vibration cannot exceed maximum peak particle velocities. Pennsylvania's definition clarifies the use of the term in Chapter 211 and we are approving it.

Pennsylvania added a definition for the term, “utility lines,” to section 211.101. Pennsylvania defined the term as, “An electric cable, fiber optic line, pipeline or other type of conduit used to transport or transmit electricity, gases, liquids and other media including information.” The term is used in Chapter 211, Subchapter H to provide additional protections to utility lines from blasting. The use of this term is not inconsistent with the Federal regulations at 30 CFR 816/817.180 which regulate the effects of surface coal mining operations on utilities. We are approving this definition.

Pennsylvania also changed its definition of “scaled distance” that was formerly found in section 211.2(21). The definition is now found in section 211.101. The revised definition defines the actual distance portion of the scaled distance equation as the distance in feet measured in a horizontal line from the blast site to the nearest building or structure, neither owned or leased by the blasting activity permittee or customer. The former definition did not define what structures were to be included in the actual distance measurement. The revised definition is no less effective than the Federal definition at 30 CFR 816/817.67(d)(3).

Former section 211.41(24) provided that blasting must not be done in such a manner as to eject debris into the air or to constitute a hazard or danger or do harm or damage to persons or property in the area of the blasting. There is no equivalent section in the current blasting regulations in Chapter 210 or 211 for this provision. However, we previously approved 25 Pa. Code 87.127(f)(6) which contains substantively the same language as former section 211.41(24). For this reason, we are approving its deletion.

Former section 211.45 provided the requirements for monitoring blasts. Some of the information was incorporated into current section 211.171. Additionally, Pennsylvania has incorporated monitoring requirements into 25 Pa. Code 87.127 that we previously approved. We have found that the requirements of section 211.171, when coupled with the requirements of section 87.127, are no less effective than the monitoring requirements of 30 CFR 816/817.67.

Section 211.151(a) was added by this amendment. This section provides that blasting may not damage real property except for real property under the control of the permittee. Pennsylvania has an additional provision dealing with damage at 25 Pa. Code 87.127(g) which provides that blasting shall be conducted to prevent, among other things, damage to public or private property outside the permit area. We previously approved this section. Taken together these sections provide the same level of protection to property as found in the Federal regulations at 30 CFR 816/817.67(a). As a result, we are approving this section.

Section 211.151(b) was added by this amendment. This section provides that blasting may not cause flyrock. Pennsylvania has an additional provision regarding flyrock at 25 Pa. Code 87.127(f)(5) that we previously approved. Section 87.127(f)(5) provides specific limits from which flyrock cannot be cast. These limits are the same as the Federal regulations at 30 CFR 816/817.67(c). For these reasons, we are approving this section.

Section 211.151(c) was added by this amendment. This section provides limitations on blasting using either a scaled distance of 90 or a maximum allowable peak particle velocity as indicated in a chart designated as Figure 1. The scaled distance and maximum allowable peak particle velocity do not apply at a building or other structure owned or leased by the permittee or its customer. Pennsylvania has additional provisions regarding limitations on blasting at 25 Pa. Code 87.127(h) and (p) that we previously approved. The Federal regulations at 816/817.67(e) also allow for ground vibrations to exceed the established velocity. However, the Federal rules go on to state that the ground vibration standards of 816/817.67(d) shall not apply at structures owned by the permittee and leased to another person if a written waiver by the lessee is submitted to the regulatory authority before blasting. Section 211.151(c) does not provide for written waiver by the lessee. Nonetheless, Pennsylvania has provided protections for people leasing structures from a permittee in its approved regulations at 25 Pa. Code 87.127(i) which requires a waiver from the lessee before a blast is fired that exceeds the vibrations limitations. In a July 23, 2003, conversation (Administrative Record No. PA 878.10), the Chief of the Explosives and Safety Section of PADEP clarified that the ground vibration limits cannot be lessened if the people leasing the structure from the operator do not waive the limitations. This would apply regardless of whether the operator was using scaled distance for prediction of ground vibration or whether a seismograph was used to measure ground vibration. For these reasons, we find that this section is no less effective than the comparable regulations at 30 CFR 816/817.67(d) and (e) are we are approving it.

Section 211.151(d) was added by this amendment. This section provides that blasts must be designed and conducted to control airblast so that it does not exceed the noise levels specified in an included table at a building or other structure designated by Pennsylvania unless the building is owned or leased by the permittee. The Federal regulations at 816/817.67(b) provide an identical table listing the noise levels. However, this section provides that the airblast cannot exceed the maximum limits at the location of any dwelling, public building, school, church, or community or institutional building outside the permit area. Pennsylvania's regulations are more inclusive because they are applied at any building or structure and not limited to the structures noted in the Federal regulations. While this section does not provide for a waiver of the airblast levels by a person leasing a structure from a permittee, the regulations at 25 Pa. Code 87.127(e) do provide for such a waiver. As a result, we have found that this provision is no less effective than the Federal regulations.

Section 211.151(e) was added by this amendment. This section provides that Pennsylvania may establish an alternative peak particle velocity or airblast level if it determines that an alternative standard is appropriate because of density of population, land use, age or type of structure, geology or hydrology of the area, frequency of blasts or other factors. The Federal regulations at 30 CFR 816/817.67(d)(5) provides that the maximum allowable ground vibration shall be reduced if determined to be necessary to provide damage protection. Similarly 30 CFR 816/817.67(b)(1)(ii) provides that the maximum airblast levels shall be reduced if necessary to prevent damage. Pennsylvania's approved program at 25 Pa. Code 87.127(e)(2) provides that Pennsylvania will specify lower airblast levels if necessary to prevent damage. Pennsylvania's approved program at 25 Pa. Code 87.127(h) provides that it may reduce the maximum peak particle velocity allowed if it determines that a lower standard is required. Taken together we have found that Pennsylvania's regulations are no less effective than the Federal regulations in requiring alternative airblast and peak particle velocity levels when necessary to prevent damage.

Section 211.156(a) provides that a blast may only be detonated between sunrise and sunset unless Pennsylvania authorized a blast at another time of day. This is similar to Pennsylvania's approved program at 25 Pa. Code 87.127(a) which provides that blasting shall be conducted between sunrise and sunset, at times announced in the blasting schedule. The Federal regulations at 30 CFR 816.64(a)(2) and 817.64(c) provide that all blasting shall be conducted between sunrise and sunset, except that nighttime blasting can be approved under certain circumstances. The Pennsylvania regulations are no less effective than the Federal regulations in restricting the times for blasting and therefore, we are approving them.

Section 211.157(c) provides the signal to be given after a blast has been detonated. This section indicates that the signal must be of sufficient power to be heard 1,000 feet from the blast site. Pennsylvania's regulations on surface mining at 25 Pa. Code 87.127(c) indicate the all-clear signal must be capable of being heard 1/2 mile from the point of the blast. We previously approved 25 Pa. Code 87.127(c) which is similar to the Federal regulation at 30 CFR 816/817.66(b). We are approving section 211.157(c) even though the all-clear signal may not have to be audible from as great an area, because of the provision of 25 Pa. Code 211.102(b). Section 211.102(b) provides that a person will not be relieved from compliance with other applicable laws or regulations even if they are in compliance with Chapter 211. Therefore, the more strict limitation of 25 Pa. Code 87.127(c) will be in effect for blasting on surface mining operations.

Section 210.4 formerly required that a blaster's license could not be transferred and any attempt to transfer the license will automatically cancel the license. This section was previously approved by OSM on July 30, 1982 (47 FR 33050). In the current amendment, section 210.4 was recodified to section 210.13(d). Section 210.13(d) states that a blaster's license is not transferable. The recodified section does not contain the provision regarding attempts to transfer the license resulting in cancellation of the license. However, section 210.19 provides that Pennsylvania may suspend, modify or revoke a blaster's license for violations of chapter 210. The deletion of the provision regarding attempts to transfer the license does not make this section less effective than the Federal regulations because of section 210.19. An attempt to transfer the license would constitute a violation of Chapter 210 and would give Pennsylvania the authority to take action on the license. Taken together these two sections are no less effective than 30 CFR 850.15(e)(2) in preventing the transfer of blaster's licenses.

Section 210.14(a)(2) of the current regulations provides that a person must have at least one year of experience as a blaster learner in preparing blasts to be eligible for a blaster's license. The Federal regulations at 30 CFR 850.14(a)(2) require the regulatory authority to ensure that candidates for blaster certification have practical field experience. The Federal requirement does not specify how much experience is needed before someone can apply for certification. Less than a year of experience could suffice under the Federal rules. Therefore, we find that Pennsylvania's regulation is no less effective than the Federal regulation and we are approving it.

Section 210.14(a)(3) provides that a person must take Pennsylvania's class on explosives to be eligible for a blaster's license. Section 30 CFR 850.13(b) of the Federal regulations requires the regulatory authority to ensure that courses are available to train persons responsible for the use of explosives in surface coal mining operations. In a rulemaking dated April 4, 1985 (50 FR 13315), we noted that Pennsylvania submitted a Blaster Training Course Outline, and Assorted Blasting Training Course Materials (among other documents) in consideration for approval of its blaster certification program. We approved the submission of these documents noting that the materials submitted were no less effective than the Federal blaster training and examination requirements at 30 CFR 850.13 and 850.14. In an e-mail dated July 15, 2003 (Administrative Record No. PA 878.08), Pennsylvania confirmed that these materials were still used in its blaster certification program. Accordingly, based on Pennsylvania's July 15 response, we find that this section is no less effective than the Federal regulations and we are approving it.

Section 210.19 of the current regulations provides that Pennsylvania may suspend, modify, or revoke a blaster's license for violations of Chapter 210 and 211. Former section 210.2(f) contained similar provisions, but it did not provide for modification of the blaster's license, only for suspension or revocation of the license. Additionally, former section 210.2(f) provided that an appeal of a revocation of a blaster's license may be made to the Environmental Hearing Board and only allowed a suspension for due cause. The right to appeal was not stated in 210.19. The Federal regulations at 30 CFR 850.15(b) provide for suspension or revocation of a blaster's certification, but it also notes that the regulatory authority can take other necessary actions with regard to the certification. While the term “other necessary actions” was not defined in the Federal regulations, it is not unreasonable to interpret this phrase as allowing a modification of a blaster's license. The Federal rules at 30 CFR 850.15(b) require written notice and a hearing whenever a blaster's certification is suspended, revoked or other adverse action is taken. While the right to appeal a revocation, suspension, or modification was not stated in section 210.19, Pennsylvania in an e-mail dated July 15, 2003 (Administrative Record No. PA 878.08), confirmed, through copies of Notice of Suspension of Blaster's License it submitted to us, that blasters served with suspension or revocation notices are provided the right of appeal to the Environmental Hearing Board. Additionally, Pennsylvania law at 2 Pa. Consolidated Statutes (C.S.) 504 and 35 Pennsylvania Statute (P.S.) 7514, requires an opportunity for a hearing before the Environmental Hearing Board of all orders, permits, licenses or decisions of the Pennsylvania Department of Environmental Resources (now known as PADEP, pursuant 71 P.S. 1340.101). Thus, Pennsylvania provides the same level of hearing requirements as the Federal regulations. For these reasons, we are approving this provision as being no less effective than the Federal counterpart.

Section 211.133(a) provides that blasting records must be made available to Pennsylvania upon request. The section also lists the items that must be noted on the blasting report. The Federal regulations at 30 CFR 816/817.68 require that the records be made available to the public as well as the regulatory authority. Pennsylvania's approved program at 25 Pa. Code 87.129 requires that the blasting records be made available to the public. The items to be noted on blast reports are the same as in the approved program at 25 Pa. Code 87.129 except that it includes two additional items: the blasting activity permit or mining permit number and a description of the nearest building location not owned or leased by the permittee based upon local landmarks. Taken together these two sections are no less effective than the requirements at 30 CFR 816/817.68. As a result, we are approving this section.

Section 211.155 lists the duties a blaster-in-charge must perform prior to detonating a blast. There is no Federal counterpart for the duties listed in subsections (1) through (4). These duties apply to safety in and around the blast area. The duties listed in subsections (5) and (6) apply to protecting the public on public roads and to sounding a warning signal prior to detonating a blast. These sections are similar to the Federal regulations at 30 CFR 816/817.66(b) which provide for warning signals and 30 CFR 816/817.67(a) which provides for prevention of injury to persons and property damage outside the permit area. These provisions, when taken with the provisions from 25 Pa. Code 87.127, such as subsection (c) that we already approved, are no less effective than the corresponding Federal requirements.

Several sections of Pennsylvania's program that we previously approved and that have no Federal counterparts were modified by this amendment. Each of these sections is described below.

Former section 210.1(d) regarding examinations for a blaster's license requires a notarized application form to be mailed to Pennsylvania with a check or money order for $10.00. This section was recodified as section 210.15(a). Section 210.15(a) dropped the requirement for the application to be notarized and increased the fee to $50.00. This section also requires the application to be submitted at least two weeks prior to the examination. There are no corresponding Federal regulations to this section and we have found that the modification does not make Pennsylvania's program less effective than the Federal regulations.

Former section 210.2(a) regarding the issuance and status of licenses required the applicant to be at least nineteen years of age in order to apply for a blaster's license. This section was recodified as section 210.14(a)(1). Section 210.14(a)(1) increased the age requirement to twenty-one. There is no Federal counterpart to the age requirement, however this section is consistent with the Federal regulations at 30 CFR 850.14 that requires the regulatory authority to verify that applicants for blaster certification are competent and have practical field experience. This requirement is also similar to the age requirement for blaster certification in Federal program States as found in 30 CFR 955.11(a). As a result, we are approving the change.

Former sections 210.2(b) and (c) provide the different types of blasting categories for which blasters will be examined and provide that each category requires an examination. New sections 210.17(a) and (b) slightly modified these requirements. These new sections describe the classifications for which a blaster's license is issued and allows people to amend the classifications if they meet the requirements of section 210.14. There is no direct Federal counterpart to this section, but we find that it does not make the Pennsylvania program inconsistent with the Federal regulations and we are approving it.

Former section 210.3(a) provides the procedures for the annual renewal of blaster's licenses. This section was recodified as section 210.17(e). Subsection (e) changes the term for renewal from one year to three years and the application fee was increased from $3.50 to $30.00. Former section 210.3(a) also provided that the renewal may be refused for due cause after notification to the applicant and a hearing. This provision was dropped from the recodified section 210.17. However, section 210.19 provides that Pennsylvania may issue orders suspending, modifying or revoking a blaster's license. This section gives Pennsylvania the authority to take action regarding the license at any time, which makes it more effective than the provision of former section 210.13(a) that provides for refusal to renew a license application. As stated earlier, we found section 210.19 to be no less effective than the Federal regulations. There is no Federal counterpart to section 210.17 and the changes do not make this less effective than the Federal regulations.

Former section 210.5(c) provides that use of explosives must be in accordance with all rules and regulations for storage, handling and use of explosives. Portions of this provision are now found in current section 211.102(a). Section 211.102(a) provides that Chapter 211 applies to persons engaging in blasting activities. However, it also exempts persons using and storing explosives at underground mines from the requirements of the chapter. The Federal regulation at 30 CFR 817.61(a) states that the performance standards of 817.61 through 817.68 apply to surface blasting activities incident to underground coal mining. We asked the Chief of the Explosives and Safety Section of PADEP if this section exempts blasting activities incident to underground mining. In an e-mail dated June 17, 2003 (Administrative Record No. PA 878.09), he replied that this section pertains to blasting or storage within the underground mine not blasting incident to underground mining. He further replied that blasting incident to underground mining is regulated by Chapter 87. Since PADEP confirmed that this section does not apply to surface blasting activities incident to underground coal mining, we find that there is no corresponding Federal regulation to this section and it does not render the Pennsylvania program inconsistent with the Federal regulations. Therefore, we are approving it.

Former section 210.6 provides that conditions under which blaster learners may work with a licensed blaster. Portions of this provision are now found in current sections 210.11, 211.101, and 211.154(e). There is no direct Federal counterpart to these provisions; however, they are consistent with the Federal regulations at 30 CFR 850.13(a) that requires the regulatory authority to establish procedures for persons who are not certified blasters to receive direction and on-the-job training from a certified blaster.

Former section 211.2(3) provided a definition for the term, “explosives.” The definition for the term was modified in current section 211.101. There is no Federal counterpart for the definition of the term, “explosive,” however we find that Pennsylvania's definition of the term is not inconsistent with the Federal regulations and we are approving it.

Former section 211.31 provided for licensing and fees for storage magazines. This section was recodified as section 211.112(a) and (d), and 211.114. The recodified sections increase the fees and modify the locations at which the license must be displayed. There is no Federal counterpart to these sections and we have found that the changes do not make Pennsylvania's program less effective than the Federal regulations.

Former section 211.32(2) provides specifications for the location of, and storage of materials in, magazines. Some of these requirements were placed in current section 211.115. There are no Federal counterparts to this section and we have found that these requirements are not inconsistent with the Federal regulations.

Former section 211.33 provided construction specifications for magazines for storing explosives. Former sections 211.35 and 211.43 provided for the handling, housekeeping and storage of explosives around magazines. These sections were recodified as section 211.115. Section 211.115 shortened the provisions of former sections 211.33, 211.35, and 211.43 and incorporated Federal standards at 27 CFR Part 55, Subpart K by reference. There were no Federal counterparts to the former sections and there are no Federal counterparts in Title 30 of the Federal regulations for section 211.15. We have found that the changes do not make Pennsylvania's program inconsistent with the Federal regulations.

Former section 211.34 gives the requirements for plans for locating storage magazines on sites. Some of these requirements were placed in current section 211.115. There are no Federal counterparts to either section and we have found that these changes are not inconsistent with the Federal regulations.

Former section 211.36(3) provides requirements for selling explosives including a permit to sell. Some of these requirements were placed in current sections 211.121(a) and 211.122(a) and (d). There are no Federal counterparts to the former section or its requirements that were placed in sections 211.121 or 211.122. We have found that the changes are not inconsistent with the Federal regulations.

Former section 211.36(4) provides requirements for selling explosives including a permit to sell them. Some of these requirements were placed in current section 211.123(a). There are no Federal counterparts to the former section or its requirements that were placed in section 211.123. We have found that the changes are not inconsistent with the Federal regulations.

Former section 211.36(8) provides the circumstances under which permits for the manufacture, storage, handling, use or sale of explosives can be suspended or revoked. The permit can be suspended for due cause and may be revoked after written notice to the permit holder and a hearing before the Environmental Hearing Board. The revised regulation at section 211.103(a) provides that Pennsylvania can issue orders to modify or revoke a permit but it doesn't indicate that a permit can be suspended for due cause nor does it provide appeal of a permit revocation to the Environmental Hearing Board. Federal regulations do not require specific permits for blasting activities. Instead, there must be a permit to conduct surface coal mining operations which also includes blasting activities. Pennsylvania does require a permit for surface coal mining operations. See 25 Pa. Code 86.11 et seq. Additionally, surface coal mining operations must contain a blasting plan as noted in the requirements at 30 CFR 780.13. Pennsylvania's regulations at 25 Pa. Code 87.64 also require a blasting plan for surface coal mines. As a result, we have found that the changes to this section are not inconsistent with the Federal regulations.

Former section 211.36(9) provides additional requirements for selling explosives. Some of these requirements were placed in current section 211.131. There are no Federal counterparts to this former section or its requirements that were placed in section 211.131. We have found that these changes are not inconsistent with the Federal regulations.

Former section 211.38 provided specifications for transporting blasting caps. This section was recodified as section 211.141(9). The construction specifics for the containers for transporting blasting caps were dropped and now the section requires containers to conform to the current version of Institute of Makers of Explosives Safety Library Publication # 22. There are no Federal counterparts to these provisions and we have found that the changes do not make Pennsylvania's program less effective than the Federal regulations.

Former section 211.41 provides safety precautions for physically handling explosives. Some of these requirements were placed in current section 211.153. There are no Federal counterparts to the former section or its requirements that were placed in section 211.153. We have found that these changes are not inconsistent with the Federal regulations.

Former section 211.44 provides specification for instruments to monitor explosives. The requirements were modified in current section 211.172. There are no Federal counterparts to the former section or the new section. We have found that these changes are not inconsistent with the Federal regulations.

Former section 211.51(1) provides limitations for the use of open fire and smoking around explosives. Some of these requirements were placed in current section 211.153(b). There are no Federal counterparts to the former section or its requirements that were placed in section 211.153(b). We have found that these changes are not inconsistent with the Federal regulations.

Former section 211.51(2) provides the types of tools that can be used to open containers of explosives and blasting implements. The types of tools that can be used to open containers of explosives have been modified in current section 211.153(a). There are no Federal counterparts to the former section or the new section. We have found that these changes are not inconsistent with the Federal regulations.

Former section 211.51(4) provides for the use of wooden tamping sticks. This section was recodified to section 211.154(f) and was changed to provide for the use of non-ferrous tamping sticks. There are no Federal counterparts to the former section or the new section. We have found that these changes are not inconsistent with the Federal regulations.

Former section 211.51(7) provides the means by which explosives are to be fired. These provisions were modified in current section 211.159(h) and (k). There are no Federal counterparts to the former section or the new section. We have found that these changes are not inconsistent with the Federal regulations.

Former section 211.51(17) provides for procedures to be used in the event of a misfired hole. Some of these provisions have been placed in current sections 211.157(d) and (e). There are no Federal counterparts to the former section or the new section. We have found that these changes are not inconsistent with the Federal regulations.

Former section 211.52(3) provides specifications for blasting in the vicinity of utility lines. This section was recodified in Subchapter H. Blasting Activities Near Utility Lines. New sections 211.181 and 211.182 now contain the requirements for conducting blasting near utility lines. These sections contain information concerning the design of the blast, the type of explosives to be used, the size of holes, and the specifics of excavation for blasts. There is no direct Federal counterpart for former section or the proposed section, however our review found it to be consistent with 30 CFR 816/817.180 regarding how surface mining operations are to be conducted to minimize damage, destruction, or disruption to utilities. We are approving these changes.

Former sections 211.61(1) and (2) regarding handling and storing of ammonium nitrate were incorporated into new section 211.115. Section 211.115 provides regulations for classifying and storing explosives. There are no Federal counterparts for these regulations, however our review found that these regulations do not make Pennsylvania's program inconsistent with the Federal regulations. We are approving the change.

Pennsylvania also added definitions and new sections to its regulations. These additions are discussed below.

Pennsylvania added definitions of terms that have no Federal counterpart to Chapters 210 and 211. In section 210.11, Pennsylvania added definitions for the terms, “blaster learner,” “blaster license,” “demolition and demolition blasting,” and “person.” These definitions are used to clarify various sections of Pennsylvania's blaster license program. There are no Federal counterparts, however, these definitions do not make Pennsylvania's program inconsistent with the Federal regulations.

In section 211.101, Pennsylvania added definitions for the terms, “blast area,” “blast site,” “blaster-in-charge,” “blasting activity,” “detonator,” “misfire,” “purchase,” “sale or sell,” and “structure.” These definitions are used to clarify various sections of Pennsylvania's rules on the storage, handling and use of explosives. There are no Federal counterparts to the definitions. However, these definitions do not make Pennsylvania's program inconsistent with the Federal regulations.

Section 210.13(b) was added by this amendment. This section of the regulations provides that Pennsylvania may exempt individuals from a blaster's license if the person is detonating extremely small amounts of explosives for industrial or research purposes. The Federal regulations do not provide an exemption for quantity. It was unclear if surface coal mining operations were included in this provision. We asked Pennsylvania if individuals conducting blasting on surface coal mining operations could be exempt. In an e-mail dated July 15, 2003 (Administrative Record No. PA 878.08), the Chief of the Explosives and Safety Section of PADEP indicated that this exemption does not pertain to mining. It pertains to non-excavation activities such as industrial applications or research. We find this provision is not inconsistent with the Federal regulations and we are approving it with the understanding that Pennsylvania will not exempt blasters on surface coal mining operations from the licensing requirements.

Section 210.14(b) was added by this amendment. This section of the regulations provides that Pennsylvania will not issue or renew a license if the applicant has or had violations or demonstrated a lack of ability or intention to comply with the blasting regulations. There is no direct Federal counterpart. However, this provision is consistent with the Federal rules at 30 CFR 850.14(a)(2) which require that the blaster candidate “exhibit a pattern of conduct consistent with the acceptance of responsibility for blasting operations' and 30 CFR 850.15 which requires the suspension and revocation of blaster certification for specified violations.

Section 210.17(d) was added by this amendment. This section provides that a blaster's license is renewable if the blaster can demonstrate that he has had 8 hours of continuing education in Department-approved courses related to blasting and safety within the 3 year period. There is no direct Federal counterpart to this section, but it is consistent with the goals of the Federal regulations at 30 CFR 850.13 regarding continuing blaster competency. We find that this requirement does not make the Pennsylvania program inconsistent with the Federal regulations and we are approving it.

Section 210.17(g) was added by this amendment. This section provides for demolition blasting. There is no Federal counterpart for this definition, as we do not regulate demolition blasting. We are approving this definition.

Section 210.18 was added by this amendment. This section provides for recognition of out-of-state blaster's licenses. Pennsylvania may license a person who holds a blaster's license in another State if Pennsylvania determines that State has an equivalent licensing and training program. There is no counterpart to this provision in 30 CFR Subchapter M, Part 850 of the Federal regulations. However, there is nothing in Part 850 that prevents Pennsylvania from accepting a certification from another State. We are approving this provision with the understanding that blasters from other States seeking a license in Pennsylvania must be certified or licensed under that State's equivalent to 30 CFR Part 850 of the Federal regulations.

Section 211.103(b) was added by this amendment. This section provides that before Pennsylvania issues an order modifying peak particle velocity or airblast limits in a blasting activity permit, it will provide the permittee an opportunity to meet and discuss the modifications. There is no direct Federal counterpart to this provision, however 30 CFR 816/817.67(b)(1)(ii) and (d)(5) give the State regulatory authority discretion to specify lower levels for airblast and ground vibrations than set forth in the regulations. We have found that that the opportunity to discuss required revisions with the permittee does not make this provision less effective than the Federal regulations requiring the regulatory authority to specify lowered levels if necessary to prevent damage. Therefore, we have found that this provision is not inconsistent with the Federal regulations.

Section 211.111 was added by this amendment. This section defines the scope of Subchapter B. Storage and Classification of Explosives. There is no Federal counterpart to this provision. We are approving it because it is not inconsistent with the Federal regulations.

Section 211.113 was added by this amendment. This section requires a magazine license and the contents of such a magazine license application. There is no Federal counterpart to this provision. We are approving it because it is not inconsistent with the Federal regulations.

Section 211.121(c) was added by this amendment. This section provides an exception to subsection (d), which requires a blasting activity permit to conduct blasting activities. The exception provided by subsection (c) is that blasting activities authorized under a permit issued under Pennsylvania's coal mining program serves to act as a blasting activity permit. There is no provision in the Federal regulations requiring a blasting activity permit separate from that required as part of a permit for mining activities. As a result, we are approving this section because it does not make Pennsylvania's program inconsistent with the Federal regulations. Accordingly, we are also approving subsections (d) and (e) as not inconsistent with the Federal rules as these sections are intended to apply to blasting activities other than those conducted on surface coal mining operations and therefore, there is no Federal counterpart.

Section 211.152 was added by this amendment. This section provides for control of gases generated by blasts. There is no Federal counterpart to this provision. We are approving this section because it is not inconsistent with the Federal regulations.

Section 211.157(g) was added by this amendment. This section requires a blaster-in-charge to notify Pennsylvania of the occurrence of a misfire within 24 hours. There is no Federal counterpart to this provision. We are approving this section because it is not inconsistent with the Federal regulations.

Sections 211.162(a) and (b) were added by this amendment. These sections provide for the use of safety fuses in blasting. There is no Federal counterpart to this provision. We are approving this section because it is not inconsistent with the Federal regulations.

Section 211.173(a) was added by this amendment. This section provides that, “Anyone using a monitoring instrument shall be trained on the proper use of that instrument by a representative of the manufacturer or distributor, or other competent individual. A record of that training is to be maintained and available for review by the Department.” There is no Federal counterpart to this provision. We are approving this section because it is not inconsistent with the Federal regulations.

We asked for public comments on the amendment (Administrative Record No. PA 878.03), but did not receive any.

Under 30 CFR 732.17(h)(11)(i) and section 503(b) of SMCRA, we requested comments on the amendment from various Federal agencies with an actual or potential interest in the Pennsylvania program (Administrative Record No. PA 878.03). In a letter dated April 5, 2002 (Administrative Record No. PA 878.06), the United States Department of Labor, Mining Safety and Health Administration's District 2 New Stanton Office found the changes were not in conflict with 30 CFR, Part 77, Subpart N-Explosives and Blasting.

Under 30 CFR 732.17(h)(11)(i), we requested comments on the amendment from EPA (Administrative Record No. PA 878.03). EPA responded on March 26, 2002, that there were no apparent inconsistencies with the Clean Water Act or other statutes under its jurisdiction (Administrative Record No. PA 878.04).

Under 30 CFR 732.17(h)(4), we are required to request comments from the SHPO and ACHP on amendments that may have an effect on historic properties. On March 1, 2002, we requested comments on Pennsylvania's amendment (Administrative Record No. PA 878.03) from the Pennsylvania Historical and Museum Commission (PHMC). The PHMC responded on March 26, 2002 (Administrative Record No. PA 878.05) that it had no comment on the amendment.

Based on the above findings, we approve the amendment Pennsylvania sent to us on February 25, 2002, as clarified on July 15, 2003, and July 23, 2003.

To implement this decision, we are amending the Federal regulations at 30 CFR part 938, which codify decisions concerning the Pennsylvania program. We find that good cause exists under 5 U.S.C. 553(d)(3) to make this final rule effective immediately. Section 503(a) of SMCRA requires that the State's program demonstrate that the State has the capability of carrying out the provisions of the Act and meeting its purposes. Making this regulation effective immediately will expedite that process. SMCRA requires consistency of State and Federal standards.

This rule does not have takings implications. This determination is based on the analysis performed for the counterpart Federal regulation. Similarly there are no takings implications for the portions of the amendment that have no Federal counterpart because the provisions are administrative and procedural in nature and are not expected to have an economical or substantive effect on the regulated industry. The amendment concerns only the regulation of blasting operations and does not imply the taking of private property by the Federal government.

This rule is exempted from review by the Office of Management and Budget under Executive Order 12866.

The Department of the Interior has conducted the reviews required by section 3 of Executive Order 12988 and has determined that this rule meets the applicable standards of subsections (a) and (b) of that section. However, these standards are not applicable to the actual language of State regulatory programs and program amendments because each program is drafted and promulgated by a specific State, not by OSM. Under sections 503 and 505 of SMCRA (30 U.S.C. 1253 and 1255) and the Federal regulations at 30 CFR 730.11, 732.15, and 732.17(h)(10), decisions on proposed State regulatory programs and program amendments submitted by the States must be based solely on a determination of whether the submittal is consistent with SMCRA and its implementing Federal regulations and whether the other requirements of 30 CFR parts 730, 731, and 732 have been met.

This rule does not have Federalism implications. SMCRA delineates the roles of the Federal and State governments with regard to the regulation of surface coal mining and reclamation operations. One of the purposes of SMCRA is to “establish a nationwide program to protect society and the environment from the adverse effects of surface coal mining operations.” Section 503(a)(1) of SMCRA requires that State laws regulating surface coal mining and reclamation operations be “in accordance with” the requirements of SMCRA, and section 503(a)(7) requires that State programs contain rules and regulations “consistent with” regulations issued by the Secretary pursuant to SMCRA.

In accordance with Executive Order 13175, we have evaluated the potential effects of this rule on Federally-recognized Indian tribes and have determined that the rule does not have substantial direct effects 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. Pennsylvania does not regulate any Native Tribal lands.

On May 18, 2001, the President issued Executive Order 13211 which requires agencies to prepare a Statement of Energy Effects for a rule that is (1) considered significant under Executive Order 12866, and (2) likely to have a significant adverse effect on the supply, distribution, or use of energy. Because this rule is exempt from review under Executive Order 12866 and is not expected to have a significant adverse effect on the supply, distribution, or use of energy, a Statement of Energy Effects is not required.

This rule does not require an environmental impact statement because section 702(d) of SMCRA (30 U.S.C. 1292(d)) provides that agency decisions on proposed State regulatory program provisions do not constitute major Federal actions within the meaning of section 102(2)(C) of the National Environmental Policy Act (42 U.S.C. 4332(2)(C)).

This rule does not contain information collection requirements that require approval by OMB under the Paperwork Reduction Act (44 U.S.C. 3507 et seq.).

The Department of the Interior 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.). This determination is based on the fact that the deletions, revisions, and additions by the Pennsylvania Department of Environmental Protection listed in Chapters 210 and 211 are administrative and procedural in nature and are not expected to have an economical or substantive effect on the regulated industry.

This rule is not a major rule under 5 U.S.C. 804(2), the Small Business Regulatory Enforcement Fairness Act. This rule: (a) Does not have an annual effect on the economy of $100 million; (b) Will not cause a major increase in costs or prices for consumers, individual industries, Federal, State, or local government agencies, or geographic regions; and (c) Does not have significant adverse effects on competition, employment, investment, productivity, innovation, or the ability of U.S.-based enterprises to compete with foreign-based enterprises. This determination is based on the fact that the deletions, revisions, and additions by the Pennsylvania Department of Environmental Protection listed in Chapters 210 and 211 are administrative and procedural in nature and are not expected to have an economical or substantive effect on the regulated industry.

This rule will not impose an unfunded mandate on State, local, or tribal governments or the private sector of $100 million or more in any given year. This determination is based on the fact that the deletions, revisions, and additions by the Pennsylvania Department of Environmental Protection listed in Chapters 210 and 211 are administrative and procedural in nature and are not expected to have an economical or substantive effect on the regulated industry.

Regulatory Information

On March 20, 2003, we published a notice of proposed rulemaking (NPRM) entitled “Regulated Navigation Areas, Safety and Security Zones; Long Island Sound Marine Inspection and Captain of the Port Zone” in the Federal Register (68 FR 13643). We received two (2) letters commenting on the proposed rule. No public hearing was requested, and none was held.

Good cause exists for making this regulation effective on August 16, 2003, in less than 30 days after Federal Register publication. Delaying publication is unnecessary for the following reasons: Several of the permanent regulations described herein have been in effect as temporary regulations since December 10, 2001 with no adverse impact; the public has had significant and adequate advanced knowledge of the intent to implement these as permanent regulations through the notice and comment rulemaking process, as well as through outreach to the maritime community by the Captain of the Port (COTP) Long Island Sound; and the NPRM stated this regulation was designed to replace temporary security measures expiring on August 15, 2003. Thus the public has had significant advanced knowledge of these regulations and that it was necessary that they be effective by August 16, 2003. Any delay encountered in this regulation's effective date would also be contrary to public interest. As discussed in the Background and Purpose section below, these regulations are necessary to address potential terrorist threats in the Long Island Sound Marine Inspection and Captain of the Port Zone on a permanent basis. If the temporary regulations were to expire on August 15, 2003 without permanent regulations being implemented, vessels, waterfront facilities, the maritime community, public infrastructure, and the public in general in the Long Island Sound Marine Inspection and Captain of the Port Zone would be left vulnerable to possible sabotage or other subversive acts, accidents or other causes of a similar nature.

On September 11, 2001, two commercial aircraft were hijacked from Logan Airport in Boston, Massachusetts and flown into the World Trade Center in New York, NY inflicting catastrophic human casualties and property damage. A similar attack was conducted on the Pentagon with a plane launched from Newark, NJ on the same day. National security and intelligence officials warn that future terrorist attacks are likely.

Vessels operating within the Long Island Sound Marine Inspection and Captain of the Port (COTP) Zone present potential targets of terrorist attack or platforms from which terrorist attacks may be launched upon other vessels, waterfront facilities and adjacent population centers. Following the September 11 attacks, we published a temporary rule (67 FR 517-520, January 4, 2002), which was effective December 10, 2001, that established a temporary regulated navigation area (RNA) and safety and security zones in the Long Island Sound Marine Inspection and COTP Zone. We revised the temporary rule three times (67 FR 40859-40861, June 14, 2002, 67 FR 69132, November 15, 2002, and 68 FR 12304, March 14, 2003) to extend its effective period to August 15, 2003. These temporary measures were taken to safeguard human life, vessels and waterfront facilities from sabotage or terrorist acts while we assessed the security environment within the area and determined the need for and advisability of permanent security measures.

The Coast Guard is now establishing a permanent RNA and two permanent safety and security zones within Long Island Sound as part of a comprehensive, port security regime designed to safeguard human life, vessels and waterfront facilities from sabotage or terrorist acts. This permanent RNA incorporates the provisions of the temporary RNA that have been in place since December 10, 2001, and expands the operating requirements for vessels within the RNA. This rule also establishes two permanent safety and security zones. The zones have been tailored to fit the needs of security, while minimizing the impact on the maritime community.

We received two (2) letters commenting on the notice of proposed rulemaking. The first comment letter recommended that proposed regulation 33 Code of Federal Regulations (CFR) 165.153(d)(3) be amended to include not only towing vessels engaged in towing tank barges carrying petroleum oil in bulk as cargo, but rather to include all primary towing vessels engaged in towing. The section has been revised to include all towing vessels engaged in towing. In addition, we have included a provision in the rule that exempts towing vessels engaged in coastwise trade. This revision reflects the intention of the proposed rulemaking, which was, in part, to facilitate trade in the COTP Long Island Sound Zone consistent with the needs of safety and security. This exemption permits coastwise tug and barge units to move freely within United States waters.

In addition, the comment indicated to us that combining the inspection and advanced authorization requirements into one regulation in proposed section 165.153(d)(3) may have been confusing with respect to the two distinct requirements imposed. To clarify these requirements, section 165.153(d)(3) has been revised into two separate regulations for inspection and authorization, located in the final rule in sections 165.153(d)(3) and 165.153(d)(4), respectively. Subsequent paragraphs (4) through (8) in the proposed regulation 165.153(d) have been renumbered as paragraphs (5) through (9), respectively.

The second letter contained 12 distinct comments and/or recommendations regarding the proposed regulations. Each of these comments, and the response taken to each in the final regulations, are addressed below:

The first comment questioned the need for defining “public vessels” both in sections 165.153(b) and (c)(3). We agree that this is unnecessary repetition of the definition of “public vessels;” as such, the definition of “public vessels” has been removed from the final rule in section 165.153(b).

The second comment asked for clarification regarding the definition of “commercial vessel.” Specifically, the comment asked whether a commercial vessel is a vessel in commercial service or a vessel engaged in commerce. The proposed regulation used the term “commercial vessel” as the title of section 165.153(d)(6). While the content of this section is clear in its applicability of the vessel operating requirements to those vessels in commercial service, the use of the term “commercial vessel” in this section is potentially confusing. This regulation was intended to apply to those vessels engaged in commercial service, as that term is defined in section 165.153(c)(1). For clarification, the title of the final rule section 165.153(d)(7) has been changed to “vessels engaged in commercial service.” In addition, the text of the regulation has been revised to prohibit vessels from entering within a 100-yard radius of any vessel “engaged in commercial service,” vice the proposed regulation language of “vessel in commercial service.”

The third comment asked whether “engaged in commerce” used in the definition of public vessel in proposed section 165.153(c)(3) differs from the definition of “commercial service” in proposed section 165.153(c)(1). The definitions were intended to be the same in the proposed regulation. The use of “engaged in commerce” in the proposed regulation has been revised to read “engaged in commercial service”; this reflects the intention of the original proposed regulation, and is consistent with the derivation of the definition of “public vessel,” which is found in title 46 United States Code, sections 2101(24)(A) and (B).

The fourth comment asked whether the tonnage threshold in proposed section 165.153(d)(2) applies to individual vessels or whether these apply to the combined tonnage of towing vessels and their tows. As proposed, and as implemented here, the tonnage limitation applies to individual vessels. The standard industry practice is for the tugboat operator to issue the security call for both manned and unmanned barges. It was not the intention of the proposed regulation to require vessels under tow to make their own securité call in addition to that made by the tugboat. In addition, this section was only intended to address vessels engaged in towing of barges, and was not intended to encompass recreational vessels or commercial assistance towing. The final regulation located in section 165.153(d)(2) has been revised as a result of this comment to include all vessels engaged in towing barges.

The fifth comment recommended applying an exemption for vessels in innocent passage to proposed regulation 165.153(d)(4), since one was applied in proposed section 165.153(d)(3). Innocent passage, as defined under Articles 18 and 19 of the 1982 United Nations Convention on the Law of the Sea (UNCLOS II), involves “navigation through the territorial sea for the purpose of (a) traversing that sea without entering internal waters or calling at a roadstead or port facility outside internal waters; or (b) proceeding to or from internal waters or a call at such roadstead or port facility.” Proposed section 165.153(d)(4) (now section 165.153(d)(5)) requires vessels over 1600 gross tons operating within three nautical miles from the territorial sea baseline to receive COTP authorization prior to vessel movements. As the internationally recognized rights of “innocent passage” could potentially be impacted in this proposed section as well as proposed section 165.153(d)(3), we addressed this comment in regards to both proposed sections and made appropriate changes in the regulation.

The inspection and authorization requirements in proposed section 165.153(d)(3) (now final sections 165.153(d)(3) and (d)(4)) were intended to require all vessels bound for a port or place in the United States, and not otherwise exempted, to be inspected and/or obtain COTP authorization prior to entering within three nautical miles of the territorial sea baseline. It contained a complete exemption for vessels in innocent passage. The intention of the requirements in proposed section 165.153(d)(4) (now section 165.153(d)(5)) was for vessels over 1600 gross tons, operating within three nautical miles of the territorial sea baseline or within internal waters, to be required to receive authorization prior to any intentional vessel movements. As originally proposed, these two sections, 165.153(d)(3) and (d)(4) were intended to protect against vessels entering within or operating within three nautical miles of the territorial sea baseline and in the internal waters of the United States. These vessels present potential security concerns which these regulations were designed to protect against.

A complete exception for vessels in “innocent passage”, as proposed in section 165.153(d)(3) and sought by the comment in section 165.153(d)(4) would permit any vessel bound for a port or place in the United States to transit within three nautical miles of the territorial sea baseline without invoking the regulation's inspection and authorization requirements. This would negate the operation and purpose of these protective measures. As a result, proposed sections 165.153 (d)(3) and (d)(4) were rewritten, and references to “innocent passage” were changed as described herein to allow certain exceptions as allowable or required by Treaty and Law, while still allowing for effective regulation.

Innocent passage rights will and must be impacted in certain situations in final sections 165.153(d)(3), (d)(4), and (d)(5), to maintain the purpose and effectiveness of this regulation. For example, any vessel transiting to a port in Unites States internal waters, by definition, is considered in “innocent passage” while still in the territorial sea (which includes the area within three nautical miles of the territorial sea baseline) during its transit. Final sections 165.153(d)(3), (d)(4), and (d)(5) impact the right of “innocent passage” because they impose requirements which vessels must meet before entering within three nautical miles of the territorial sea baseline when they are bound for ports or places in United States.

Even when within three nautical miles of the territorial sea baseline, these vessels are in “innocent passage” if they are en route to a United States port in United States internal waters because they are still within United States territorial waters and “proceeding to or from internal waters” as per Article 18 of UNCLOS II. Yet, if the COTP were not permitted to impose requirements on vessels in these situations, sections 165.153(d)(3), (d)(4), and (d)(5) of this regulation would be meaningless, and potentially dangerous vessels claiming “innocent passage” bound for United States internal ports could transit up to the territorial sea baseline without being investigated by the COTP.

Thus, with regards to innocent passage, only those vessels which are not bound for a port or place in the United States will be exempted from the requirements of sections 165.153(d)(3), (d)(4), and (d)(5). These vessels are of minimal security interest to the COTP. Additionally, under 33 U.S.C. 1223(d) such vessels are statutorily exempted from the requirements herein (33 U.S.C. 1223(d) falls under the Port and Waterways Safety Act, which is one of the authorities under which this regulation is promulgated).

Vessels “bound for a port or place located in the United States or that must transit the internal waters of the United States” as dictated in final sections 165.153(d)(3), (d)(4), and (d)(5) will be subject to these regulations, even if in “innocent passage” by definition under Article 18 1. (b) of the UNCLOS II. Such vessels are not exempted from the Port and Waterways Safety Act under 33 U.S.C. 1223(d). In addition, imposing certain conditions on vessels in “innocent passage” is supported by Article 21 under UNCLOS II, which states that coastal nations may adopt laws and regulations relating to innocent passage through the territorial sea with respect to, among other items, “the safety of navigation and the regulation of maritime traffic * * *, * * * the protection of navigational aids and facilities and other facilities or installations * * * and * * * the prevention of infringement of the customs, fiscal, immigration or sanitary laws and regulations of the coastal State.”

The sixth comment addressed the appropriateness of proposed section 165.153(d)(3)'s applicability to all tonnages and recreational vessels, as many of the vessels impacted by this section are not required to carry radios, making it impossible for them to obtain authorization. Proposed section 165.153(d)(3) specifically exempted recreational vessels from these requirements, as well as other vessels. The intention of this section was to be able to monitor those vessels not engaged in commercial service arriving into the United States from a foreign port and ensure compliance with appropriate customs and immigration requirements. As such, this exemption has been narrowed and we have revised final rule sections 165.153(d)(3) and (d)(4) to exempt only those vessels not engaged in commercial service whose last port of call was in the United States. Vessels to which the regulation applies may obtain authorization from the Captain of the Port, Long Island Sound, in several ways, including via marine radio, telephone, facsimile, or letter. Final rule sections 165.153(d)(3) and (d)(4) have been revised to include these options for contacting the COTP.

The seventh comment raised concern with excluding primary towing vessels engaged in towing tank barges carrying petroleum oil in bulk as cargo from the inspection and authorization requirements of proposed regulation 165.153(d)(3). Specifically, it questioned why this requirement was not applicable to tank barges carrying petroleum, and questions why these vessels are considered less of a safety and security threat. As discussed above, this section is being expanded to include all towing vessels engaged in towing in coastwise trade. This exemption permits coastwise tug and barge units to move freely within United States waters.

The eighth and ninth comments raised concern with the ability of vessels to contact commercial vessels which are moored or anchored to request permission to enter the restricted navigation area imposed by proposed section 165.153(d)(6). This comment recommended that anchored or moored commercial vessels be required to maintain a continuous radio watch, and also recommended that the regulation provide for delegation of the authority to authorize entry into the zone by the licensed master or operator of the vessel to subordinates. As discussed above in paragraph 3, the scope of the requirement in the final rule has been clarified to include vessels engaged in commercial service, vice all commercial vessels, which significantly limits the scope of this regulation. For example, this requirement would not apply to a small passenger vessel moored at a marina which is not engaged in carrying passengers or goods. The master of a vessel is responsible for ensuring compliance with this regulation, however, nothing in this regulation prohibits the master from developing procedures/orders for the crew to ensure its operation is in compliance with the laws and/or regulations herein. As such, it is unnecessary to specifically address the delegation of this authority in the regulatory text. Vessels seeking permission to enter within 100-yards of a vessel engaged in commercial service should use all means available to communicate with the vessel; if unable to contact the vessel to obtain permission, vessels are not permitted to enter within this 100-yard zone. No changes have been made to the final rule based on this comment.

The tenth comment raised questioned whether section 165.153(d)(6) created a “no authorized entry zone” around commercial vessels of any size. There is no size limitation within this regulation; the prohibition on entry within 100-yards of a vessel engaged in commercial service applies to all vessels engaged in commercial service, irrespective of size. No changes have been made to the final rule based on this comment.

The eleventh comment questions whether safety and security zones can be implemented around anchored Coast Guard vessels in proposed regulation section 165.154(a)(2), because proposed section 165.153(b) excludes “public vessels” from the applicability of the regulations. The public vessel exclusion in section 165.153 only applies to that section. It does not apply to those regulations in section 165.154. Even if this exclusion was applicable to section 165.154, it would not exclude creation of safety and security zones around Coast Guard vessels: the applicability section addresses who the regulation may be enforced against, not what regulations may be imposed. No changes have been made to the final rule based on this comment.

The twelfth and final comment of this letter recommended allowing other federal, state and municipal agencies to assist the Coast Guard in enforcement of proposed sections 165.153(d)(5)-(7), as is provided in section 165.153(d)(1). Section 165.153(d)(1) provides that the U.S. Navy and other Federal, State and municipal agencies may assist the U.S. Coast Guard in the enforcement of the speed restrictions imposed in the vicinity of Naval Submarine Base New London. Title 33 CFR 6.04-11 provides that the Captain of the Port may enlist the aid of Federal, State, municipal and private agencies to assist in the enforcement of regulations. It is not necessary to restate this authority in the regulatory text. No changes have been made to the regulatory text of the final rule based on this comment.

Lastly, a definition of “territorial sea baseline” has been included as section 165.153(c)(4). This definition adopts the definition of “territorial sea baseline” as found in 33 CFR subchapter A, and aids in clarity of the requirements imposed by section 165.153.

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 Homeland Security (DHS).

The Coast Guard expects the economic impact of this final rule to be so minimal that a full Regulatory Evaluation under the regulatory policies and procedures of DHS is unnecessary. This regulation may have some impact on the public, but these potential impacts will be minimized for the following reasons: there is ample room for vessels to navigate around each of the safety and security zones; it is contemplated that vessels will be able to operate elsewhere within the RNA once the Captain of the Port has determined that the vessels do not pose a threat to individuals, other vessels or waterfront facilities; to the extent that the rule tracks the provisions of temporary rules that have been in place since December 10, 2001, our experience demonstrates that it not burdensome on the maritime public; and the local maritime community will be informed of the zones via marine information broadcasts. While recognizing the potential for some minimal impact from the rule, the Coast Guard considers it de minimus in comparison to the compelling national interest in protecting the public, vessels, and vessel crews from the further devastating consequences of the aforementioned acts of terrorism, and from potential future sabotage or other subversive acts, accidents, or other causes of a similar nature.

Under the Regulatory Flexibility Act (5 U.S.C. 601-612), we have 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 may affect the following entities, some of which may be small entities: the owners or operators of vessels intending to transit or anchor in those portions of Long Island Sound and the Thames River covered by the RNA and/or safety and security zones.

This rule will not have a significant impact on a substantial number of small entities because the safety and security zones are limited in size, leaving ample room for vessels to navigate around the zones. The zones will not significantly impact commuter and passenger vessel traffic patterns, and mariners will be notified of the zones via local notice to mariners and marine broadcasts. Also, the Captain of the Port will make broad allowances for individuals to enter the zones during periods when the potential threats to the area are deemed to be low. The regulations imposed under the RNA will impact a minimal number of commercial and recreational vessels, as several of the regulations only apply to large commercial vessels. The regulated areas around ferry vessels and vessels engaged in commercial service will minimally impact those vessels to whom these regulations apply while waiting for authorization to enter the regulated area from the licensed operator, licensed master, or the designated COTP on-scene patrol. Moreover, the ferry vessel regulated navigation area only applies to vessels of 300 gross tons or greater; the 100-yard regulated navigation area around commercial vessels leaves ample room for vessels to navigate outside of this area. To the extent that this rule tracks the provisions of temporary rules that have been in place since December 10, 2001 our experience demonstrates that it has not been burdensome on the maritime public.

Under subsection 213(a) of the Small Business Regulatory Enforcement Fairness Act of 1996 (Pub. L. 104-121), the Coast Guard wants to assist small entities in understanding this 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 call Lieutenant A. Logman, Waterways Management Officer, Group/Marine Safety Office Long Island Sound, at (203) 468-4429.

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 or local governments and would either preempt State law or imposes 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 would 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 would 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 M16475.1D, this rule is categorically excluded from further environmental documentation. A “Categorical Exclusion Determination” is available in the docket where indicated under ADDRESSES.

On June 27, 2003 (68 FR 38266), EPA published a notice of proposed rulemaking (NPR) for the Commonwealth of Pennsylvania. EPA's NPR proposed to approve a revision to Pennsylvania's SIP-approved enhanced I/M program SIP to revise final exhaust emission standards for Pennsylvania's ASM exhaust emissions test. The Commonwealth submitted a request for parallel processing of the state-proposed version of this SIP revision on June 5, 2003. Parallel processing is a means by which EPA proposes rulemaking action concurrently with the state's procedures for adoption of regulations. Upon completion of the state adoption process, EPA can then take final rulemaking action. Pennsylvania formally submitted its final, adopted SIP revision (amending the final test cutpoints for the ASM test) to EPA on July 23, 2003.

The Commonwealth's SIP revision substitutes a set of revised final ASM test cutpoints (recently released by EPA as a compliance alternative) for the cutpoints previously approved in Pennsylvania's I/M program SIP.

The ASM test is a test method used to measure tailpipe emissions from cars. In Pennsylvania, the test is performed on a portion of the I/M-subject fleet in five counties in the Philadelphia severe ozone nonattainment area (Bucks, Chester, Delaware, Montgomery, and Philadelphia counties). The ASM tailpipe emissions test employs tailpipe emissions sensing equipment that measures emissions while the vehicle is driven, under load, at a steady speed on a chassis dynamometer. This SIP revision serves to substitute a different set of final test cutpoints than was previously SIP-approved—that utilize a different methodology and which are expressed in different units of measurement, and which are different than the prior approved phase-in or final ASM cutpoints. Since the Commonwealth is utilizing a set of alternative final ASM cutpoints that were developed by EPA for the purpose of providing a compliance alternative in implementing an ASM-based I/M program, EPA proposed approval of the Commonwealth's proposed SIP revision.

A more detailed explanation of the Commonwealth's SIP revision or the rationale for EPA's proposed action are explained in the NPR and will not be restated here. No public comments were received on the NPR.

EPA is approving Pennsylvania's July 23, 2003 formal SIP revision to substitute an alternative set of final ASM test cutpoints to the I/M program as a revision to the Pennsylvania SIP.

Under Executive Order 12866 (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 or significantly or uniquely affect small governments, as described in the Unfunded Mandates Reform Act of 1995 (Pub. L. 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 (65 FR 67249, November 9, 2000). This action also does not have Federalism implications because it does 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 (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 economically significant.

In reviewing SIP submissions, EPA's role is to approve state choices, provided that they meet the criteria of the Clean Air Act. In this context, in the absence of a prior existing requirement for the State to use voluntary consensus standards (VCS), EPA has no authority to disapprove a SIP submission for failure to use VCS. It would thus be inconsistent with applicable law for EPA, when it reviews a SIP submission, to use VCS in place of a SIP submission that otherwise satisfies the provisions of the Clean Air Act. Thus, the requirements of section 12(d) of the National Technology Transfer and Advancement Act of 1995 (15 U.S.C. 272 note) do not apply. 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. This rule 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 approval of an alternative set of final ASM test cutpoints to Pennsylvania's I/M program SIP must be filed in the United States Court of Appeals for the appropriate circuit by October 14, 2003. 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).)

Inspection of Public Comments: Comments received timely will be available for public inspection as they are received, generally beginning approximately 3 weeks after publication of a document, at the headquarters of the Centers for Medicare & Medicaid Services, 7500 Security Boulevard, Baltimore, Maryland 21244, Monday through Friday of each week from 8:30 a.m. to 4 p.m. To schedule an appointment to view public comments, contact Sharon Jones (410) 786-9994.

Copies: Additional copies of the Federal Register containing this interim final rule with comment period can be made at most libraries designated as Federal Depository Libraries and at many other public and academic libraries throughout the country that receive the Federal Register.

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/index.html.

Section 3 of the Administrative Simplification Compliance Act (ASCA), Pub. L. 107-105, was enacted by the Congress to improve the administration of the Medicare Program by facilitating program efficiencies gained through the electronic submission of Medicare claims. Section 3 of ASCA amends subsection (a) of section 1862 of the Social Security Act (the Act) (42 U.S.C. 1395y(a)) and adds a new subsection (h) to section 1862 (42 U.S.C. 1395y). The amendment to subsection (a) requires the Medicare Program, subject to subsection (h), to deny payment under Part A or Part B for services “for which a claim is submitted other than in an electronic form specified by the Secretary.” Subsection (h) provides that the Secretary shall waive such denial in two types of cases and may also waive such denial “in such unusual cases as the Secretary finds appropriate.”

Section 3 of ASCA operates in the context of the Administrative Simplification provisions of the Health Insurance Portability and Accountability Act of 1996 (HIPAA), Pub. L. 104-191. Those provisions require the Secretary to adopt, among other standards, standards for financial and administrative transactions for the health care industry, including the health care claim transaction (see section 1173(a) of the Act). In 2000, the Secretary of Health and Human Services (HHS) adopted standards for eight electronic transactions, including the Health Care Claim or Equivalent Encounter Information transaction, 65 FR 50312 (August 17, 2000). These rules, which are codified at 45 CFR part 162, subparts A and I through R, are generally known as the Transactions Rule.

The HIPAA standards apply to health plans, health care clearinghouses, and certain health care providers; collectively, these entities are known as “covered entities.” Covered entities are required to comply not only with the Transactions Rule, but also with the other HIPAA Administrative Simplification rules—the Privacy Rule, the Employer Identifier Rule, and the Security Rule—when the respective applicable compliance dates for those rules occur.

Compliance with the standards for the electronic transactions covered by the Transactions Rule was required for all covered entities other than small health plans by October 16, 2002; compliance by small health plans is required by October 16, 2003. However, section 2 of ASCA extended the October 16, 2002 compliance deadline to October 16, 2003 for covered entities that submitted a compliance plan by October 15, 2002. Covered entities that were not small health plans and that did not timely submit a compliance plan under ASCA were required to comply with the Transactions Rule by October 16, 2002. Regardless, no later than October 16, 2003, all covered entities must be in compliance with the Transactions Rule.

By statute, the Medicare Program is a health plan under HIPAA (see section 1171(5)(D) of the Act). It is, therefore, a covered entity. Health care providers are covered entities if they transmit health information in electronic form in connection with a transaction for which the Secretary has adopted a standard (covered transaction) (see 45 CFR 160.102). Under the Transactions Rule, if a covered entity electronically conducts a covered transaction with another covered entity, it must conduct it as a standard transaction (see 45 CFR 162.923(a)).

Approximately 86.1 percent of claims submitted to the Medicare Program are submitted electronically, which means that approximately 139 million claims are submitted on paper per year (fiscal year (FY) 2002). Section 3 of ASCA requires Medicare providers to submit claims electronically by October 16, 2003, unless one of the specified grounds for waiver applies. Section 3 of ASCA, thus, in general has the effect of requiring Medicare providers that are not already covered entities to conduct a covered transaction (the health care claim transaction) electronically and, thereby, become covered entities. In submitting claims electronically, the providers will be required to comply with the applicable HIPAA standard for the health care claim transaction, by virtue of the Transactions Rule. Thus, section 3 of ASCA promotes the submission of standard transactions and will further the goal of improved health care delivery by reducing the administrative burden and paperwork associated with Medicare claims submission.

Although 86.1 percent of Medicare claims are submitted electronically, the volume of Medicare claims submitted in paper form is substantial, and moving from paper to electronic submission has the potential for significant savings and efficiencies for Medicare physicians, practitioners, facilities, suppliers, and other health care providers, as well as for the Medicare program itself. Although these Medicare physicians, practitioners, facilities, suppliers, and other health care providers would incur a cost to comply with the mandatory electronic billing requirement, we believe their savings will offset the cost. Further, the use of the HIPAA electronic claim standard could result in additional savings should these entities begin electronically billing other payers. However, the statute recognizes that certain circumstances may preclude or make less attractive converting from a paper to an electronic environment. ASCA, thus, identifies exceptions to the mandatory submission of electronic Medicare claims. These exceptions are interpreted and provided for by this interim final rule with comment period.

We considered whether the amendment to section 1862(a) in section 3 of ASCA could be interpreted to apply to payments made by Medicare + Choice (M+C) organizations to providers for services provided to Medicare beneficiaries. The question was raised by the provision in section 4 of ASCA which expressly adds Medicare Part C, found in Part C of Title XVIII, to the definition of Medicare “health plans” found in section 1171(5)(D).

The plain language of section 1862(a), however, provides that “payment may not be made under Part A or Part B” for a number of activities. The Congress could have amended this provision, just as it amended section 1171(5), if it had wanted to prohibit M+C organizations from paying for claims for services given to M+C enrollees by the M+C organization's participating providers. The fact that it did not so amend this provision indicates that it did not intend to apply the ASCA payment prohibition to the M+C organizations. The Congress's intent to apply the broader definition of “health plan” in section 4 of ASCA solely to the Administrative Simplifications provisions of HIPAA and not to the electronic submission requirement for Medicare claims is further suggested by in the title of section 4 of ASCA: “Clarification with Respect to Applicability of Administrative Simplification Requirement to M+C Organizations.”

The M+C organizations, as health plans for the purposes of HIPAA Administrative Simplification, are required to come into compliance with the requirements of the HIPAA Transactions Rule no later than October 16, 2003. We understand that all M+C organizations properly filed ASCA compliance plans prior to October 16, 2002. They, therefore, obtained extensions and have a compliance date of October 16, 2003.

An M+C organization that pays a non-compliant electronic claim after October 16, 2003, would accordingly be out of compliance with the HIPAA Transactions Rule requirements, but would not violate the provisions of section 1862(a)(22) or the requirements of this regulation. This regulation applies only to providers, practitioners and suppliers who submit claims under Part A or Part B of Medicare. It does not apply to the submission of claims by providers to M+C organizations. Moreover, the waiver provisions for small providers, practitioners and suppliers established by section 3 of ASCA and this regulation do not extend to claims submitted by such providers to any health plans other than Medicare.

Section 3 of ASCA established the requirements and exceptions under the Medicare Program for the mandatory submission of claims submitted in electronic form. 45 CFR 162.1101(a) defines a health care claim as the transmission of “A request to obtain payment, and the necessary accompanying information from a health care provider to a health plan, for health care.” 45 CFR 160.103 defines electronic media as—

In this interim final Rule with comment period, we integrate the definitions of “electronic media” and “claims submitted in electronic form” into the newly defined term, “electronic claim.” Furthermore, for brevity, and to reflect common use, the term “electronic claim(s)” is considered to be synonymous with and is being used in lieu of the term “claims submitted in electronic form” in this Rule.

In § 424.32(d)(1), we are adding a definition section to define terms used in paragraph (d). We define the following terms: claim; electronic claim; direct data entry; electronic media; initial Medicare claim; physician, practitioner, facility or supplier; provider of services; and small provider or small supplier. We define “claim” to mean the transaction defined at 45 CFR 162.1101(a), which is the regulatory definition of “ health care claim” in the Transactions Rule. We specify the definition of “electronic claim” to mean a claim that is submitted via electronic media. We specify that the definitions of “direct data entry” and “electronic media” are defined as those terms are defined in 45 CFR 162.103, and 160.103, respectively.

In § 424.32(d)(1)(iv), we define an “initial Medicare claim” as a claim submitted to Medicare for payment under Part A or Part B of the Medicare Program for the first time for processing, including claims sent to Medicare for the first time for secondary payment purposes. Initial Medicare claim excludes any adjustment or appeal of a previously submitted claim.

We specify in § 424.32(d)(1)(vi) that a “Physician, practitioner, facility, or supplier” is a Medicare provider other than a provider of services. In § 424.32(d)(1)(vii), we define a “Provider of services” as a provider of services as defined in section 1861(u) of the Act. We define in § 424.32(d)(1)(viii), a “Small provider or small supplier” as a provider of services with fewer than 25 full-time equivalent employees; or a physician, practitioner, facility, or supplier (other than provider of services) with fewer than 10 full-time equivalent employees.

Electronic submission of Medicare claims is required for initial Medicare claims, including initial claims with paper attachments, submitted for processing by the Medicare fiscal intermediary (FI) or carrier that serves the physician, practitioner, facility, supplier, or other health care provider. No other transactions, including changes, adjustments, or appeals to the initial claim, are required to be submitted electronically.

In § 424.32(d)(2), we specify that except for claims to which § 424.32(d)(3) applies, an initial Medicare claim under Part A and/or Part B may be paid only if submitted as an electronic claim for processing by the Medicare FI or carrier that serves the physician, practitioner, facility, supplier, or provider of services. This requirement does not apply to any other transactions, including adjustment or appeal of the initial Medicare claim.

The regulation set forth at 45 CFR 162.923 states that “Except as otherwise provided in this part, if a covered entity conducts with another covered entity (or within the same covered entity), using electronic media, a transaction for which the Secretary has adopted a standard under this part, the covered entity must conduct the transaction as a standard transaction.” HIPAA does not require that a health care plan be able to accept claims via every type of electronic media, only that claims received via such media comply with the standard format and content requirements of HIPAA (www.wpc-edi.com/HIPAA). Only electronic media accepted by Medicare, and as defined in the Medicare Carrier and Intermediary Manuals and Program Memoranda issued by CMS, are affected by this requirement of ASCA. At present, Medicare does not accept claims via the internet, an extranet or, in many cases, via removable/transportable storage media. This rule does not change this Medicare policy. Advance notice of any future plans for expansion or contraction in the electronic media accepted for submission of Medicare claims would be published in Medicare program instructions and via routine contractor notification and instructional media.

Claims submitted via a direct data entry screen maintained for Medicare, and as permitted by 45 CFR 162.923, are considered to be electronic claims for purposes of this requirement. Claims transmitted to a Medicare contractor using the free or low cost claims software issued by Medicare fee-for-service plans are also electronic claims for purposes of this requirement.

The ASCA provides for exceptions to the mandatory electronic submission of Medicare claims. Under the ASCA, the Secretary of Health and Human Services will waive the application of the electronic claim requirement for specific cases. This interim final rule with comment period provides more explicit requirements to implement the statutory mandate that we specify in the regulations at § 424.32(d). Specifically, in § 424.32(d)(3), we specify the exceptions when electronic submission of initial Medicare claims can be waived. In § 424.32(d)(3)(i), we specify that electronic submission will be waived when: (a) there is no method available for the submission of an electronic claim. We cannot reasonably expect Medicare beneficiaries to submit electronic claims. (Even though, the statute requires, with very few exceptions, that providers of health care bill Medicare on behalf of a beneficiary (sections 1814(a) and 1848(g)(4) of the Act) some beneficiaries will still submit claims to Medicare. However, those relatively few beneficiaries who submit claims are not likely to possess the capability to submit a HIPAA compliant claim). Further, there is no method available in those situations in which the standard adopted by the Secretary at 45 CFR 162.1102 does not support all of the information necessary for payment of the claim. At this time, we have identified three situations which fall into this category, in addition to beneficiary claims: (1) Roster billing of vaccinations covered by the Medicare Program (In order to promote an increase in the flu vaccinations for Medicare beneficiaries, since 1993 Medicare allowed mass immunizers to bill the program using a single claim form with an attached list of beneficiaries to which a flu vaccine was administered. Generally, mass immunizers bill electronically, but in a non-standard format. This roster billing simplified provider billing but is not available in electronic form under the HIPAA Transaction Rule); (2) claims for payment under Medicare demonstration projects (Medicare demonstration projects often allow for unusual situations not normally handled by the standard transactions.); and (3) claims where more than one plan is responsible for payment prior to Medicare. The standard electronic formats do not currently have a clear method for the reporting of per service payments made by more than one primary payer. Efforts are being made to resolve this deficiency. These claims can continue to be submitted to Medicare on paper, but once a solution is reached we will notify the public, and providers will then be required to submit these claims electronically. Specific program guidance will be issued to Medicare providers concerning submission of these claims on paper effective October 16, 2003. We will also issue specific guidance or regulations, as necessary, informing covered entities if this or another exception no longer applies. (b) In 424.32(d)(3)(ii), we provide that electronic submission will be waived when the entity submitting the claim is a small provider or small supplier. The statute is quite specific as to the size requirements and the rule simply incorporates the statutory requirements.

The Secretary may waive the electronic submission requirement in certain situations as the Secretary finds appropriate. In § 424.32(d)(4), we specify three circumstances that will provide for an exception to exist in the following situations: (1) The submission of dental claims (This exception is being included because, under HIPAA, dentists are required to submit electronic transactions to other payers in a format different from that generally used in the Medicare Program. Since Medicare does not generally cover dental services, this exception is added to minimize the burden on dentists who may, at times, need to bill the Program.); (2) A service interruption in the mode of submitting the electronic claim that is outside of the control of the entity submitting the claim, for the period of the interruption (This exception will apply only if the physician, practitioner, facility, supplier, or other health care provider has no telephone or other communication service. If telephone service exists but is unavailable for a period of time (for example, because of inclement whether or due to telephone company technical breakdowns), paper claims will be accepted during the period of disrupted telephone service.); and (3) On demonstration, satisfactory to the Secretary, of other extraordinary circumstances precluding submission of electronic claims.

Entities will not generally need to make a special request to determine whether an exception applies that would make them eligible for a mandatory waiver under § 424.32(d)(3) or a discretionary waiver under § 424.32(d)(4). A special request must be submitted to a Medicare FI or carrier when an entity does not meet the mandated or discretionary waiver criteria being established but believes there are other extraordinary circumstances that preclude their submission of electronic claims. We will issue program guidance to Medicare FIs and carriers to enable them to handle, on a case-by-case basis, requests for relief in extraordinary circumstances.

ASCA's amendment to section 1862(a) of the Act prescribes that “no payment may be made under Part A or Part B of the Medicare Program for any expenses incurred for items or services” for which a claim is submitted in a non-electronic form. Consequently, absent an applicable exception, paper claims submitted to Medicare will not be paid.

The Secretary may audit entities that bill Medicare non-electronically. Entities determined to be in violation of the statute or this rule may be subject to claim denials, overpayment recoveries, and applicable interest on overpayments.

In § 424.32(d)(6), we specify the effective date for these amendments will be for claims submitted on or after October 16, 2003. This effective date is specified in section 3(b) of ASCA.

Because of the large number of items of correspondence we normally receive on Federal Register documents published for comment, we are not able to acknowledge or respond to them individually. We will consider all comments we receive by the date and time specified in the DATES section of this preamble, and, if we revise this final rule, we will respond to the major comments in the preamble to that document.

We ordinarily publish a notice of proposed rulemaking in the Federal Register and invite public comment on the 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 finding and its reasons in the rule issued.

We find that it would be contrary to the public interest to undertake prior notice and comment procedures before implementing this interim final rule with comment period. The ASCA evidences the Congress' intent to increase electronic claims submission to the Medicare Program through mandatory electronic billing requirements and to tie the mandatory Medicare electronic billing requirement's October 16, 2003 effective date to the compliance date for national implementation of the electronic transactions standards required under the Administrative Simplification provisions of HIPAA (see 45 CFR parts 160 and 162). However, the ASCA also provides that not all Medicare health care providers must engage in electronic billing and identifies, in general terms, those circumstances under which health care providers will be exempt from the requirements.

The implementation of the HIPAA standards by health care providers requires detailed planning, budgeting, implementation, and testing in order for those covered entities to be ready to submit HIPAA transactions by the October 16, 2003 compliance date. Since section 3 of ASCA mandates electronic billing for Medicare providers, these entities must come into compliance with the HIPAA requirements on the same date and, in turn, they must plan appropriately like those covered entities that were already planning to be electronic billers. It is imperative that the affected Medicare billers have sufficient time to ascertain whether they must transition to electronic billing as a result of section 3 of ASCA and, if so, begin the implementation process for the HIPAA transaction standards. This interim final rule with comment period allows those Medicare paper billers to fully understand their obligations under ASCA and, in turn, begin preparing for HIPAA implementation, if required to do so. We believe any delay in implementing this rule, effective October 16, 2003, would hinder Medicare providers' ability to meet the October 16, 2003 HIPAA compliance date or determine that they did not have to file electronically with Medicare and so incur unnecessary costs.

Thus, we find, for good cause, that providing notice and opportunity to comment under 5 U.S.C. 553(b) would be impracticable and contrary to the public interest. We are providing a 60-day public comment period.

This rule is effective October 16, 2003, as required by section 3(b) of the ASCA.

Under the Paperwork Reduction Act (PRA) of 1995, we are required to provide 60-day notice in the Federal Register and solicit public comment before a collection of information requirement is submitted to the Office of Management and Budget (OMB) for review and approval. In order to fairly evaluate whether an information collection should be approved by OMB, section 3506(c)(2)(A) of the PRA of 1995 requires that we solicit comment on the following issues:

• The need for the information collection and its usefulness in carrying out the proper functions of our agency.

• The accuracy of our estimate of the information collection burden.

• The quality, utility, and clarity of the information to be collected.

• Recommendations to minimize the information collection burden on the affected public, including automated collection techniques.

Therefore, we are soliciting public comments on each of these issues for the information collection requirements discussed below.

The information collection requirements and associated burdens in § 424.32 are subject to the PRA. The burden of submitting the information required is addressed under OMB approval number:

0938-0866, HIPAA Standards for Coding Electronic Transactions, with a one-time burden of 34,000,000 hours. The current approval expires 5/31/05.

0938-0279, Medicare Uniform Institutional Provider Bill, with an annual burden of 1,666,208 (form CMS-1450). The current approval expires 12/31/05.

0938-0042, Request for Medicare Payment—Ambulance, with an annual burden of 390,418 hours (form CMS-1491). The current approval expires 3/31/04.

0938-0008, Common Claim form, instructions, and supporting regulations at §§ 414.40, 424.32, and 414.40, with an annual burden of 44,189,007 (form CMS-1500). The current approval expires 3/31/06.

Approximately 205,409 providers and suppliers will be affected by this rule and will have to change the format for the claims they submit (the information collected does not change). They will incur some costs, either that of switching to clearinghouses, which will not affect the time it takes to submit the information for a claim, but will cost them $.30 per claim, or that of purchasing computer equipment, which we estimate at $500 to $1,000.

For our rule published to implement the electronic transactions in general, we estimated that it would take an average of ten hours per entity to switch over to the mandated standard transaction. (The switch could be from paper to electronic or from another electronic format to the standard format.)

For purposes of this discussion, we are estimating that 37.5 percent of the affected providers and suppliers (that is, those not meeting one of the exceptions) already own computers and will not incur capital costs. We are also estimating that 50 percent of the affected providers and suppliers will start using a clearinghouse or billing service, which will not impose any capital costs subject to the PRA. The remaining 12.5 percent (25,676) will buy computers at an average of $750, for a total capital cost of $19.3 million.

On the other hand, the providers and suppliers who own or who will buy a computer will require less time to submit claims. Form CMS-1450 takes approximately 9 minutes to submit in hard copy and .5 minutes to submit electronically; form CMS-1500 takes 15 minutes and 1 minute, respectively; form CMS-1491 takes 10 minutes and 1 minute, respectively.

If the 50 percent of the entities that will bill us directly are responsible for 25 percent of the paper bills (we assume that half of the bills are submitted by entities that will be excepted from the requirements, and that 25 percent will be submitted through an intermediate party), they will save 7,651,089 million hours for form 1500, 58,850 hours for form 1491, and 129,196 hours for form 1450. Mailing costs will be reduced by approximately $.40 per claim on average and the cost of the forms by $.03 for the form 1450 and form 1500 (the third form is furnished by CMS). We welcome comments on this aspect of the collection.

We are submitting a copy of the revision to § 424.32 to OMB for its review of the information collection requirements. The revision is not effective until OMB has approved it. If you comment on any of these information collection and record keeping requirements, please mail copies directly to the following: Office of Strategic Operations and Regulatory Affairs, Centers for Medicare and Medicaid Services, 7500 Security Boulevard, Attn: PRA Reports Clearance Officer, Baltimore, MD 21244, Attn: Julie Brown, CMS-0008-IFC, and Office of Information and Regulatory Affairs, Office of Management and Budget, Room 10235, New Executive Office Building, Washington, DC 20503, Attn: Brenda Aguilar, Desk Officer, CMS-0008-IFC.

We have examined the impacts of this rule as required by Executive Order 12866 (September 1993, Regulatory Planning and Review), the Regulatory Flexibility Act (RFA) (September 16, 1980, Pub. L. 96-354), section 1102(b) of the Social Security Act, the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4), and Executive Order 13132.

For the purpose of this analysis, CMS uses a pre-statute baseline; therefore, all costs and benefits identified in this impact analysis are attributed to this rulemaking. Nevertheless, the ASCA mandates most aspects of this rulemaking. In particular, the ASCA requires Medicare providers to submit claims electronically and stipulates exceptions that will and may be granted. However, CMS did have discretion in setting the conditions for exceptions, and believes that these exceptions reduce the burden relative to the burden that may have been imposed by ASCA without this enabling regulation.

Executive Order 12866 directs agencies to assess all costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distributive impacts, and equity). A regulatory impact analysis (RIA) must be prepared for major rules with economically significant effects ($100 million or more in any 1 year). This is not a major rule. While additional costs will be imposed on those entities that do not meet any of the exception requirements and which must purchase the capability to bill Medicare electronically, we estimate the impact to be less than $100 million. Our estimates of the cost impact are based on the following analysis. (Note: The primary sources of data contained herein are the Medicare Program's “Contractor Reporting of Operational Workload Data” (CROWD), the “2002 CMS Statistics” Handbook), and the Year 2000 “Statistics of U.S. Business” issued by the U.S. Census Bureau.

The Administrative Simplification provisions under HIPAA establish the standards for electronic data transmission when transactions are conducted electronically, but they do not require physicians, practitioners, facilities, suppliers, and other health care providers to transmit claims and other transactions electronically. ASCA, however, does require Medicare physicians, practitioners, facilities, suppliers, and other health care providers (except those for which this rule provides for an exception) to submit claims electronically to Medicare. Consequently, Medicare claims must be submitted in the HIPAA-prescribed electronic format. Thus, this rule will only have an impact on that group of entities that now submit paper claims to the Medicare Program and who do not fall into one of the excepted groups.

Approximately 139 million paper claims were submitted to Medicare in FY 2002. This represents about 13.9 percent of all claims processed. Broken down between paper claims submitted to FIs and carriers, the number of paper claims in FY 2002 was 3.4 million and 136 million, respectively (source of data is CROWD).

Over the past 4 years, Medicare's electronic media claims rate (EMC) has slowly grown at an average of 0.3 percent per year for FIs and 0.9 percent per year for carriers (source of data is CROWD). We do not expect a change in this trend for the immediate future. Therefore, we assume that similar changes will continue for, at least, FY 2003 and FY 2004, the first year of implementation of mandatory Medicare EMC. Using workload growth projections from the CMS FY 2004 budget submission to the Congress, we estimate the FY 2004 volume of paper claims impacted by the ASCA, factoring out Medicare's continuing trend of higher EMC rates, will be 2.5 million for Medicare FIs and 133.7 million for carriers. Please note that these volumes could be even smaller in FY 2004 due to the simultaneous implementation of HIPAA. However, the impact of HIPAA, coupled with Medicare's EMC trends, cannot be quantified, though the impact would only further reduce the cost/savings impact of ASCA and further support that a RIA is not needed.

We do not know at this time how many providers will be excepted from the ASCA requirements, but projections have been made based upon the percentage of health care providers reported in the Census Bureau's “Year 2000 Statistics of U.S. Businesses,” which includes data on the number of health care providers by type with fewer than 20 employees and the numbers of physician, practitioner, and supplier entities with fewer than 10 employees. The Census figures do not differentiate between part-time and full-time employees, and would be expected to result in inflated numbers on the whole when applied to Medicare, but that is acceptable for impact assessment purposes. The Census did not have a category for fewer than 25 employees; fewer than 20 employees was their closest statistic. Overall, the Census data would still be reliable indicators of the anticipated worse case scenario of the maximum number of Medicare providers, physicians, practitioners, and suppliers likely to be impacted by this regulation. The percentages of small providers, physicians, practitioners, and suppliers based on employment numbers for the universe of all U.S. providers, physicians, practitioners, and suppliers should be comparable to the percentage of the subset of those providers that bill the Medicare program.

The Census figures did not include each of the same provider, physician, practitioner, and supplier breakouts as tracked by Medicare's statistics, but the Census figures did include the largest provider, physician, practitioner, and supplier types. The Census figures included 90 percent of all Medicare providers, physicians, practitioners, and suppliers by type. The provider types track differently by CMS and the Census Bureau include regional referral centers, Christian Science Sanitoria, rural health clinics, critical access facilities, and hospices. The “2002 CMS Statistics” directory and the 2000 Census data health care establishment totals reported the following:

As there was a 10 percent difference between the Census provider, physician, practitioner, and supplier types and the Medicare provider types, dues to differences in type collection, the numbers impacted would need to be increased by 10 percent to account for the difference. Increased by 10 percent, approximately 11,032 (31.4 percent) of all Medicare providers, and 753,853 (66.1 percent) of all Medicare physicians, practitioners and suppliers could qualify for an exception of the electronic claim filing requirement based on provider size, leaving approximately 24,126 providers and 386,692 physicians, practitioners, and suppliers (a total of 410,818 potentially affected by the ASCA Medicare requirement nationally).

Approximately 98 percent of providers, and 83 percent or physicians, practitioners, and suppliers already submit claims to Medicare electronically though, and are expected to continue doing so, so the total impacted must be further reduced to determine the approximate number of current paper claim submitters that would likely be affected. It is reasonable to assume that the majority of the paper claims received by Medicare are submitted by smaller providers, physicians, practitioners, and suppliers. As a result, it would not be accurate to reduce the number of affected providers by the full 98 percent of 83 percent. In the absence of reliable statistics to project the current source of all paper claims however, the number of providers potentially affected by the mandatory Medicare electronic claim requirement will be conservatively estimated at a maximum of 50 percent of the entities that would not qualify for a waiver. This leaves 12,063 providers and 193,346 physicians, practitioners, and suppliers (a total of 205,409) that would need to begin submitting claims to Medicare electronically.

Statistics collected for PRA clearance of the Medicare paper claim forms and referenced in the “Collection of Information Requirements” section of this preamble indicate that in the absence of a mandatory electronic claim requirement effective for FY 2004, 2.5 million paper claims are expected to be sent to Medicare intermediaries and 133.7 million paper claims are to be sent to Medicare carriers.

Today, many Medicare providers use billing agents or clearinghouses to bill the Medicare program. Many providers, physicians, practitioners, and suppliers that currently submit paper claims have indicated anecdotally that they use paper as they would rather avoid the “hassle” of dealing with the multiple electronic claim formats currently required by payers, and the need to have staff keep abreast of the updates to those formats. HIPAA will largely eliminate format differences among payers, but there will continue to be differences concerning use of certain “situational” segments and data elements in the formats. It is reasonable to assume that up to half (205,409 × 50 percent = 102,704) of those entities that do not submit claims to Medicare electronically today would prefer to contract with third party to deal with such differences on their behalf.

A small sampling of Medicare contractors indicated an average cost of $0.30 per claim for billing agent and clearinghouse services. The total cost to physicians, practitioners, facilities, suppliers, and other health care providers to use a billing agent or clearinghouse should not be more than $7,055,895 (that is, $.30 × {the sum of 2.5 million paper claims sent to intermediaries as estimated previously for FY 2004 multiplied by the 68.6 percent of providers that would not meet the exception criteria plus 133.7 million paper claims estimated to be sent to carriers multiplied by the 33.9 percent of physicians, practitioners, and suppliers that would not meet the exception criteria}, reduced by 50 percent to account for the assumption that 50 percent of the firms will contract with the third party claims processors).

Finally, in regard to the balance of 102,704 (205,409 × 50 percent) providers, physicians, practitioners, and suppliers that would not be expected to meet the criteria to submit paper claims, we conservatively estimate that approximately 75 percent of these already own personal computers that are used to prepare the paper claim forms they currently submitted to Medicare. Very few hand-written or manually typed claims are submitted to Medicare. Although many paper claim submitters have not used personal computers for electronic billing, they have used them for claim preparation, patient scheduling and other aspects of their practice.

We estimate that at a maximum, the remaining total of 25,676 (25 percent of 102,704) providers, physicians, practitioners, and suppliers will obtain personal computers to allow them to submit their claims directly to Medicare electronically. A recent review of ads in Sunday newspapers indicated that personal computers sufficient to meet the mandatory electronic claim requirement could be obtained for between $500 to $1,000 for hardware (personal computer, monitor, printer, and modem). Billing software is available free or at low cost (less than $25 for shipping and handling) from Medicare. At the average rate of $750, it would cost $19.3 million to purchase 25,676 personal computer systems. More expensive equipment and peripherals could be used, but would not be necessary for basic compliance. Therefore, the total maximum cost should be no higher than $26.4 million ($7.1 million for users of clearinghouses or billing services, and $19.3 million for those that obtain personal computers).

Following the HIPAA savings calculation used in the Transaction Rule, but projected to FY 2004 to account for inflation, a savings of $615 per provider could result in a total provider savings of approximately $15.8 million (that is, 25,676 times $615).

We note that pages 50353 through 50359 of the August 17, 2000 transaction final rule for HIPAA used a 10-year time frame to capture the full extent of costs and savings that could be attributed to the use of the transactions adopted under HIPAA. Data from the 2000 edition of Faulkner and Gray's “Health Data Directory,” from a Workgroup for Electronic Data Interchange study report, and from the Department of Labor was used in those calculations to determine total claims in the health care industry, costs to use the transactions electronically, savings expected to be realized, the historical growth rate for claims overall as well as electronic claims, the percentage of electronic health care claims nationally in 2000, and the anticipated inflation rate for the 10-year period.

The RFA requires agencies to analyze options for regulatory relief of small businesses. For purposes of the RFA, small entities include small businesses, nonprofit organizations, and government agencies. According to the Small Business Administration's (SBA's) data, approximately 95 percent of offices of physicians are considered small businesses (see the Small Business Administration's final rule titled “Small Business Size Standards, Health Care,” published in the Federal Register on November 17, 2000, 65 FR 69432). Most practitioners, facilities, suppliers, and other providers are small entities either because of nonprofit status or because of having revenues of $6 million to $29 million or less in any 1 year. For purposes of the RFA, all physicians, practitioners, facilities, suppliers, and other health care providers that serve Medicare beneficiaries are considered to be small entities. However, as stated earlier, this rule in and of itself does not impose a regulatory burden. The ASCA mandates most aspects of this rule, in particular, the ASCA requires Medicare providers to submit claims electronically and stipulates exceptions that will and may be granted. We did have discretion; however, in setting conditions for exceptions, and believe these exceptions reduce the burden relative to the burden that may have been imposed by ASCA without this enabling regulation. Individuals and States are not considered small entities. Therefore, no regulatory relief options are considered. A rule has a significant economic impact if it exceeds 3-5 percent of its total costs or revenues according to criterion set by the SBA. The statute exempts many small firms from this rulemaking, affording considerable relief to small entities. At most, small firms that are not exempt will incur an average of either $69 per firm ($7.1 million/102,704 firms) to contract out their claims filing, or purchase computer equipment at an average net cost of $135 per firm ($750 cost−$615 savings.) Therefore, we expect the impact of this rulemaking to fall well below the SBA threshold.

In addition, section 1102(b) of the Act requires us to prepare a regulatory impact analysis if a rule may have a significant impact on the operations of a substantial number of small rural hospitals. This analysis must conform to the provisions of section 604 of the RFA. For purposes of section 1102(b) of the Act, we define a small rural hospital as a hospital that is located outside of a Metropolitan Statistical Area and has fewer than 100 beds. As indicated above, this rule could have an impact on those small rural hospitals that bill Medicare and that do not meet one of the exceptions. However, we do not believe the impact is significant since the cost of compliance is relatively small ($500 to $1,000) and small rural hospitals may be able to qualify for the small provider exception. Therefore, no regulatory impact analysis is required as the impact on small rural hospitals is not significant.

Section 202 of the Unfunded Mandates Reform Act of 1995 also requires that agencies assess anticipated costs and benefits before issuing any rule that may result in an expenditure in any 1 year by State, local, or tribal governments, in the aggregate, or by the private sector, of $110 million. This interim final rule with comment period will not have an impact on State, local, or tribal governments or on the private sector. Instead, the primary impact on State, local, or tribal governments, or the private sector will be that entities that must begin billing Medicare electronically as a result of the ASCA are likely to use that capability to also bill other payers (such as State, local, or tribal governments and the private sector).

Executive Order 13132 establishes certain requirements that an agency must meet when it promulgates a final rule that imposes substantial direct requirement costs on State and local governments, preempts State law, or otherwise has federalism implications. This interim final rule with comment period will not have a substantial effect on State or local governments for the reasons noted above.

The anticipated effects on Medicare's beneficiaries will be that additional attention and services may be provided by their health care physician because, for example, electronic billing should reduce administrative paperwork. (This assertion has been made by the medical community in numerous forums over the years, though documentation to this effect is not available.)

The anticipated effects on the entities required to bill electronically will reduce or eliminate paper in their administrative operations, realizing increased efficiencies and indeterminable savings. These savings may be increased by the fact that the Administrative Simplification provisions of HIPAA mandate a standard transaction for electronic claim submissions, and this will facilitate electronic claims submissions to all health care payers. At this time, we do not have additional data to estimate those savings to Medicare physicians, practitioners, facilities, suppliers, and other healthcare providers. As previously stated, there will be a cost incurred by those entities that cannot satisfy one of the exceptions and would be required to bill Medicare in electronic form.

Implementation of this interim final rule with comment period will result in a savings to the Medicare program. If the FY 2004 projected paper claims submissions of 136.2 million (HHS FY 2004 Budget submission to the Congress and estimated electronic media claims rate), are reduced by half and we assume a savings of $1.40 per claim as a result, the program could realize administrative savings of over $95 million per year. (Note: The $1.40 per claim savings is the CMS estimate of savings based upon a 1990 Industrial Engineering Study, contracted by CMS (then HCFA). The study documented that FI paper claims cost about $3.30 more to process than electronic claims and, similarly, carrier paper claims cost about $1.00 more to process than electronic claims. Weighing these differences by the 2004 workloads and combining them yields the $1.40 estimated per claim savings.)

We might expect similar types of savings for the States, which administer the Medicaid Program. That is, Medicare providers who become electronic billers due to ASCA may decide to begin billing Medicaid electronically as well. However, this would depend on which of the affected Medicare physicians, practitioners, facilities, suppliers, and other healthcare providers also bill Medicaid. Again, the fact that the Administrative Simplification provisions of HIPAA mandate a standard transaction for electronic claim submissions will facilitate electronic claims submissions to all health care payers.

Section 3 of ASCA requires electronic claims submission by those who bill Medicare. There is little room for us to consider alternatives, though we expect that public comment may focus upon further definition regarding the mandatory waivers or regarding those “unusual cases” for which the Secretary may waive the mandatory electronic claims submission requirement.

As described above, this interim final rule with comment period establishes the requirements for implementing the statutory provisions under section 3 of the ASCA. The law requires, with few exceptions, that physicians, practitioners, facilities, suppliers, and other health care providers that bill Medicare must do so electronically. Coupled with the electronic standard transaction requirements under HIPAA, this rule facilitates greater administrative efficiencies for the Medicare program as well as for those that bill Medicare. There will be a cost incurred for those entities that are unable to meet one of the statutory exceptions, but we expect these initial costs to be offset by increased efficiencies and ongoing lower costs attributable to Medicare claims processing.

In accordance with the provisions of Executive Order 12866, the Office of Management and Budget reviewed this regulation.