Section 1043 of the Internal Revenue Code of 1986, 26 U.S.C. 1043, was enacted as part of the Ethics Reform Act of 1989 (Pub. L. 101-194). Section 1043 authorizes the Director of OGE to issue a Certificate of Divestiture to an eligible person who is divesting property in order to comply with a Federal conflict of interest law, regulation, rule, or Executive order, or if requested by a congressional committee as a condition of confirmation. A person who receives a Certificate of Divestiture may defer payment of capital gains tax as long as he or she timely purchases certain permitted property with the proceeds of the sale. OGE published an interim rule on April 18, 1990 (at 55 FR 14407-14409) implementing section 1043. On June 25, 1996, the Office of Government Ethics published a final rule at 61 FR 32633-32636. The final rule was based on comments to the interim rule and on OGE's experience under the interim rule and the May 1990 Technical Corrections to the Ethics Reform Act of 1989 (Pub. L. 101-280), which amended section 1043 of the Internal Revenue Code of 1986. The OGE Certificates of Divestiture executive branchwide regulation is now codified at subpart J of 5 CFR part 2634.

On January 13, 2004, OGE published a set of proposed amendments to the regulation, proposing to make certain improvements. See 69 FR 1954-1957. The proposed rule provided a 60-day comment period. The Office of Government Ethics received one comment letter from an organization. After a careful review of the comment letter and making some additional plain language modifications, OGE is publishing this final rule.

We have attempted to improve the current Certificates of Divestiture regulation by: Organizing the material more logically; using shorter sentences; eliminating unnecessary technical language; and stating the rule's requirements more clearly. The one comment letter suggested many changes to make the regulation even simpler. After careful review, OGE has adopted some of the suggestions. In particular, we have redrafted §§ 2634.1001 and 2634.1003 of the proposed rule to make them easier to understand. Consequently, § 2634.1001 of the proposed rule is now divided into §§ 2634.1001 and 2634.1002, and proposed sections 2634.1002-2634.1007 have been renumbered in this final rule accordingly.

The final rule retains the same revisions as set forth in the proposed rule. First, we changed the meaning of a “diversified investment fund,” in paragraph (2) of the definition of permitted property in new (renumbered) § 2634.1003, to track the definition of diversified mutual fund and diversified unit investment trust as those terms are used in 5 CFR 2640.102. 1 Second, several changes will streamline and simplify the procedure OGE uses to issue a Certificate of Divestiture. The final rule clarifies the information related to financial disclosure that needs to be submitted as part of the Certificate of Divestiture request and simplifies the procedure related to the timing of a submission of a request to OGE.

In promulgating this final regulation, the Office of Government Ethics has adhered to the regulatory philosophy and the applicable principles of regulation set forth in section 1 of Executive Order 12866, Regulatory Planning and Review. This regulation has also been reviewed by the Office of Management and Budget under that Executive order. Moreover, in accordance with section 6(a)(3)(B) of E.O. 12866, the preambles to the proposed and final revisions, to be codified in a revised subpart J of 5 CFR part 2634, note the legal basis and benefits of as well as the need for the regulatory action. There should be no appreciable increase in costs to OGE or the executive branch of the Federal Government in administering this regulation, once it becomes effective, since the provisions only clarify and improve the Certificates of Divestiture regulatory procedures. Finally, this rulemaking is not economically significant under the Executive order and will not interfere with State, local or tribal governments.

As Acting Director of the Office of Government Ethics, I have reviewed this final amendatory regulation in light of section 3 of Executive Order 12988, Civil Justice Reform, and certify that it meets the applicable standards provided therein.

As Acting Director of the Office of Government Ethics, I certify under the Regulatory Flexibility Act (5 U.S.C. chapter 6) that this amendatory rule will not have a significant economic impact on a substantial number of small entities because it primarily affects Federal executive branch employees and members of their immediate families.

The Paperwork Reduction Act (44 U.S.C. chapter 35) does not apply to this final amended regulation because it does not contain any information collection requirements that require the approval of the Office of Management and Budget.

For purposes of the Unfunded Mandates Reform Act of 1995 (2 U.S.C. chapter 25, subchapter II), this final rule will not significantly or uniquely affect small governments and will not result in increased expenditures by State, local, and tribal governments, in the aggregate, or by the private sector, of $100 million or more (as adjusted for inflation) in any one year.

The Office of Government Ethics has determined that this rulemaking involves a nonmajor rule under the Congressional Review Act (5 U.S.C. chapter 8) and will submit a report thereon to the U.S. Senate, House of Representatives and General Accounting Office in accordance with that law at the same time this rulemaking document is sent to the Office of the Federal Register for publication in the Federal Register .

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

The Catalog of Federal Domestic Assistance (CFDA) Program number assigned to the Community Connect Grant Program is 10.863. The Catalog is available on a subscription basis from the Superintendent of Documents, the Unites States Government Printing Office, Washington, DC 20402-9325, telephone number (202) 512-1800.

This program is not subject to the requirements of Executive Order 12372, “Intergovernmental Review of Federal Programs,” as implemented under USDA's regulations at 7 CFR part 3015.

This final rule has been reviewed under Executive Order 12988, Civil Justice Reform. RUS has determined that this final rule meets the applicable standards provided in section 3 of the Executive Order. In addition, all state and local laws and regulations that are in conflict with this rule will be preempted, no retroactive effect will be given to this rule, and, in accordance with Section 212(e) of the Department of Agriculture Reorganization Act of 1994 (7 U.S.C. 6912(e)), administrative appeal procedures, if any, must be exhausted before an action against the Department or its agencies may be initiated.

The policies contained in this final rule do not have any substantial direct effect on states, on the relationship between the national government and the states, or on the distribution of power and responsibilities among the various levels of government. Nor does this final rule impose substantial direct compliance costs on state and local governments. Therefore, consultation with states is not required.

Pursuant to 5 U.S.C. 553(a)(2), this final rule related to grants is exempt from the rulemaking requirements of the Administrative Procedure Act (5 U.S.C. 551 et seq. ), including the requirement to provide prior notice and an opportunity for public comment. Because this final rule is not subject to a requirement to provide prior notice and an opportunity for public comment pursuant to 5 U.S.C. 553, or any other law, the analytical requirements of the Regulatory Flexibility Act (5 U.S.C. 601 et seq. ) are inapplicable.

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

This final rule has been examined under RUS environmental regulations at 7 CFR part 1794. The RUS Administrator has determined that this action is not a major Federal action significantly affecting the environment. Therefore, in accordance with the National Environmental Policy Act of 1969 (42 U.S.C. 4321 et seq. ), an Environmental Impact Statement or Assessment is not required.

This rule contains no new reporting or recordkeeping burdens under OMB control number 0572-0127 that would require approval under the Paperwork Reduction Act of 1995 (44 U.S.C. Chapter 35).

On July 8, 2002, RUS published a Notice of Funds Availability (“NOFA”) in the Federal Register (67 FR 45079) announcing its Community Connect pilot grant program for the provision of broadband transmission service in extremely rural, lower-income American communities. Initially, twenty million dollars in grant authority was made available to promote “community-oriented connectivity,” which would stimulate economic development and enhance educational and health care opportunities in rural areas through theretofore unavailable broadband transmission service. See Agriculture, Rural Development, Food and Drug Administration, and Related Agencies Act of 2002, Public Law 107-76, Title III, Distance Learning and Telemedicine Program (2001) . In addition, a community center that would provide such service free to area residents for two years was required.

In response to the July 8, 2002, NOFA, RUS received more than 300 applications totaling more than $185 million in funding requests. As part of a national competition, RUS reviewed the applications for eligibility and scored the applications according to the rurality of the project, the economic need of the project service area, and the “community-oriented-connectivity” benefits to be derived from the proposed service. On May 16, 2003, Secretary of Agriculture, Ann Veneman, announced the 40 highest scoring grants totaling $20,184,642. This announcement fully utilized RUS’ 2002 appropriation.

Due to the overwhelming response to that NOFA, RUS had eligible applications on hand totaling more than the $10 million appropriation received for Fiscal Year 2003. See Consolidated Appropriations Resolution of 2003, Public Law 108-7, 117 Stat. 11, Title III, Distance Learning and Telemedicine Program (2003). To eliminate the need for fully eligible applicants to resubmit applications during Fiscal Year 2003, RUS utilized its 2003 appropriation by funding eligible projects submitted in accordance with the July 8, 2002, NOFA. The 2003 grant announcements were made September 24, 2003.

For Fiscal Year 2004, $9 million in grants will be made available through a national competition to applicants providing broadband transmission service on a “community-oriented connectivity” basis. See Consolidated Appropriations Act of 2004, Public Law 108-199, 118 Stat. 3, Title III, Distance Learning and Telemedicine Program (2004) .

To encourage “community-oriented connectivity,” RUS will provide grants to eligible applicants who will deploy broadband transmission service in rural communities where such service does not currently exist; who will connect all critical community facilities such as local schools, education centers, libraries, hospitals, health care providers, law enforcement agencies, public safety organizations, fire, and rescue services, as well as residents and businesses; and who will operate a community center which provides free and open access to area residents. Grants will be made available, on a competitive basis, for the deployment of broadband transmission services to critical community facilities, rural residents, and rural businesses and for the construction, acquisition, expansion, and/or operation of a community center which would provide free access to broadband transmission services to community residents for at least two years. Funding is also available for end-user equipment, software, and installation costs. A state-of-the-art community center will not only provide improved access but will aid rural residents in developing on-line businesses and will allow them to reap the benefits of Internet-based advanced placement courses and continuing adult education. Applications are limited to one project, as defined in this regulation. Applicants wishing to serve multiple projects must submit an application for each project.

On May 14, 2004, RUS published a proposed rule in the Federal Register (69 FR 26777) and received the following comments addressed below. RUS now is issuing the following final regulation to administer the program for Fiscal Year 2004.

The effective date for this regulation is based on two factors. First, the program will essentially operate as it has been since the pilot phase. No significant changes have been made with the implementation of this regulation. Second, in an effort to expedite the application process this year, RUS believes that an “immediate” effective date is necessary in order to proceed with opening the application window to enable application processing and approval of grants during this fiscal year.

Comment: Funding should be limited to only non-profit entities. The commenter stated that funding for profit companies subsidizes businesses that do not need funding.

Response: RUS believes that limiting funding to only non-profit organizations would inhibit the facilitation of broadband services in many small, rural communities. Where a qualified, for profit organization already exists, it would be burdensome to require a new non-profit organization to be established in order to seek financial assistance. All applicants must compete for funding on a national basis; the scoring criteria is designed to measure the needs and characteristics of the community and residents being served (income levels, population, and need for services), regardless of the type of entity proposing to provide them. In many rural areas, the existing telecommunications company may be the only viable option for promoting service in the most rural and economically challenged areas. Excluding these companies would therefore prohibit the expansion of broadband service to many isolated, rural communities where the utilization of debt financing is economically prohibitive.

Comment: The definition of broadband service (200 Kb/s in both directions) should be raised to 10Mb/s.

Response: RUS uses the Federal Communications Commission's current definition of high-speed advanced services, which is 200 Kb/s upstream and down stream. RUS annually reviews this definition to determine if changes are necessary. Nothing would prohibit an applicant from offering higher speeds.

Comment: Clarification was requested on the definition of “Service Area”; the commenter was unsure if two towns separated by only a few miles could be combined into one service area.

Response: RUS believes that the definition is clear. It states: Service Area means a single [emphasis added] Community * * *. The definition of Community states: Community means any incorporated or unincorporated town, village, or borough recognized in the U.S. Census in a Rural Area. Therefore, only one Census recognized community (town, village, etc.) is eligible per application. Two or more Census recognized communities, regardless of their proximity to one another cannot be combined. However, unincorporated areas or locally recognized communities, NOT recognized in the Census, that are contiguous to the eligible Census community can be included.

Comment: Concern was expressed over the exclusion of funding for facilities that would duplicate existing services; the commenter stated this provision would protect incumbent telecommunications companies and prohibit another entity from providing service. The commenter believes that this is contrary to the intent of the program.

Response: The purpose of the program is clearly stated in § 1739.1: “RUS will give priority to rural areas that it believes have the greatest need for broadband transmission services.” Those areas would be areas without broadband service. If an incumbent local exchange carrier (ILEC) is currently providing service that meets the definition of broadband, there is no need to finance a competing entity using grant funds; RUS has other loan programs that offer financing for competitive local exchange carrier (CLEC) purposes. Grant funding is a very scarce, limited Federal resource. Grant funds in this program are specifically targeted to areas where no broadband service exists. In a community where an ILEC is not providing broadband, grant funding is available; however, the grantee may not duplicate the ILEC's voice service.

Comment: When calculating the “rurality” of the project, differing demographics such as population dispersion and proximity to other towns should be considered.

Response: In order to fairly score an application, objective scoring criteria should be based on verifiable, widely available data. The legislation authorizing this program defines the eligible population area as being 20,000 or less. Therefore, we have to consider population data. There are other ways to approximate the rurality of an area, but they all have inequities and some are difficult to consistently and fairly measure. By allowing the applicant to define their own limits of the “service area,” RUS believes it has provided flexibility to design broadband systems that can serve the widest practical number of rural residents, yet still be a sustainable project.

Comment: Awards should be based on the needs of the communities.

Response: RUS agrees. Community need is one of the scoring criteria on which awards are made. In addition, the other two scoring criteria are a reflection of the community itself (size measured in “rurality” and economic need measured by the community's per capita personal income).

Comment: Too much emphasis is being placed on required documentation of local community support for the proposed broadband services (such as town meetings, market surveys, etc.).

Response: Local community support is a key component of this program. This is a unique approach designed to engage an entire community in its implementation and provide a holistic methodology for the deployment of broadband services. As such, applicants must provide documentation that ensures that the proposed services are desired and will be utilized in ways which best meet the community's needs. In addition, experience has proven that the higher the level of involvement from the local community, the more successful and sustainable the project tends to be. That is why it is important for applicants to adequately document their community's involvement in the project.

Comment: Grant size to any one applicant should be limited.

Response: Individual community infrastructure needs vary greatly from one community to the next. For that reason, RUS chose not to limit the size of the grant to any applicant, since the applicant is required to provide service to the entire community. In addition, RUS reserves the right to review and adjust all project costs and expenditures if necessary to ensure that funds are utilized prudently.

Comment: There was concern expressed over the requirement for an engineering design to be submitted with the application; the commenter believes that RUS is requiring a design to be prepared by an engineering firm or consultant and suggested that the engineering design for the project not be required with the application.

Response: An engineering design is a critical component of the application. It provides RUS with assurance that the applicant has the ability to construct the system as proposed and deliver the proposed services. The engineering design must be satisfactory to RUS but does not have to be prepared by an outside engineering firm; the design can be prepared internally.

Comment: Recommendation to adjust the maximum number of computers required for the community center to less than one percent of the population of the community; the commenter supported a minimum of ten computers per center.

Response: There is no “minimum percentage;” applicants are only required to have a minimum of ten Computer Access Points in the community center.

Comment: Applicants should be allowed to bundle local exchange telecommunications service with broadband service to help subsidize cost of broadband service.

Response: In order to most efficiently utilize scare grant resources, the grant funds are specifically targeted to provide facilities for the delivery of broadband services where such services do not currently exist; they are not intended to be utilized to replace existing services, such as voice access. This non-duplication policy ensures that funding will be utilized in the most effective manner.

Comment: Recommendation that RUS require proof from the companies that claim to provide broadband service in a proposed area; the commenter is concerned about inaccurate claims on the availability of broadband service.

Response: In the grant program, the applicant must certify that broadband service does not currently exist in the proposed service area. This should eliminate inaccurate claims from existing service providers. In addition, before awarding funds, RUS will verify the certification of the applicant through site visits to ensure that broadband service does not exist.

Comment: Recommendation to increase the population eligibility level from 20,000 to 50,000 inhabitants.

Response: The program is statutorily required to limit funding to communities of 20,000 inhabitants or fewer by the appropriations bill which authorized the funding under the Distance Learning and Telemedicine program.

Comment: Consideration should be given for the state of Alaska's unique geographic and demographic circumstances, regarding populations and remoteness, with regard to the definition of community; the scoring criteria for need; the types of services covered; and provision of “free” service to critical community facilities.

Response: When implementing a nationally competitive grant program, standards must be set that attempt to treat every applicant as equally as possible. In establishing the scoring criteria and weights for each criterion, RUS took into consideration measures that it believes offers an equal chance to each applicant without regard to specific geographic location. While two of the measures are objective (rurality and income levels), the third measure is subjective (benefit and need). This subjective measure allows for applicant's to explain the unique issues they are facing and points are awarded based on the application's ability to address those issues and produce benefits.

Comment: Recommendation to include, as eligible for financing, “extremely rural” service areas that are not recognized by the Census even if the applicant is not proposing to serve one census recognized community.

Response: In a competitive grant program, it is necessary to have consistent, well defined criteria that ensure that all applicants are treated equally. In doing so, RUS chose to define communities as those recognized by the Census. This enables RUS to verify the population and income levels for each applicant using a neutral, well defined source. This ensures competitive fairness among all applicants and eliminates inaccurate service territory information. RUS encourages the inclusion of non-Census recognized communities that are contiguous to the applicant's Census recognized service territory.

Comment: In lieu of providing a community center with free access to services for two years, allow for a free computer and broadband service to residents' homes for at least two years.

Response: This would undermine the community-oriented connectivity concept, which is key to the program's goal. The community center will facilitate broadband initiatives and provide the necessary training and computer skills to those residents that are seeking them. It will also provide a long-term, low cost means of access beyond two years to those residents that cannot afford service at home. In addition, free home access would strain an applicant's sustainability, since revenues from residential access would be used to support the system and its ability to provide free access to critical community facilities.

On November 25, 2002, the President signed into law the Homeland Security Act of 2002 (HSA) creating the new Department of Homeland Security (DHS) and transferring the functions of the former Immigration and Naturalization Service (INS) to the Department of Homeland Security. Public Law 107-296, tit. IV, subtits. D, E, F, 116 Stat. 2135, 2192 (Nov. 25, 2002). The Attorney General retained the functions of the Executive Office for Immigration Review (EOIR) in the Department of Justice. HSA section 1101, 116 Stat. at 2273.

In order to implement the transfer of functions under the HSA, the Attorney General reorganized title 8 of the Code of Federal Regulations and divided the regulations into chapters relating to the functions of the then-INS (chapter I) and the functions of EOIR (chapter V). 68 FR 9824 (Feb. 28, 2003); see also 68 FR 10349 (March 5, 2003). The Attorney General transferred appropriate parts, subparts and sections of the regulations, and duplicated other parts, subparts and sections, to ensure continuity in the regulations pertaining to EOIR, while making the appropriate division of authority under the HSA. The Secretary of Homeland Security has since issued two regulations amending 8 CFR chapter I. In light of those changes, the Attorney General is making conforming amendments to ensure continuity and to clarify the regulations in 8 CFR chapter V.

On June 13, 2003, the Secretary of Homeland Security issued a final regulation conforming portions of the regulations in 8 CFR chapter I regarding legacy INS functions transferred into the structures established in the HSA in accordance with DHS’ reorganization plan. 68 FR 35273 (June 13, 2003). Relevant changes made by DHS included revised definitions in 8 CFR part 1, and revisions to provisions in part 239 and part 287 designating DHS officers who are authorized to issue Notices to Appear in connection with proceedings before immigration judges and the Board of Immigration Appeals, and who are authorized to issue and serve administrative subpoenas. The Attorney General has determined that it is appropriate to adjust the regulations in 8 CFR parts 1001, 1239, and 1287 relating to EOIR in order to reflect these changes, eliminate unnecessary duplication, and ensure greater clarity.

Specifically, in 8 CFR 1.1, DHS has changed the definitions of the terms “Service” and “Commissioner,” and added the terms “Secretary,” “Bureau,” “BCIS,” “CBP,” and “ICE.” These definitions refer directly to DHS or legacy components of the INS, and this rule revises the definitions in 8 CFR 1001.1 to cross-reference relevant terms rather than attempting to duplicate the specific DHS definitions, which DHS may change over time.

This rule makes two exceptions to the definitions promulgated by DHS. Unless otherwise specifically noted, the term “Department” in 8 CFR chapter V refers to the Department of Justice, while the DHS regulations in 8 CFR chapter I use the term to refer to the Department of Homeland Security. Moreover, this rule revises the definition of the term “Director” in 8 CFR chapter V to refer to the Director of EOIR, unless otherwise specified. The definition in 8 CFR 1001.1(o) now cross-references the term “director,” when used in the context of a DHS official, to the definitions in the DHS regulations in 8 CFR 1.1(o).

The rule also revises 8 CFR 1239.1 to cross-reference rather than duplicate the list of officers authorized to issue a notice to appear in 8 CFR 239.1 and to make conforming changes to regulatory references reflecting the transfer of functions to DHS from the former INS. Cross-referencing the list of officers authorized to issue a notice to appear, a rule within DHS' authority, will simplify the regulations. Additionally, 8 CFR 1239.2 has been amended to remove unnecessary provisions, and cross-reference the provisions of 8 CFR 239.2 regarding motions to dismiss a notice to appear.

The rule also amends 8 CFR 1287.4 to focus solely on the issuance of subpoenas by immigration judges during the course of immigration proceedings. As revised, the rule eliminates duplicative provisions relating to DHS's authority by simply cross-referencing the provisions of the DHS regulations relating to the issuance and service of subpoenas by DHS officers and employees. The authority of DHS officers to issue and serve subpoenas prior to commencement of proceedings is within the jurisdiction of DHS. Additionally, a reference to naturalization proceedings under 8 CFR part 335 has been removed from 8 CFR 1287.4(a)(2)(ii) as unnecessary.

The Secretary of Homeland Security published a final rule in the Federal Register on April 15, 2004 altering the schedule of fees collected from persons filing immigration benefit applications, and making other changes in 8 CFR 103.7. 69 FR 20528. In this interim rule, the Department removes provisions from 8 CFR 1103.7 that relate solely to DHS in order to eliminate the duplicative schedule of DHS fees contained in 8 CFR 1103.7(b) as well as in 8 CFR 103.7(b). This rule also makes revisions in 8 CFR 1103.7 to clarify the requirements and processes for filing fees charged in proceedings before immigration judges.

In addition, this rule refines the provisions regarding filing fees before the immigration judges and the Board of Immigration Appeals in 8 CFR 1003.24 and 1003.8, respectively. The Department is not changing the amount of the fee required for filing appeals, motions, or fees related solely to EOIR Forms. Fees for applications for relief based on DHS Forms that are filed with the immigration court or the Board continue to depend on the DHS fee schedule. Nor is the Department changing the existing process for how fees are paid for such filings.

Instead, this rule changes the structure of the fees regulations at 8 CFR 1003.8, 1003.24, and 1103.7 to make it easier for the public to understand when and how to pay a filing fee in matters relating to proceedings before the immigration judges and the Board. The Department is providing a clearer enumeration of when fees are and are not required, clearer direction on how fees are paid, and cross-references to the list of forms and fees published by the Department of Homeland Security that may be filed during the course of removal and related proceedings that require a fee, such as Form I-485 (Application to Register Permanent Residence or to Adjust Status), and Form I-881 (NACARA, Application for Suspension of Deportation or Special Rule Cancellation of Removal). All forms published by the Department of Justice that require a fee are now listed separately from Department of Homeland Security forms. This rule also includes new language to allow for future electronic fee payment before the Board, a concept that is under consideration.

The provisions in this interim rule with request for comments that have not previously appeared in the regulations of the Department are extracted from the Board of Immigration Appeals Practice Manual and explain with greater clarity when fees are not required, how fees may be waived, the amount required, payment of single fees in consolidated proceedings, forms of payment, and payment to DHS of application fees. These provisions reflect current practice and reduce that practice to regulatory form.

A technical change removes 8 CFR 1003.1(a)(7) to eliminate potential confusion with the language of 8 CFR 1003.1(e)(4). On August 26, 2002, the Department published a final rule improving the management of the Board of Immigration Appeals. 67 FR 54878. That rule included new provisions relating to the Board's case management process, and incorporated into that process the authority for the issuance of an affirmance without opinion. See 8 CFR 1003.1(e)(4). The final regulation inadvertently failed to remove the prior regulatory language addressing affirmance without opinion, contained in 8 CFR 1003.1(a)(7), which serves no further purpose in view of the regulatory changes incorporating this subject into the broader case management provisions in § 1003.1(e). Therefore, this rule removes 8 CFR 1003.1(a)(7).

The Department of Justice is publishing this rule as an interim rule, with provisions for post-promulgation public comments, because the rule affects only the internal management of the Department of Justice and does not make any substantive changes to rules that affect the general public. 5 U.S.C. 552(d). The language of the regulations pertaining to payment of fees is intended to state more clearly the existing standards and procedures for payment of fees, and is drawn from previously published guidance from the Executive Office for Immigration Review. These changes do not alter the amount, standards, or procedures for payment of fees that are payable in connection with proceedings before the immigration judges and the Board of Immigration Appeals. Other changes in this rule merely make conforming changes in response to regulations promulgated by the Department of Homeland Security, and delete an outdated procedural provision that the Department inadvertently failed to remove when it published new procedural rules for the Board in 2002.

Because no notice of proposed rulemaking is required for this rule under the Administrative Procedure Act (5 U.S.C. 553), the provisions of the Regulatory Flexibility Act (5 U.S.C. 601 et seq. ) do not apply.

The provisions of the Paperwork Reduction Act of 1995, Public Law 104-13, 44 U.S.C. chapter 35, and its implementing regulations, 5 CFR part 1320, do not apply to this final rule because there are no new or revised recordkeeping or reporting requirements.

This rule will not 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, and it will not significantly or uniquely affect small governments. Therefore, no actions were deemed necessary under the provisions of the Unfunded Mandates Reform Act of 1995.

This rule is not a major rule as defined by section 251 of the Small Business Regulatory Enforcement Fairness Act of 1996, 5 U.S.C. 804. This rule will not result in an annual effect on the economy of $100 million or more; a major increase in costs or prices; or significant adverse effects on competition, employment, investment, productivity, innovation, or on the ability of United States-based companies to compete with foreign-based companies in domestic and export markets.

This rule has been drafted and reviewed in accordance with Executive Order 12866, section 1(b), Principles of Regulation. The Department has determined that this rule is not a “significant regulatory action” under section 3(f) of Executive Order 12866, Regulatory Planning and Review.

This rule will not have substantial direct effects on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government. Therefore, in accordance with section 6 of Executive Order 13132, the Department of Justice has determined that this rule does not have sufficient federalism implications to warrant a federalism summary impact statement.

This rule meets the applicable standards set forth in sections 3(a) and 3(b)(2) of Executive Order 12988, Civil Justice Reform.

An asset-backed commercial paper (ABCP) program typically is a program through which a banking organization provides funding to its corporate customers by sponsoring and administering a bankruptcy-remote special purpose entity that purchases asset pools from, or extends loans to, those customers. 1 The asset pools in an ABCP program might include, for example, trade receivables, consumer loans, or asset-backed securities. The ABCP program raises cash to provide funding to the banking organization's customers through the issuance of externally rated commercial paper into the market. Typically, the sponsoring banking organization provides liquidity and credit enhancements to the ABCP program, which aid the program in obtaining high credit ratings that facilitate the issuance of the commercial paper. 2

In January 2003, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 46, “Consolidation of Variable Interest Entities” (FIN 46). FIN 46 required the consolidation of variable interest entities (VIEs) onto the balance sheets of companies deemed to be the primary beneficiaries of those entities by no later than the end of the first annual reporting period beginning after June 15, 2003. FIN 46 was then revised by FASB in December 2003 (that is, FIN 46-R) and generally was effective for public banking organizations by March 31, 2004. FIN 46-R clarified several issues relating to the consolidation of VIEs and provided multiple and delayed effective dates, but did not directly affect issues relevant to this rulemaking.

FIN 46-R requires the consolidation of many ABCP programs onto the balance sheets of banking organizations. 3 In contrast, under pre-FIN 46 accounting standards, the sponsors of ABCP programs normally were not required to consolidate the assets of these programs. Banking organizations that are required to consolidate ABCP program assets must include all of the program assets (mostly receivables and securities) and liabilities (mainly commercial paper) on their balance sheets for purposes of the bank Reports of Condition and Income (Call Report), the Thrift Financial Report (TFR), and the bank holding company financial statements (FR Y-9C Report). If no changes were made to regulatory capital standards, the resulting increase in the asset base would lower the tier 1 leverage and risk-based capital ratios of banking organizations that must consolidate the assets held in ABCP programs.

The agencies believe that the consolidation of ABCP program assets generally would result in risk-based capital requirements that do not appropriately reflect the risks faced by banking organizations involved with the programs. Sponsoring banking organizations generally face limited risk exposure to ABCP programs. This risk usually is confined to the credit enhancements and liquidity facility arrangements that sponsoring banking organizations provide to these programs. In addition, operational controls and structural provisions, along with overcollateralization or other credit enhancements provided by the companies that sell assets into ABCP programs, mitigate the risks to which sponsoring banking organizations are exposed.

Because of the limited risks, the agencies adopted an interim final rule with a request for comment that permitted sponsoring banking organizations, through the end of the first quarter of 2004, to exclude from risk-weighted assets (for purposes of calculating the risk-based capital ratios) ABCP program assets that require consolidation under FIN 46-R (October 2003 interim final rule). See 68 FR 56530 (October 1, 2003). The agencies also amended their risk-based capital rules to exclude from tier 1 and total capital any minority interest in sponsored ABCP programs that are consolidated under FIN 46-R. Exclusion of minority interests associated with consolidated ABCP programs is appropriate when such programs' assets are not included in a sponsoring organization's risk-weighted asset base and, thus, are not assessed a risk-based capital charge. This interim risk-based capital treatment was initially scheduled to expire on April 1, 2004. However, the agencies subsequently issued another interim final rule to extend to July 1, 2004 the time during which the interim risk-based capital treatment would be in effect. See 69 FR 22382 (April 26, 2004).

Concurrent with the publication of the October 2003 interim final rule, the agencies also published a notice of proposed rulemaking (NPR) that would make permanent the interim risk-based capital treatment for consolidated ABCP program assets. See 68 FR 56568 (October 1, 2003). The NPR also proposed to establish risk-based capital requirements for (1) short-term liquidity facilities extended to ABCP programs and (2) securitizations of revolving credit exposures (for example, credit card receivables) that incorporate early amortization provisions. The period during which the interim final rules have been in effect has provided the agencies with additional time to develop appropriate risk-based capital requirements for banking organizations' sponsorship of ABCP programs and their provision of liquidity support to ABCP, and to receive and analyze comments from the industry on the NPR.

Collectively, the agencies received 13 comment letters on the October 2003 interim final rule and the NPR. Commenters uniformly supported the exclusion of ABCP program assets from the risk-based capital calculations. Commenters expressed concern, however, with certain other aspects of the NPR, notably the credit conversion factor for eligible, short-term liquidity facilities and the NPR's relationship to the Basel Accord revision process. 4

In this final rule, the agencies are amending their risk-based capital standards by removing the interim final rule's July 1, 2004 sunset provision. Thus, the final rule will make permanent the exclusion of ABCP program assets consolidated under FIN 46-R and any associated minority interests from risk-weighted assets and tier 1 capital, respectively, when sponsoring banking organizations calculate their tier 1 and total risk-based capital ratios.

The risk-based capital treatment does not alter generally accepted accounting principles (GAAP) or the manner in which banking organizations must report consolidated on-balance sheet assets pursuant to FIN 46-R. In addition, the risk-based capital treatment does not affect the denominator of the tier 1 leverage capital ratio, which is based primarily on on-balance sheet assets as reported under GAAP. Thus, as a result of FIN 46-R, banking organizations must include all assets of consolidated ABCP programs as part of on-balance sheet assets for purposes of calculating the tier 1 leverage capital ratio. One commenter objected to this treatment, arguing that ABCP program assets should also be excluded from on-balance sheet assets when calculating the tier 1 leverage ratio. However, the agencies typically do not remove on-balance sheet assets from the total asset base for purposes of calculating the leverage ratio because the leverage ratio is intended to work in conjunction with the risk-based capital standards by providing a simple, GAAP-based measure of capital adequacy. There was not, in the agencies' judgment, sufficient reason to revise the leverage ratio in the manner suggested.

As a general matter, minority interests in consolidated subsidiaries are included as a component of tier 1 capital and, hence, are incorporated into the tier 1 leverage capital ratio calculation. However, under this final rule, minority interests related to sponsoring banking organizations' ABCP program assets consolidated as a result of FIN 46-R are not to be included in tier 1 capital. Because the program's assets would not be consolidated for risk-based capital purposes, the agencies believe that the minority interest that supports those assets should not be included in the banking organization's consolidated regulatory capital. Thus, the reported tier 1 leverage capital ratio for a sponsoring banking organization would likely be lower than it would be if the ABCP program assets were consolidated and related minority interest were permitted to remain in the capital calculation. The agencies do not anticipate that the exclusion of minority interests related to consolidated ABCP program assets would significantly affect the tier 1 leverage capital ratio of sponsoring banking organizations because the amount of equity in ABCP programs generally is small relative to the capital levels of the sponsoring organizations.

In addition, commenters noted that the definitions of an “ABCP program” proposed in the NPR were not consistent among the agencies, and requested that the definitions be harmonized. Two commenters asked that the definition be broadened to explicitly include structured investment vehicles. 5 The agencies believe that it is important that the definition of an ABCP program be both clear and consistent among the agencies. Therefore, the final rule for each agency defines an “ABCP program” to be a program that primarily issues (that is, more than 50 percent) externally rated commercial paper backed by assets or other exposures held in a bankruptcy-remote, special purpose entity. As a result, the definition of “ABCP program” generally includes structured investment vehicles and securities arbitrage programs. The agencies believe that the “primarily issues” requirement ensures that programs covered by this final rule retain their ABCP character by requiring that such programs generally issue no less than 50 percent ABCP.

Under the final rule, a banking organization will be able to exclude FIN 46-R related assets from its risk-weighted asset base only with respect to programs that meet the rule's definition of an “ABCP program.” Thus, a banking organization sponsoring a program issuing ABCP that does not meet the rule's definition of an “ABCP program” must continue to include the program's assets in the institution's risk-weighted asset base.

In addition to the exclusion of consolidated ABCP program assets from risk-weighted assets and related minority interests from tier 1 capital, the agencies are amending their risk-based capital requirements with respect to liquidity facilities that support ABCP. Liquidity facilities supporting ABCP often take the form of commitments to lend to, or purchase assets from, the ABCP programs in the event that funds are needed to repay maturing commercial paper. Typically, this need for liquidity is due to a timing mismatch between cash collections on the underlying assets in the program and scheduled repayments of the commercial paper issued by the program. Under the current risk-based capital standards, liquidity facilities with an original maturity of over one year (that is, long-term liquidity facilities) are converted to an on-balance sheet credit equivalent amount using the 50 percent credit conversion factor. Prior to this final rule, liquidity facilities with an original maturity of one year or less (that is, short-term liquidity facilities) were converted to an on-balance sheet credit equivalent amount utilizing the zero percent credit conversion factor. As a result, such short-term liquidity facilities were not subject to any risk-based capital charge prior to this rule.

In the agencies' view, a banking organization that provides liquidity facilities to ABCP is exposed to credit risk regardless of the term of the liquidity facilities. For example, an ABCP program may require a liquidity facility to purchase assets from the program at the first sign of deterioration in the credit quality of an asset pool, thereby removing such assets from the program. In such an event, a draw on the liquidity facility exposes the banking organization to credit risk. The agencies believe that the existing risk-based capital rules do not adequately reflect the risks associated with liquidity facilities supporting ABCP.

Although the agencies believe that liquidity facilities expose banking organizations to credit risk, the agencies also believe that the short term of commitments with an original maturity of one year or less exposes banking organizations to a lower degree of credit risk than longer term commitments, provided the liquidity facility meets certain asset quality requirements discussed below. This difference in degree of credit risk should be reflected in the risk-based capital requirement for the exposure. For this reason, in the NPR the agencies proposed a 20 percent credit conversion factor on eligible short-term liquidity facilities providing liquidity support to ABCP.

Two commenters explicitly agreed with the agencies' position that regulatory capital should be held against liquidity facilities that provide liquidity support to ABCP and that have an original maturity of one year or less. Seven commenters stated that the proposed 20 percent credit conversion factor for short-term liquidity facilities was too high given the low historical losses and the overall strength of the credit risk profiles of such liquidity facilities. Six of these seven commenters instead suggested that a conversion factor in the range of 5-10 percent would be more appropriate given banking organizations' credit loss experience with short-term liquidity facilities. One commenter noted that the proposed capital charge would put U.S. banks at a competitive disadvantage relative to foreign banks and non-bank funding sources. The agencies generally agree with these commenters. In addition, recent examination experience suggests that application of a 10 percent credit conversion factor would result in an effective capital charge that is more reflective of the amount of economic capital that banking organizations maintain internally for short-term liquidity facilities supporting ABCP.

After consideration of the comments, the agencies have decided to impose a 10 percent credit conversion factor on eligible short-term liquidity facilities supporting ABCP, as opposed to the 20 percent credit conversion factor set forth in the NPR. A 50 percent credit conversion factor will continue to apply to eligible long-term ABCP liquidity facilities. These credit conversion factors will apply regardless of whether the structure issuing the ABCP meets the definition of an “ABCP program” under the final rule. For example, a capital charge would apply to an eligible short-term liquidity facility that provides liquidity support to ABCP where the ABCP constitutes less than 50 percent of the securities issued causing the issuing structure not to meet this final rule's definition of an “ABCP program.” However, if a banking organization (1) does not meet this final rule's definition of an “ABCP program” and must include the program's assets in its risk-weighted asset base, or (2) otherwise chooses to include the program's assets in risk-weighted assets, then there will be no risk-based capital requirement assessed against any liquidity facilities that support that program's ABCP. In addition, ineligible liquidity facilities will be treated as recourse obligations or direct credit substitutes.

The resulting credit equivalent amount would then be risk-weighted according to the underlying assets or the obligor, after considering any collateral or guarantees, or external credit ratings, if applicable. For example, if an eligible short-term liquidity facility providing liquidity support to ABCP covered an asset-backed security (ABS) externally rated AAA, then the notional amount of the liquidity facility would be converted at 10 percent to an on-balance sheet credit equivalent amount and assigned to the 20 percent risk weight category appropriate for AAA-rated ABS. 6

In many cases, a banking organization may have multiple exposures to a single ABCP program (for example, both a credit enhancement and a liquidity facility). The agencies do not intend to subject a banking organization to duplicative risk-based capital requirements against these multiple exposures where they overlap and cover the same underlying asset pool. Accordingly, the final rule requires that a banking organization must hold risk-based capital only once against the assets covered by the overlapping exposures. Where the overlapping exposures are subject to different risk-based capital requirements, the banking organization must apply the risk-based capital treatment that results in the highest capital charge to the overlapping portion of the exposures.

For example, assume a banking organization provides a program-wide credit enhancement that would absorb 10 percent of the losses in all of the underlying asset pools in an ABCP program and pool-specific liquidity facilities that cover 100 percent of each of the underlying asset pools. 7 The banking organization would be required to hold capital against 10 percent of the underlying asset pools because it is providing the program-wide credit enhancement. The banking organization also would be required to hold capital against 90 percent of the liquidity facilities it is providing to each of the underlying asset pools. However, if a banking organization chooses to consolidate ABCP program assets onto its balance sheet for risk-based capital purposes the organization would not be required also to hold risk-based capital against any credit enhancements or liquidity facilities that cover those same program assets.

If different banking organizations have overlapping exposures to an ABCP program, however, each organization must hold capital against the entire maximum amount of its exposure. As a result, while duplication of capital charges will not occur for individual banking organizations, some systemic duplication may occur where multiple banking organizations have overlapping exposures to the same ABCP program.

In order for a liquidity facility, either short-or long-term, that supports ABCP not to be considered a recourse obligation or a direct credit substitute, it must meet the rule's definition of an “eligible ABCP liquidity facility.” The NPR proposed that the liquidity facility, in order to be an eligible liquidity facility, meet a reasonable asset quality test that, among other things, precluded funding assets that are 60 days or more past due or in default. The funding of assets past due 60 days or more using a liquidity facility exposes the institution to a greater degree of credit risk than the funding of assets of a more current nature.

Five commenters objected to the uniform 60 days past due asset quality test, noting that although it may be appropriate for trade receivables, it is not appropriate for many other asset classes. These commenters believed that a reasonable asset quality test could be defined to include assets that are 90 to 180 days or more past due, depending upon the type of asset (for example, residential mortgages or credit cards). Furthermore, one commenter stated that the 60-day delinquency standard would significantly overstate the risk of default in the case of credit cards since the amount of credit card receivables that is ultimately charged-off between 120 days and 180 days usually is far less than the amount that is 60-days delinquent. Five commenters suggested that the definition of an eligible liquidity facility should be more flexible and incorporate asset quality tests that vary based on the specific transaction structures or underlying asset types.

Specifically, these commenters proposed that each banking organization should be allowed to develop its own asset quality tests, subject to supervisory oversight. Although the agencies considered the possibility of developing separate past due requirements for different asset categories, and the possibility of permitting each banking organization to develop its own asset quality test, the agencies believe that these approaches would be complex to develop and burdensome to administer, and would lack uniform application among banking organizations.

The agencies believe that it is important to ensure that the primary function of an eligible liquidity facility is to provide liquidity and, accordingly, such a facility should not be used to fund assets with the higher degree of credit risk typically associated with seriously delinquent assets. However, the agencies agree that a limitation of 60 days or more past due might be too constraining for some asset types held in an ABCP program.

This final rule increases the number of days in the past due requirement to 90 days or more past due. The agencies believe that when assets are 90 days or more past due, they typically have deteriorated to the point where there is an extremely high probability of default. Assets that are 90 days past due, for example, often must be placed on non-accrual status in accordance with the agencies' Uniform Retail Credit Classification and Account Management Policy. See 65 FR 36904 (June 12, 2000). Further, they generally must also be classified “substandard” under that Policy.

Commenters also suggested that the asset quality test should be modified to reflect guarantees providing credit protection to the bank providing the liquidity facility. The agencies agree that in the case of a government guarantee, the past due limitation is not a relevant asset quality test. As a result, this final rule does not apply the “days past due” limitation in the asset quality test with respect to assets that are either conditionally or unconditionally guaranteed by the United States government or its agencies, or another OECD central government subsequent to a draw on a liquidity facility.

In addition, to qualify as an eligible liquidity facility, the agencies proposed in the NPR that, if the assets covered by the liquidity facility are initially externally rated (at the time the facility is provided), the facility may be used to fund only those assets that are externally rated investment grade at the time of funding. If the asset quality tests are not met (that is, if a banking organization actually funds through the liquidity facility assets that do not satisfy the facility's asset quality tests), the liquidity facility will be considered a recourse obligation or a direct credit substitute and generally will be converted at 100 percent as opposed to 10 or 50 percent. 8

Three commenters asserted that the asset quality test proposed for transactions with externally rated assets was inappropriate, noting that the test is irrelevant for transactions without a ratings-based trigger where asset quality is determined using cash flow or other benchmarks. These commenters also noted that, in some cases, the price of assets purchased under the liquidity facility is adjusted for the assets' credit quality, mitigating the need for a ratings-based asset quality test. Moreover, one commenter asserted that the increase in regulatory capital that occurs when the rating on an asset-backed security underlying a liquidity facility declines makes the additional limitation on non-investment grade assets unnecessary.

While the agencies acknowledge that some liquidity facility agreements adjust the purchase price of assets for credit quality, the agencies believe that most purchases of rated assets through liquidity facilities are conducted at a price that exceeds the assets' market value, which in the agencies' view is equivalent to credit enhancement. Even in cases where the purchase price is adjusted, it is not necessarily adjusted to market value.

For these reasons, the final rule considers the practice of purchasing assets that are externally rated below investment grade out of an ABCP program as the equivalent of providing credit protection to the commercial paper investors. Thus, liquidity facilities permitting purchases of below investment grade securities will be considered either recourse or direct credit substitutes. However, for the same reason mentioned previously, this final rule does not apply the “investment grade” limitation in the asset quality test with respect to assets that are conditionally or unconditionally guaranteed by the United States government or its agencies, or another OECD central government subsequent to a draw on a liquidity facility.

The amendments to the risk-based capital standards with respect to liquidity facilities reflect the efforts of the agencies to ensure that banking organizations maintain adequate capital with respect to exposures represented by liquidity facilities supporting ABCP. Under the current risk-based capital standards, liquidity facilities held in the trading book may be subject to the market risk capital requirements instead of the banking book capital requirements. Consequently, in the NPR, the agencies proposed that banking organizations subject to the market risk capital rules would not be permitted to apply those rules to any liquidity facility supporting ABCP held in the trading book. This final rule adopts the proposed market risk exception to preclude banking organizations that are subject to the market risk capital rules from applying those rules to positions held in a bank's trading book that act, in form or in substance, as liquidity facilities supporting ABCP.

Under this final rule, any facility held in the trading book whose primary function, in form or in substance, is to provide liquidity to ABCP—even if the facility does not qualify as an eligible ABCP liquidity facility under the rule—will be subject to the banking book risk-based capital requirements. Specifically, organizations will be required to convert the notional amount of all trading book positions that provide liquidity to ABCP to credit equivalent amounts by applying the appropriate banking book credit conversion factors. For example, the full amount of all eligible ABCP liquidity facilities with an original maturity of one year or less will be subject to a 10 percent conversion factor, as described previously, regardless of whether the facility is carried in the trading account or the banking book.

Two commenters objected to this provision, noting that it ignores GAAP accounting decisions with respect to the trading book classification of individual transactions, and that a well-defined mechanism for assessing capital in the trading book already exists. In addition, these commenters stated that the mark-to-market accounting discipline applied to trading book positions, combined with individual banking organizations' market value adjustments for illiquidity or pricing uncertainty, assures that adequate capital is held on a “real-time” basis. These commenters also suggested that banking organizations be permitted to apply the trading book capital rules to liquidity facilities or arrangements that satisfy certain criteria. While the agencies understand the benefit of consistent classification under GAAP and appreciate the value of the market risk capital framework, the agencies believe that a market risk exception for ABCP-related liquidity facilities is necessary to ensure an adequate risk-based capital charge for such exposures and to mitigate regulatory capital arbitrage opportunities.

In the NPR, the agencies also proposed the assessment of a risk-based capital charge against the risks associated with early amortization, a common feature in securitizations of revolving retail credit exposures (for example, credit card receivables). When assets are securitized, the extent to which the selling or sponsoring entity transfers the risks associated with the assets depends on the structure of the securitization and the nature of the underlying assets. The early amortization provision often present in securitizations of revolving retail credit facilities increases the likelihood that investors will be repaid before being subject to risk of significant credit losses.

The NPR was not the first time that the agencies have raised the issue of whether to impose a capital charge on securitizations of revolving credit exposures that incorporate early amortization provisions. On March 8, 2000, the agencies published a notice of proposed rulemaking on recourse obligations and direct credit substitutes (March 2000 NPR). See 65 FR 12320. In the March 2000 NPR, the agencies proposed a fixed conversion factor of 20 percent to be applied to the amount of assets under management in all revolving securitizations that contained early amortization features, in recognition of the risks associated with these structures. The agencies acknowledge that the March 2000 NPR was not particularly risk sensitive and would have required the same amount of capital for all securitizations of revolving credit exposures that contained early amortization features, regardless of the risk present in a particular securitization transaction. In the subsequent November 2001 final rule (66 FR 59614) (November 2001 final rule), which implemented many of the provisions in the March 2000 NPR, the agencies reiterated their concerns with early amortization, indicating that the risks associated with securitization, including those posed by an early amortization feature, were not fully captured in the then current capital rules. In the November 2001 final rule, however, the agencies did not impose a special capital charge on securitizations with early amortization features.

In the interim, the Basel Committee on Banking Supervision (Basel Committee) set forth a more risk-sensitive proposal that would assess capital against securitizations of revolving exposures with early amortization features based on key indicators of risk, such as excess spread levels. The risk-based capital charge for early amortization proposed in the NPR was based on the proposal set forth by the Basel Committee in its third consultative paper issued in April 2003. 9

Three commenters stated that the proposal as set forth in the NPR was, in their view, a significant improvement over previous proposed capital charges for early amortization. Five commenters, however, recommended that any changes to the regulatory capital guidelines in this area be made through the Basel process. Coordinating both the timing and the substance of an early amortization capital charge internationally would help maintain a level playing field across countries and would avoid requiring U.S. banking organizations to implement new capital rules, only to require them to implement slightly different rules in the future when the agencies implement the Basel changes. Moreover, three commenters requested that the agencies establish an alternative approach for controlled early amortization transactions similar to that proposed by the Basel Committee in the third Consultative Paper (dated April 2003).

At this time, the capital treatment of retail credit, including securitizations of revolving credits, may change as the revised Basel framework proceeds through the U.S. rulemaking process. Therefore, the ultimate treatment of securitizations of revolving credit exposures incorporating early amortization provisions is still uncertain. As a result, the agencies have decided that, at this time, it would not be appropriate to implement a risk-based capital charge for securitizations of revolving credits when the treatment may be revised with the implementation of the new Basel Accord. However, the agencies intend to revisit this issue in the near future for possible domestic implementation for all U.S. banking organizations.

The final rule also removes tables and attachments in the risk-based capital standards that summarize the risk categories, credit conversion factors, and transitional arrangements. These tables and attachments are outdated and unnecessary because the substance of these summaries is included in the main text of the risk-based capital standards. Furthermore, these summary tables and attachments were originally provided to assist banking organizations unfamiliar with the new framework during the transition period when the agencies' risk-based capital requirements were initially implemented in 1989. No comments were received on this issue. The agencies consider this change to be technical in nature and do not intend any substantive impact on the risk-based capital standards.

This final rule is effective September 30, 2004. However, any banking organization may elect to adopt, as of July 28, 2004, the capital treatment described in this final rule for assets in ABCP programs that are consolidated onto the balance sheets of sponsoring banking organizations as a result of FIN 46-R. All liquidity facilities providing liquidity support to ABCP will be treated as “eligible ABCP liquidity facilities” until September 30, 2005. On that date, all ABCP-related liquidity facilities that do not meet this final rule's definition of an eligible ABCP liquidity facility will be treated as direct credit substitutes or recourse obligations. This transition period for ABCP-related liquidity facilities existing prior to this final rule's effective date should provide banking organizations with sufficient time to revise their liquidity facilities over the next year to ensure that the facilities meet the eligibility criteria set forth in this final rule.

Section 302 of Riegle Community Development and Regulatory Improvement Act (12 U.S.C. 4802) generally requires that regulations take effect on the first day of a calendar quarter unless an agency finds good cause that the regulations should become effective sooner and publishes its finding with the rule. The agencies believe that it is important to make this final rule effective before banking organizations must calculate their regulatory risk-based capital ratios at the end of the third quarter 2004. If ABCP program assets are consolidated onto the balance sheets of sponsoring banking organizations under FIN 46-R, then the agencies believe that the resulting capital requirements could be excessive in light of the risks incurred by those organizations as related to those assets. In addition, with respect to liquidity facilities that support ABCP, the current risk-based capital charges may not sufficiently reflect the risks associated with such liquidity facilities. The issuance of this final rule with a September 30, 2004, effective date will ensure that banking organizations maintain appropriate risk-based capital levels with respect to ABCP program assets and ABCP liquidity facilities in calculating their regulatory capital ratios for the third quarter 2004.

Pursuant to section 605(b) of the Regulatory Flexibility Act, the Agencies have determined that this final rule will not have a significant impact on a substantial number of small entities in accordance with the spirit and purposes of the Regulatory Flexibility Act (5 U.S.C. 601 et seq. ). For purposes of the Regulatory Flexibility Act, “small entities” are banking organizations having assets of $150 million or less. There are approximately 18 banking organizations that will be affected by this final rule. All are well over that size threshold. Accordingly, a regulatory flexibility analysis is not required.

The Agencies have determined that this final rule does not involve a collection of information pursuant to the provisions of the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq. ).

Section 202 of the Unfunded Mandates Reform Act of 1995, Public Law 104-4 (Unfunded Mandates Act) requires that an agency prepare a budgetary impact statement before promulgating a rule that includes a Federal mandate that may result in 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 and OTS believe that exclusion of consolidated ABCP program assets from risk-weighted assets for risk-based capital purposes will not result in any expenditures by national banks or savings associations. The exclusion of consolidated ABCP program assets is designed to offset the effect of FIN 46-R on risk-based capital. With respect to the risk-based capital treatment of liquidity facilities, because all national banks and savings associations that provide liquidity facilities to ABCP programs currently exceed regulatory minimum capital requirements, the OCC and OTS do not believe these banks will be required to raise additional capital.

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

(3) Asset-backed commercial paper program means a program that primarily issues externally rated commercial paper backed by assets or other exposures held in a bankruptcy-remote, special-purpose entity.

(4) Asset-backed commercial paper sponsor means a bank that:

(i) Establishes an asset-backed commercial paper program;

(ii) Approves the sellers permitted to participate in an asset-backed commercial paper program;

(iii) Approves the asset pools to be purchased by an asset-backed commercial paper program; or

(iv) Administers the asset-backed commercial paper program by monitoring the assets, arranging for debt placement, compiling monthly reports, or ensuring compliance with the program documents and with the program's credit and investment policy.

The FAA proposed to amend 14 CFR Part 39 with a proposed AD. The proposed AD applies to Rolls-Royce plc models RB211 Trent 875-17, Trent 877-17, Trent 884-17, Trent 892-17, Trent 892B-17, and Trent 895-17 turbofan engines with LP compressor fan blades P/N FW18548 installed. We published the proposed AD in the Federal Register on October 23, 2003 (68 FR 60627). That action proposed to require LP compressor fan blade replacement with new or previously reworked blades, or rework of the existing LP compressor fan blades.

We provided the public the opportunity to participate in the development of this AD. We have considered the comments received.

One commenter requests that we add the Trent 884B-17 model to the AD applicability, as it is missing from the proposal.

We agree, and we have added the Trent 884B-17 model to applicability paragraph (c) and to Table 1. There are currently no U.S. operators of this engine model.

Two commenters request that we include a reference to RR Service Bulletin (SB) No. RB.211-72-E055, Revision 1, dated June 20, 2003, which contains source life information on the cycle limits specified in the proposal compliance section.

We agree, and we have added a reference to RR Alert Service Bulletin (ASB) No. RB.211-72-AE055, Revision 3, dated May 28, 2004, in paragraph (i) of the AD for informational purposes only.

RR revised SB No. RB.211-72-E055, Revision 2, to an Alert SB No. RB.211-72-AE055, Revision 3, issued on May 28, 2004. The bulletin changes the reference to Boeing 777-200IGW to Boeing 777-200ER as the IGW designation is old terminology. The revision also changes the limits from using the lowest limit on mixed model configurations to using a combination of the lives for mixed model configurations. We concur in part with the changes to the SB and have incorporated into the AD the changes that are pertinent. We also discovered that the Boeing 777-200IGW and 777-200ER models are not official, type-certified designations, so we removed reference to these models from the AD. The incorporated changes do not represent a substantive change in the AD compliance requirements and therefore do not require new notice of proposed rulemaking.

We have carefully reviewed the available data, including the comments received, and determined that air safety and the public interest require adopting the AD with the changes described previously. We have determined that these changes will neither increase the economic burden on any operator nor increase the scope of the AD.

There are about 350 RR models RB211 Trent 875-17, Trent 877-17, Trent 884-17, Trent 884B-17, Trent 892-17, Trent 892B-17, and Trent 895-17 turbofan engines of the affected design in the worldwide fleet. We estimate that 106 engines installed on airplanes of U.S. registry would be affected by this AD. We also estimate that it would take about 100 work hours per engine to perform blade rework, and that the average labor rate is $65 per work hour. Based on these figures, we estimate the total cost of the AD to U.S. operators to be $689,000.

We have determined that this AD will not have federalism implications under Executive Order 13132. This AD will not have a substantial direct effect on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government.

For the reasons discussed above, I certify that this AD:

(1) Is not a “significant regulatory action” under Executive Order 12866;

(2) Is not a “significant rule” under DOT Regulatory Policies and Procedures (44 FR 11034, February 26, 1979); and

(3) Will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

We prepared a summary of the costs to comply with this AD and placed it in the AD Docket. You may get a copy of this summary by sending a request to us at the address listed under ADDRESSES . Include “AD Docket No. 2003-NE-38-AD” in your request.

In a notice published in the Federal Register of March 13, 1987 (52 FR 7933), FDA announced that a color additive petition (CAP 7C0208) had been filed by the Cosmetic, Toiletry, and Fragrance Association, Inc., 1110 Vermont Ave. NW., Washington, DC 20005 (current address, 1101 17th St. NW., suite 300, Washington, DC 20036-4702). The petition proposed to amend the color additive regulations in part 74 (21 CFR part 74, subpart C) to provide for the safe use of carbon black as a color additive for coloring cosmetics generally, including cosmetics for use in the area of the eye. The petitioner has now limited its proposed use of carbon black to the following cosmetics: Eyeliner, brush-on-brow, eye shadow, mascara, lipstick, blushers and rouge, makeup and foundation, and nail enamel. During its review of the petition, the agency determined that the subject carbon black is a fine-particle high-purity furnace black that will require batch certification by FDA. The agency intends to give each certified batch of the subject color additive the name D&C Black No. 2. Therefore, this color additive will be identified as D&C Black No. 2.

The petitioner has requested the use of D&C Black No. 2 in cosmetics, including cosmetics for use in the area of the eye. The term “area of the eye” is defined in § 70.3(s) (21 CFR 70.3(s)) as “the area enclosed within the circumference of the supra-orbital ridge and the infra-orbital ridge, including the eyebrow, the skin below the eyebrow, the eyelids and the eyelashes, and conjunctival sac of the eye, the eyeball, and the soft areolar tissue that lies within the perimeter of the infra-orbital ridge.”

The regulation in 21 CFR 70.5(a) states that “No listing or certification of a color additive shall be considered to authorize the use of any such color additive in any article intended for use in the area of the eye unless such listing or certification of such color additive specifically provides for such use.”

D&C Black No. 2 is a high-purity carbon black prepared by the oil furnace process. It is manufactured by injecting a heated aromatic petroleum oil feedstock into the combustion zone of a natural gas fired furnace. The reaction is quenched with water and the carbon particles are further cooled and collected on a fabric filter. The high-purity furnace black that is the subject color additive of this rule consists essentially of pure carbon, formed as aggregated fine particles with a surface area range of 200 to 260 meters 2 /gram.

As explained under III.B of this document, the color additive D&C Black No. 2 may contain low levels of potentially carcinogenic polynuclear aromatic hydrocarbon (PAH) contaminants. To limit the amounts of these contaminants in the color additive, FDA is requiring that D&C Black No. 2 for use in cosmetics be from a batch of the color additive certified by FDA, and is setting specifications for total PAHs, benzo[ a ]pyrene (B[ a ]P), and dibenz[ a,h ]anthracene. Because any PAH contaminants in the color additive can tightly bind to the carbon particles, the bioavailability of PAHs will be inversely related to the surface area of the carbon particles. Therefore, the agency is setting a specification for surface area, determined by the nitrogen Brunauer, Emmett, Teller (BET) method.

In general, the surface area of the carbon particles is also inversely related to their particle size. Because eye irritation may be caused by larger carbon particles, a specification for surface area by nitrogen BET will also limit the size of the carbon particles to those fine enough to ensure eye area safety.

To limit the amounts of heavy metals in the color additive, which substances may be derived from the manufacturing process water and the feedstock, the agency is also setting specifications for arsenic, lead, and mercury.

For a certifiable color additive, the sum of total color plus the levels of appropriate impurities should approximate 100 percent, allowing mass accountability. The total color from D&C Black No. 2 comes from the elemental carbon itself. The levels of appropriate impurities can be obtained from data for ash, volatile matter, and total sulfur. Therefore, the agency is setting specifications for total color (as carbon), ash content, weight loss on heating, and total sulfur.

Under section 721(b)(4) of the Federal Food, Drug, and Cosmetic Act (the act) (21 U.S.C. 379e(b)(4)), the so-called “general safety standard” for color additives, a color additive cannot be listed for a particular use unless a fair evaluation of the data and information available to FDA establishes that the color additive is safe for that use. FDA's color additive regulations (§ 70.3(i)) define safe as “convincing evidence that establishes with reasonable certainty that no harm will result from the intended use of the color additive.”

The anticancer or Delaney clause of the color additive amendments (section 721(b)(5)(B) of the act) provides that for any use of a color additive which will or may result in ingestion of all or part of such additive, the color additive shall be deemed to be unsafe and shall not be listed if the additive is found to induce cancer when ingested by man or animal, or if it is found, after tests which are appropriate for the evaluation of the safety of additives for use in food, to induce cancer in man or animal (section 721(b)(5)(B)(i) of the act). Further, under section 721(b)(5)(B)(ii) of the act, for any use of a color additive which will not result in ingestion of any part of such additive, the color additive shall be deemed to be unsafe and shall not be listed if, after tests which are appropriate for the evaluation of the safety of additives for such use, or after other relevant exposure of man or animal to such additive, it is found to induce cancer in man or animal.

Importantly, however, the Delaney clause applies to the additive itself and not to impurities in the additive. That is, where an additive itself has not been shown to cause cancer, but contains a carcinogenic impurity, the additive is properly evaluated under the general safety standard using risk assessment procedures to determine whether there is a reasonable certainty that no harm will result from the intended use of the additive ( Scott v. FDA , 728 F.2d 322 (6th Cir. 1984)).

D&C Black No. 2 is inert. Its insolubility and lack of toxicity, coupled with a history of safe use of activated carbon in medicine, contribute to the agency's conclusion that the color additive itself is safe for its proposed uses. However, the color additive has been shown to contain low levels of PAH impurities, some of which are carcinogenic. To minimize exposure to contaminants, the agency is setting limits for the following PAHs as a proportion of D&C Black No. 2: total PAHs (0.5 milligram (mg)/kilogram (kg)); B[ a ]P (0.005 mg/kg); and dibenz[ a,h ]anthracene (0.005 mg/kg).

Current data have shown B[ a ]P to be one of the most potent carcinogens of the PAH family. To assess the risk from exposure to PAHs, FDA has used toxic equivalency factors to express the comparative toxicity of PAHs as fractions of the toxicity of B[ a ]P. This approach expresses the amount of PAHs present in terms of B[ a ]P equivalents and estimates the risk for a mixture of PAHs as if it were one chemical compound. Under this system, B[ a ]P has been assigned a B[ a ]P toxic equivalency of 1. FDA has estimated the exposure to B[ a ]P equivalents from the use of high-purity furnace black in cosmetics to be no greater than 7.2 x 10 -10 mg/kg body weight/day (Ref. 1). In estimating the exposure to B[ a ]P equivalents from the petitioned use of the color additive, FDA assumed that both B[ a ]P and dibenz[ a,h ]anthracene were present at their proposed limits of 0.005 mg/kg and that each of the other possible PAH contaminants would be present in equal amounts, with a total PAH concentration of 0.5 mg/kg (Ref. 1). Based on the evidence presented in the petition, the agency also concluded that no more than 10 percent of the total PAHs present were likely to be extractable from the additive under typical use conditions, and thus available for absorption by the body (Refs. 2 and 3).

The agency used data from a carcinogenesis bioassay on B[ a ]P, conducted by H. Brune, et al., to estimate the upper-bound limit of lifetime human risk from exposure to B[ a ]P equivalents resulting from the petitioned use of the color additive (Ref. 4). The authors reported treatment-related benign forestomach tumors or esophageal tumors in male rats exposed to B[ a ]P. Using a linear-at-low-dose extrapolation method and tumor incidence data from the H. Brune, et al. study, the FDA estimated the carcinogenic unit risk for B[ a ]P to be 1.75 (mg/kg body weight/day) -1 . Using this carcinogenic risk for B[ a ]P and an estimated daily exposure of 7.2 x10 -10 mg of B[ a ]P equivalents/kg body weight/day, FDA estimates that the upper-bound limit of lifetime human risk from the petitioned use of the additive is 1.3 x 10 -9 , or less than 1 in 1 billion (Refs. 1 and 5 through 7).

Because conservative assumptions were used to estimate exposure, and PAHs bind tightly to carbon black and are not expected to be bioavailable, the average individual exposure to B[ a ]P toxic equivalents is expected to be substantially less than the estimated exposure (Refs. 5 and 6). The actual risk will likely be less than the calculated upper-bound limit of risk. Thus, the agency concludes that there is reasonable certainty that no harm from exposure to PAHs would result from the petitioned use of the additive. 1

In addition, no toxicity was noted in studies provided by the petitioner to support the safety of D&C Black No. 2 to color cosmetics intended for use in the area of the eye (Ref. 8).

Based on the data in the petition and other relevant considerations discussed in section III of this document, FDA concludes that there is a reasonable certainty that no harm will result from the petitioned use of D&C Black No. 2 as a color additive in the following cosmetics: Eyeliner, brush-on-brow, eye shadow, mascara, lipstick, blushers and rouge, makeup and foundation, and nail enamel. The agency also concludes that the color additive will achieve its intended technical effect, and thus, is suitable for this use. The agency further concludes that in accordance with 21 CFR 71.20(b), batch certification of D&C Black No. 2 is necessary to protect the public health because of the need to limit the levels of PAHs, some of which have been shown to be carcinogenic. Therefore, part 74 should be amended as set forth in this document.

In accordance with § 71.15 (21 CFR 71.15), the petition and the documents that FDA considered and relied upon in reaching its decision to approve the petition are available for inspection at the Center for Food Safety and Applied Nutrition by appointment with the information contact person listed (see FOR FURTHER INFORMATION CONTACT ). As provided in § 71.15, the agency will delete from the documents any materials that are not available for public disclosure before making the documents available for inspection.

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

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

The following references have been placed on display in the Division of Dockets Management (see ADDRESSES ) and may be seen by interested persons between 9 a.m. and 4 p.m., Monday through Friday.

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

(a) Identity . The color additive D&C Black No. 2 is a high-purity carbon black prepared by the oil furnace process. It is manufactured by the combustion of aromatic petroleum oil feedstock and consists essentially of pure carbon, formed as aggregated fine particles with a surface area range of 200 to 260 meters (m) 2 /gram.

(b) Specifications . D&C Black No. 2 shall conform to the following specifications and shall be free from impurities other than those named to the extent that such other impurities may be avoided by good manufacturing practice:

(1) Surface area by nitrogen BET (Brunauer, Emmett, Teller) method, 200 to 260 m 2 /gram.

(2) Weight loss on heating at 950 °C for 7 minutes (predried for 1 hour at 125 °C), not more than 2 percent.

(3) Ash content, not more than 0.15 percent.

(4) Arsenic (total), not more than 3 milligrams per kilogram (mg/kg) (3 parts per million).

(5) Lead (total), not more than 10 mg/kg (10 parts per million).

(6) Mercury (total), not more than 1 mg/kg (1 part per million).

(7) Total sulfur, not more than 0.65 percent.

(8) Total PAHs, not more than 0.5 mg/kg (500 parts per billion).

(9) Benzo[ e ]pyrene, not more than 0.005 mg/kg (5 parts per billion).

(10) Dibenz[ a,h ]anthracene, not more than 0.005 mg/kg (5 parts per billion).

(11) Total color (as carbon), not less than 95 percent.

(c) Uses and restrictions . D&C Black No. 2 may be safely used for coloring the following cosmetics in amounts consistent with current good manufacturing practice: Eyeliner, brush-on-brow, eye shadow, mascara, lipstick, blushers and rouge, makeup and foundation, and nail enamel.

(d) Labeling . The label of the color additive shall conform to the requirements of § 70.25 of this chapter.

(e) Certification . All batches of D&C Black No. 2 shall be certified in accordance with regulations in part 80 of this chapter.

This document contains amendments to the regulations under section 861 relating to the allocation and apportionment of the deduction for charitable contributions allowed under sections 170, 873(b)(2), and 882(c). Currently, regulations under § 1.861-8(e)(9)(iv) provide that such deductions generally are not definitely related to any gross income and therefore are ratably apportioned to the statutory and residual groupings on the basis of gross income.

In 1991, the Treasury Department and the IRS issued proposed regulations (the 1991 proposed regulations) that would have changed the ratable apportionment rule of the final regulations to a rule that, assuming certain requirements are met, generally would apportion the deduction for a charitable contribution based on where the contribution would be used. Prop. Treas. Reg. § 1.861-8(e)(12), 56 Fed. Reg. 10,395 (1991). More specifically, the 1991 proposed regulations provided that the deduction for a charitable contribution would have been apportioned solely to foreign source gross income if the taxpayer, at the time of the contribution, knows or has reason to know that the contribution will be used solely outside the United States or that the contribution may necessarily be used only outside the United States. The 1991 proposed regulations also provided that the deduction for a charitable contribution would have been apportioned solely to U.S. source gross income if the taxpayer, at the time of the contribution, both designates the contribution for use solely in the United States and reasonably believes that the contribution will be so used. Under the 1991 proposed regulations, a deduction for a charitable contribution that is not apportionable to United States or foreign source gross income under the foregoing rules would have been ratably apportioned on the basis of gross income.

The preamble to the 1991 proposed regulations requested comments on the effects of the proposed rules on U.S. charities with significant international activities. Numerous comments were received on the 1991 proposed regulations, most of which recommended that the proposed rules not be adopted. The principal reason given was that the 1991 proposed regulations would reduce funding for foreign charitable activities generally. In addition, the designation and place of use requirements were seen as generating significant paperwork and accountability burdens for both the contributors and the recipient charities. Many comments suggested that, instead of the bifurcated allocation and apportionment in the proposed regulations, the deduction for a charitable contribution should be allocated solely to income from sources within the United States.

In response to the comments received, and upon further consideration of the issue, the 1991 proposed regulations are being withdrawn. See Notice of Proposed Rulemaking published in the Proposed Rules section of this issue of the Federal Register . In addition, the notice of proposed rulemaking includes proposed regulations which cross reference these temporary regulations and proposed regulations with respect to deductions for charitable contributions that are allowed under a U.S. income tax treaty (rather than under sections 170, 873(b)(2), and 882(c)(1)(B)).

The temporary regulations provide that the deduction for charitable contributions allowed by sections 170, 873(b)(2), and 882(c)(1)(B) is definitely related and allocable to all of the taxpayer's gross income and is apportioned between the statutory grouping (or among the statutory groupings) of gross income and the residual grouping on the basis of the relative amounts of gross income from sources in the United States in each grouping. For example, where a deduction for charitable contributions is allocated and apportioned for purposes of the foreign tax credit limitation, the charitable contribution deduction is allocated to all of the taxpayer's gross income and apportioned solely to the residual grouping consisting of U.S. source gross income. This revision of the regulations is consistent with the policy of the section 170 contribution rules. The revision is intended to ensure that a taxpayer is not discouraged from making a charitable contribution that is deductible under section 170 simply because the allocation and apportionment rules would reduce the taxpayer's foreign source income and, accordingly, the taxpayer's foreign tax credit limitation as a result of the deduction.

The temporary regulations also provide that, where a charitable contribution is made by a member of an affiliated group, the deduction for the charitable contribution is related to and allocated to the income of all of the members of the affiliated group and not to any subset of the group. This rule is consistent with the provisions of Notice 89-91 (1989-2 C.B. 408). Finally, the provisions of the final regulations under § 1.861-8(e)(9)(iv) and § 1.861-8(g), Example 18, which provide for ratable allocation and apportionment of deductions for charitable contributions, are removed.

The regulations are effective for charitable contributions made on or after July 28, 2004. Taxpayers may elect to apply these regulations to contributions made before July 28, 2004 but during a taxable year ending on or after July 28, 2004.

It has been determined that this Treasury decision is not a significant regulatory action as defined in Executive Order 12866. Therefore, a regulatory assessment is not required. It also has been determined that section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to these regulations. For the applicability of the Regulatory Flexibility Act (5 U.S.C. chapter 6), refer to the Special Analyses section of the preamble to the cross-referenced notice of proposed rulemaking published in the Proposed Rules section in this issue of the Federal Register . Pursuant to section 7805(f) of the Internal Revenue Code, these temporary regulations will be submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on their impact on small businesses.

The principal author of these regulations is Teresa Burridge Hughes, Office of Associate Chief Counsel (International). However, other personnel from the IRS and Treasury Department participated in their development.

(B) The applicability of this section expires on or before July 27, 2007.

On November 26, 2002, the President signed into law the Terrorism Risk Insurance Act of 2002 (Pub. L. 107-297, 116 Stat. 2322). The Act was effective immediately. The Act's purposes are to address market disruptions, ensure the continued widespread availability and affordability of commercial property and casualty insurance for terrorism risk, and to allow for a transition period for the private markets to stabilize and build capacity while preserving State insurance regulation and consumer protections.

Title I of the Act establishes a temporary federal program of shared public and private compensation for insured commercial property and casualty losses resulting from an act of terrorism, which as defined in the Act is certified by the Secretary of the Treasury, in concurrence with the Secretary of State and the Attorney General. The Act authorizes Treasury to administer and implement the Terrorism Risk Insurance Program, including the issuance of regulations and procedures. The Act provides that the Program ends on December 31, 2005. The Act also provides Treasury with certain continuing authority to take actions as necessary to ensure payment, recoupment, adjustments of compensation, and reimbursement for insured losses arising out of any act of terrorism (as defined under the Act) occurring during the period between November 26, 2002, and December 31, 2005.

Each entity that meets the definition of “insurer” (well over 2000 firms) must participate in the Program. The amount of federal payment for an insured loss resulting from an act of terrorism is to be determined based upon insurance company deductibles and excess loss sharing with the Federal Government, as specified by the Act and the implementing regulations. An insurer's deductible increases each year of the Program, thereby reducing the Federal Government's share prior to expiration of the Program. An insurer's deductible is calculated based on a percentage of the value of direct earned premiums collected over certain statutory periods. Once an insurer has met its individual deductible, the federal payments cover 90 percent of insured losses above the deductible, subject to an annual industry-aggregate limit of $100 billion.

The Program provides a federal reinsurance backstop for three years. The Act provides Treasury with authority to recoup federal payments made under the Program through policyholder surcharges, up to a maximum annual limit. The Act also prohibits duplicative payments for insured losses that have been covered under any other federal program.

The mandatory availability or “make available” provisions in section 103(c) of the Act require that, for Program Year 1, Program Year 2, and, if so determined by the Secretary of the Treasury, for Program Year 3, all entities that meet the definition of insurer under the Program must make available in all of their property and casualty insurance policies coverage for insured losses resulting from an act of terrorism. This coverage cannot differ materially from the terms, amounts and other coverage limitations applicable to losses arising from events other than acts of terrorism. On June 18, 2004, the Secretary of the Treasury announced his determination to extend the make available requirements through Program Year 3.

As conditions for federal payment under the Program, insurers must provide clear and conspicuous disclosure to policyholders of the premium charged for insured losses covered by the Program and the Federal share of compensation for insured losses under the Program. In addition, the Act requires that insurers submit claims and make certain certifications to Treasury. Treasury has recently published in the Federal Register a final rule concerning claims for Federal payment under the Program. See 69 FR 39296 (June 29, 2004).

Section 107 of the Act also contains specific provisions designed to manage litigation arising out of or resulting from a certified act of terrorism. If the Secretary determines that an act of terrorism under section 102 has occurred, section 107 establishes an exclusive Federal cause of action and remedy for property damage, personal injury, or death arising out of or relating to the act of terrorism. Section 107 also preempts certain State causes of action and provides that amounts awarded in actions for property damage, personal injury, or death that are attributable to punitive damages shall not count as “insured losses” (and thus shall not be paid) under the Program. The Act also gives the United States the right of subrogation with respect to any payment or claim paid by the United States under the Program. In connection with the implementation of the litigation management provisions of the Act, the President directed the Secretary to use his authority under the Act to propose a rule that would require insurers to obtain Treasury's advance approval before settling certain Federal causes of action described in section 107 of the Act. See 38 Weekly Comp. Pres. Doc. 2097 (Nov. 25, 2002); 2002 WL 14548111 (Dec. 2, 2002) (also accessible at http://www.treasury.gov/trip ).

Throughout the implementation of the Program, Treasury has been guided by several goals. First, Treasury strives to implement the Act in a transparent and effective manner that treats comparably those insurers required to participate in the Program and provides necessary information to policyholders in a useful and efficient manner. Second, in accord with the Act's stated purposes, Treasury seeks to rely as much as possible on the State insurance regulatory structure. In that regard, Treasury has coordinated the implementation of aspects of the Program with the National Association of Insurance Commissioners (NAIC). Third, to the extent possible within statutory constraints, Treasury seeks to allow insurers to participate in the Program in a manner consistent with procedures used in their normal course of business. Finally, given the temporary and transitional nature of the Program, Treasury is guided by the Act's goal that insurers develop their own capacity, resources, and mechanisms for terrorism insurance coverage when the Program expires.

To assist insurers, policyholders, and other interested parties in complying with immediately applicable requirements of the Act, Treasury issued interim guidance to be relied upon by insurers until superseded by regulations. These notices of interim guidance have now been superseded by final regulations. The scope of the Program, key definitions, and other provisions laying the groundwork for Program implementation are at Subparts A, B, and C of 31 CFR part 50 (68 FR 41250; 68 FR 59720). Treasury's final rule applying provisions of the Act to State residual market insurance entities and State workers' compensation funds is at Subpart D of 31 CFR Part 50 (68 FR 59715). The final rule setting forth procedures for filing claims for payment of the Federal share of compensation for insured losses is at Subpart F of 31 CFR part 50, and Subpart G of 31 CFR part 50 contains the final rule concerning information to be retained as related to the handling and settlement of claims to enable Treasury to perform financial and claim audits (both at 69 FR 39296).

Treasury published a proposed litigation management rule in the Federal Register at 69 FR 25341 on May 6, 2004 to implement the provisions in section 107 of the Act. The proposed litigation management rule required insurers to seek Treasury's advance approval of settlements of certain Federal causes of action involving insured losses and proposed clarifications of litigation management aspects related to the Program.

Treasury received four comments about the proposed rule; however, one of these comments was jointly submitted by an ad hoc industry working group that included insurance industry organizations, insurance companies, and property-casualty insurance industry trade associations and their member companies. 1 Comments were also received from a large commercial property-casualty insurance company; a large market of London-based insurers and reinsurers; and a real estate industry association. In addition, Treasury received a copy of a published Procedural Order from the Judicial Panel on Multidistrict Litigation, which adopted certain procedures for litigation under the Act.

In general, the proposed rule was received quite favorably by the real estate industry trade group, which commented that the rule would screen proposed settlements against litigation abuse and fulfill Congress's intent that taxpayer funds are not used to pay punitive damage claims. In contrast, the joint comment from the ad hoc industry working group criticized aspects of the proposed rule as described more fully below and urged that the settlement approval provisions be dropped, or alternatively, that changes be made to them in the final rule. Two other commenters provided suggested changes and clarifications to certain aspects of the proposed rule.

After review and careful consideration of all comments, Treasury has decided to promulgate a final rule with several modifications and clarifications as discussed below.

Section 107(a)(1) states that “[i]f the Secretary makes a determination pursuant to section 102 that an act of terrorism has occurred, there shall exist a Federal cause of action for property damage, personal injury, or death arising out of or resulting from such act of terrorism, which shall be the exclusive cause of action and remedy for claims for property damage, personal injury, or death arising out of or relating to such act of terrorism, except as provided in paragraph (b).” Section 107(b) provides that nothing in the litigation management provisions of section 107 shall in any way limit the liability of any government, organization, or person who knowingly participates in, conspires to commit, aids and abets, or commits any act of terrorism certified as such under the Act. Section 50.80 of the proposed rule was based on these provisions of the Act.

Section 50.80(a) of the proposed rule provided that “[u]pon certification of an act of terrorism pursuant to section 102,” there shall exist a Federal cause of action. The ad hoc industry working group raised a concern that the proposed language differed from that of the Act. The comment expressed concern that the proposed rule's use of the word “upon” instead of “if” could be interpreted to mean that the exclusive Federal cause of action accrues at the time of certification rather than at the time of occurrence of the event later certified.

In response to this comment Treasury is slightly modifying section 50.80 of the final rule to clarify intent and to more closely mirror the statutory language by changing the word “upon” to “if” in section 50.80(a) of the final rule.

The ad hoc industry working group also addressed section 50.80(b) of the proposed rule, which was based on section 107(e). Section 107(e) provides that the litigation management provisions of section 107 only apply to actions for property damage, personal injury, or death that arise out of or result from acts of terrorism that occur or occurred during the effective period of the Program. Section 50.80(b) of the proposed rule described the effective period of the Program “as set forth in section 108 of the Act.” Section 108(a) establishes only the Program's termination date and not the “effective period.” The ad hoc industry working group expressed concern that the proposed rule may create uncertainty as to whether the Secretary has authority to certify after the termination date an act that occurs on or before the termination of the Program. After considering this comment, Treasury made a technical correction to section 50.80(b) of the final rule to conform to the precise language of the Act.

Section 107(a)(2) preempts all State causes of action for property damage, personal injury, or death arising out of or resulting from an act of terrorism that are otherwise available under State law, except as provided in paragraph (b) of the Act ( i.e. , not affecting the liability of any government, organization, or person who knowingly participates in, conspires to commit, aids and abets, or commits any act of terrorism). The ad hoc industry working group pointed out that the language of the proposed rule differed from that in the Act. Section 107(a)(2) states that “[a]ll State causes of action of any kind for property damage, personal injury, or death arising out of or resulting from an act of terrorism that are otherwise available under State law are hereby preempted, * * *.” Tracking the time at which the exclusive Federal cause of action comes into existence, section 50.81 of the proposed rule stated that “upon certification” of an act of terrorism, all State causes of action for property damage, personal injury, or death arising out of or resulting from an act of terrorism were preempted. The comment explained that the Act itself preempts State causes of action.

Treasury agrees that the Act preempts all State causes of action for property damage, personal injury, or death “arising out of or resulting from an act of terrorism,” but such causes of action can only be identified as “arising out of or resulting from an act of terrorism” after an act is certified by the Secretary as an “act of terrorism.” Because the certification is inextricably linked to the classification of the causes of action to which the preemption applies, the proposed rule described the preemption as being dependent upon the certification of an act of terrorism by the Secretary. After considering the comment, Treasury determined to revise section 50.81 to mirror the language in section 107(a)(2).

Section 107(a)(4) provides that for each act of terrorism certified by the Secretary pursuant to section 102, the Judicial Panel on Multidistrict Litigation (Judicial Panel) shall designate one district court or, if necessary, multiple district courts of the United States that shall have original and exclusive jurisdiction over all actions for any claim (including any claim for loss of property, personal injury, or death) relating to or arising out of an act of terrorism. The Act also provides that the Judicial Panel is to designate the district court or courts not later than 90 days after the occurrence of an act of terrorism.

In the proposed rule, Treasury recognized that it is the Secretary's certification of an act of terrorism that triggers the existence of the exclusive Federal cause of action and the need for the Judicial Panel to designate a district court or courts for the consolidation of actions. Treasury expressed an intent to notify the Judicial Panel as soon as practicable following any certification of an act of terrorism and invited comments on other appropriate operational procedures.

On June 1, 2004, the Judicial Panel issued a Procedural Order in In re Terrorism Risk Insurance Act of 2002 Litigation, —F.R.D.—, 2004 WL 1252476 (Jud. Pan. Mult. Lit. June 1, 2004) (also accessible at http://www.treasury.gov/trip ). As reflected in its Order, the Panel stated that the 90-day period for the Judicial Panel to designate the court or courts, as prescribed in section 107(a)(4) of the Act, begins on the date the Secretary certifies the act of terrorism. Also, pursuant to its cited rulemaking authority under 28 U.S.C. 1407(f) and in response to the proposed rule, the Judicial Panel adopted procedures for litigation under the Act. The Order directs all interested parties to notify the Judicial Panel of their suggestions regarding what district court or courts should be designated within 20 days of the date of certification. In addition, the Judicial Panel orders the Secretary, on the date the Secretary certifies an act of terrorism, to notify: (1) The public about the Judicial Panel's Order (through general media channels, such as Internet and press releases to broadcast and print media, “augmented by direct notice to the parties in any already existing litigation known to the Treasury Secretary”) and (2) the Clerk of the Judicial Panel that such public notice has occurred.

As the Judicial Panel's Order establishes the procedures Treasury and others are to follow once an act is certified as an act of terrorism, there is no need for Treasury to set out procedural requirements in the final rule.

In implementing the section 107(a) provisions concerning exclusive jurisdiction, Treasury solicited comment in the preamble to the proposed rule on whether it would be appropriate or necessary to promulgate a rule to facilitate the filing and transfer of civil actions involving Federal causes of action to the Federal district court(s) designated by the Judicial Panel. Such a rule could provide that any amounts awarded in any civil action relating to or arising out of an act of terrorism that are not awarded by the district court or courts designated by the Judicial Panel would be ineligible for compensation under the Program, regardless of whether the amounts awarded would otherwise be insured losses covered by commercial property and casualty insurance issued by an insurer.

The ad hoc industry working group commented that such a rule was unnecessary and suggested that cases pending in non-designated courts would be removed to Federal court or dismissed and any awards by non-designated courts would be a legal nullity. Another commenter representing a market of London-based insurers and reinsurers suggested that if such a rule where adopted, an exception be made for court awards made (and paid by insurers) prior to the certification of an act of terrorism and presumably before a Federal district court is designated. After considering the issue and comments, Treasury has decided not to address this issue at this time, but will continue to study the issue to determine if any further clarification or procedures are needed.

Sections 50.82 and 50.83 of the proposed rule provided for the advance approval of settlements of certain Federal causes of action arising out of or resulting from certified acts of terrorism. As noted earlier, Treasury received a memorandum from the President related to this issue. The President's Memorandum directed the Secretary to propose a rule requiring insurers to obtain the advance approval of Treasury of any proposed settlements of causes of action described in section 107 of the Act arising out of or resulting from an act of terrorism.

The proposed rule required advance approval by Treasury of proposed settlements of certain causes of action described in section 107, to the extent liability for such causes of action is covered by or paid, in whole or in part, by an insurer pursuant to coverage for insured losses under the Program. As proposed, such settlements were only required to be submitted for advance approval if the insurer intends to submit the settlement as part of its claim for federal payment under the Program.

A real estate industry association supported the rule as proposed, which it described as important procedures for scrutinizing proposed settlements and “excellent rules for implementing Congress's charge that TRIA funds are not used to fund punitive damage claims.” As described below, other commenters disagreed.

As a threshold matter, the ad hoc industry working group contended that the advance approval of settlements requirement exceeded Treasury's rulemaking authority. They provided no specific support for this position. The working group comment advocated elimination of the settlement pre-approval requirements in their entirety or other alternatives described below.

For the reasons stated in the preamble to the proposed rule, Treasury believes that it has the requisite legal authority to promulgate this rule, including the settlement approval provisions. See 69 FR 25341, 25344. The Act authorizes Treasury to administer the Program, investigate and audit claims, and pay the Federal share of compensation for insured losses. ( see section 104(a)). Under section 104(a)(2) the Secretary is authorized to prescribe regulations to administer and implement the Program effectively. More specifically, under section 103(b)(3), Treasury is authorized to prescribe reasonable procedures concerning insurers' processing of claims for insured losses. Treasury believes that the procedures that this rule adds to the insurers' claims process are necessary in order to administer and implement the Program effectively. Pursuant to its administrative authority under the Act and to protect the interests of the United States, Treasury is finalizing sections 50.82 and 50.83 of the proposed rule, but with modifications as described below.

One insurer that commented criticized the proposed rule (and the claims regulations found in Subpart F) generally as being a departure from the more traditional “follow the fortunes” (sometimes also referred to as “follow the settlements”) approach employed by reinsurers. The ad hoc industry working group raised this point as well. That group stated that through the proposed rule, Treasury would be substituting its judgment for that of the insurer in settling claims while introducing tremendous complexities into the claims process and that the regulations governing claims procedures (Subpart F) provide sufficient safeguards and already expose insurers to the risk of having an already settled cause of action denied.

To fulfill the purposes of the Act and its role as administrator, Treasury expects to be notified of covered settlements, to review them, and to make its objections (if any) known to the insurer. Treasury has tried to tailor its review and requests for information, as much as possible and with some exceptions, to the type of information typically gathered by the insurer as part of the claims adjustment process.

The ad hoc industry working group also stated that the rule does not reflect reinsurance best practices and is not modeled after the customary business practices of insurers and reinsurers. As we have often stated, Treasury seeks to administer the Program in a manner consistent with procedures insurers use in the normal course of business to the extent possible within statutory constraints. Given the unique characteristics of this Federal Program, the settlement approval aspects of this rule are appropriate. Though the Program is often thought of as being similar to an excess-of-loss quota share reinsurer, the Program is truly a Federal financial backstop funded by public monies which, unlike a traditional reinsurer, does not share in premiums and can recoup its payments as prescribed in section 103(e)(7) of the Act. Reinsurers evaluate and choose the insurers they reinsure, consider the claims handling and loss experience of their reinsureds, and reassess those relationships during renewal audits. Treasury does not have a similar private market relationship with insurers. Moreover, Treasury does not believe that it has strayed inappropriately from reinsurance practices. Treasury is aware that some reinsurance treaties contain claims-cooperation clauses that allow reinsurers to receive early notification and the discretionary right to associate in the control, defense, and litigation of claims.

The ad hoc industry working group comment also stated that the proposed rule would expose insurers to bad faith claims and/or violations of State unfair claims practices standards which generally require them to promptly settle claims. The working group comment contends that the rule as proposed could expose insurers to liability for extra-contractual obligations ( i.e. , punitive or exemplary damages) and/or damages in excess of policy limits if imposed by a court due to the insurer's delay or failure to settle because of Treasury's actions under this rule. The comment also pointed out that, by operation of sections 50.50(a) and 50.5(e)(4)(ii) and (iii) of the claims procedures regulations, Treasury does not share in extra-contractual or excess of policy limits type damages. If Treasury promulgates a final rule, the ad hoc industry working group suggested that Treasury should also share in these damages; pay one hundred percent of any liability of the insurer above the amount the insurer proposed settling the cause of action; or grant insurers qualified immunity from state law claims standards.

Treasury believes the hypothetical scenario suggested by the ad hoc industry working group in its comment may be overstated. First, the rule envisions a settlement approval process that normally will occur within 30 days. The information sought is that typically assembled by the insurer's claim professionals in handling and adjusting claims and should not delay settlements. Settlements can still be effectuated promptly and the additional processes required by this rule seem unlikely to lead to the types of inordinate delays typically associated with bad faith damages being awarded or State regulatory actions being brought. Insurers could inform the State regulatory officials and court that they are following Federal regulation and nothing in this rule prevents an insurer from settling a cause of action without or despite Treasury's pre-approval, doing so only precludes compensation under the Program. Treasury declines to adopt the ad hoc working group's suggestions.

The proposed rule required an insurer to seek Treasury's advance, written approval where an insurer (directly or through its insured) intends to settle a Federal cause of action involving third-party claims (by a third-party against an insured and/or the insurer) for property damage, personal injury, or death arising out of or resulting from an act of terrorism when—

• All or part of the settlement amount is expected to be part of the insurer's claim for federal payment under the Program; and

• Any portion of the proposed settlement amount that is attributable to liability for personal injury or death is $1 million or more, or that is attributable to liability for property damage (including loss of use) is $5 million or more, regardless of the number of third-party claims being settled.

In the preamble to the proposed rule, Treasury specifically requested comments on these monetary thresholds. The real estate industry association supported the thresholds as proposed. Another suggested that the thresholds were too low and that they should be raised to $10 million for both property and casualty claims. Upon consideration of the views of the commenters and Treasury's further assessment of the administrative costs and operational issues associated with the advance approval of too large a number of settlements, Treasury has decided to adjust the monetary thresholds set out in paragraphs (a)(1) and (2) of section 50.82 of the final rule. As now finalized, insurers will be required to submit for advance approval by Treasury settlements where the amount attributable to the insured's liability for personal injury or death is $2 million or more, or that is attributable to liability for property damage is $10 million or more.

Treasury is setting these monetary thresholds (below which an insurer is not required to seek pre-approval by Treasury) pursuant to section 104(a)(2) of the Act which authorizes the Secretary to prescribe regulations to administer and implement the Program effectively. In balancing between the need to protect the interests of the United States with the effective administration of the Program, Treasury believes it appropriate to raise the thresholds. In addition, Treasury notes that settlements that are reviewed and approved (or deemed approved), or that are not required to be submitted for prior approval, are all still subject to later Treasury review, like any other claim, at the point of claim submission by the insurer or at the time of any audit ( see Subparts F and G).

In raising the settlement thresholds in section 50.82(a) of the final rule, Treasury expressly retains the right to require insurers to submit for pre-approval any settlement of a Federal cause of action that comes to its attention, on a case-by-case basis, even if the settlement amount attributable to liability for property damage, personal injury, or death is below the applicable threshold. Accordingly, Treasury is modifying section 50.82 of the final rule to add a new paragraph (b) which states that Treasury may request that an insurer submit for review and advance approval proposed settlements of Federal causes of action for property damage, personal injury, or death, where the settlement amounts are below the monetary thresholds identified in section 50.82(a)(1) and (2).

Several commenters asked for clarification covering different, but related aspects concerning what is included in calculating the thresholds. In response, Treasury provides the following additional clarifications:

• Any portion of the proposed settlement amount that is attributable to an insured loss or losses is aggregated per third-party claimant, regardless of the number of causes of action or insured losses being settled (section 50.82(a)(1) and (2) are being revised to reflect the “per third-party claimant” qualification);

• The thresholds include self-insured retentions (no change to the rule is necessary);

• Defense costs are not included in the thresholds. They are reviewed as loss adjustment expenses under sections 50.50(a) and 50.5(e)(4) of the regulations; and

• The pre-approval process does apply to Federal causes of action settled before the insurer has exceeded its insurer deductible under the Act. See section 102(7); 103(e)(1)(A). This is because under the claims procedures rule, insured losses are submitted on an aggregate basis without identification as to which insured losses are assigned to meeting the insurer deductible. See section 50.51(a) of Subpart F.

One commenter, representing a market of London-based insurers and reinsurers commented that it read the proposed settlement pre-approval requirements as being limited to settlements of filed legal actions. As Treasury stated in the preamble to its proposed rule (69 FR at 25344-45), the settlement pre-approval requirements, which are now being finalized, apply to Federal causes of action regardless of whether a lawsuit has actually been filed or an arbitration commenced with respect to the claim. This is because, as we explained in the preamble to the proposed rule, “a `cause of action' is a group of operative facts giving rise to one or more bases for one person to sue and obtain a remedy in court from another person.”

Commenters generally favored the proposed rule's limitation on the pre-approval requirements to causes of action brought by third-party claimants against insureds. As stated in the preamble to the proposed rule, the prior approval requirement extends only to settlements for insured losses arising from third-party claims against an insured for property damage, personal injury or death against a commercial insured. Coverage disputes involving contract rights are not included in the scope of the causes of actions requiring advanced settlement approval by Treasury. Such disputes involve causes of action that are based on contract law, not on property damage, personal injury, or death, and are not subject to prior approval by Treasury. Several commenters suggested that Treasury include this important distinction in the rule itself. After consideration of these comments, Treasury has clarified in section 50.82(a) of the final rule that the advance approval requirements apply to any proposed agreement to settle or compromise any Federal cause of action for property damage, personal injury, or death, asserted by a third-party or parties against an insured.

In determining whether to approve a proposed settlement, section 50.82(b) of the proposed rule (now being re-designated in the final rule as subparagraph (c)) identified the factors (in addition to those listed in section 50.50 of Subpart F) that Treasury would consider. These factors included the nature of the insured loss, the facts and circumstances surrounding the loss, and, as applicable, other related factors, as well as any other information requested by Treasury. The real estate industry association stated that the proposed rule “provides commendable detail in requiring specific information to be communicated in submissions of proposed settlement for pre-approval by Treasury.”

The ad hoc industry working group suggested that if the proposed rule is adopted, Treasury should limit the pre-approval of proposed settlements to a review that only would consider whether punitive damages were included in the settlement. Alternatively, the working group comment suggested eliminating section 50.83 and modifying section 50.82 to require insurers to provide Treasury “notice” that the settlement is not an ex gratia payment ( i.e. , a payment not required under the terms of the insurance policy); does not include settlement of a claim for punitive damages; and is not the result of fraud, collusion, bad faith, or dishonesty. In addition, the working group comment suggested the insurer notify Treasury that the insurer has complied with applicable State laws governing claims practices; determined that liability of the insured is clear; and has agreed to settlement based on merits and terms and conditions of the policy, without regard to the submission as part of its claim for the Federal share of compensation. These factors are generally covered through application of the claims procedures rule. See section 50.50(a). Accordingly, Treasury has decided to not revise the rule as suggested.

The real estate industry association wanted the factors expanded to include all information considered by the insurer's claims adjuster; that settlements also are reviewed for “excessiveness”; and that Treasury should receive detailed statement explaining how any proposed settlement ensures that punitive damages are not included. Treasury believes the listed factors are sufficient. In addition, section 50.82(c)(5) allows Treasury to consider any other criteria that Treasury may consider appropriate, depending on the facts and circumstances surrounding the settlement. The commenter's suggestions are the type of additional information that could be requested (pursuant to 50.83(d)(12) of the final rule) and evaluated in certain circumstances, but certainly not all, and therefore, Treasury declines to add them by specific reference at this time.

Other comments were directed specifically to some of the factors, described below.

Among the factors the proposed rule listed as relevant to Treasury's consideration of proposed settlements, section 50.82(c)(1) stated that Treasury would consider whether the proposed settlement compensates for a loss that is an insured loss under the terms and conditions of the underlying commercial property and casualty insurance policy. The ad hoc industry working group pointed out that this is already part of the claims review process under the claims procedures rule in Subpart F and doing a coverage analysis at the pre-approval stage may cause delay in insurers paying claims.

In consideration of this comment, Treasury is revising the final rule to state that Treasury will review whether the “proposed settlement compensates for a third-party's loss, the liability for which is an insured loss under the terms and conditions of the underlying commercial property and casualty insurance policy, as certified by the insurer pursuant to § 50.83(d)(2).” As a result, Treasury is changing section 50.83(d)(2) of the final rule to require the insurer to provide to Treasury as part of the approval submission process a certification by the insurer that the settlement is for a third-party's loss, the liability of which is an insured loss under the terms and conditions of the underlying commercial property and casualty insurance policy. The revisions clarify that the loss is that of a third-party, the liability for which is an insured loss, as suggested by an insurer who commented that the rule, left unchanged, could be misread to capture first-party settlements.

Section 107(a)(5) provides that any amounts awarded in actions under section 107(a)(1) of the Act (exclusive Federal cause of action for property damage, personal injury, or death arising out of or resulting from an act of terrorism) that are attributable to punitive damages shall not count as insured losses under the Act. Because section 107(a)(5) of the Act does not consider punitive damages “insured losses” under the Act, the Federal Government will not compensate an insurer for such damages. See also sections 50.5(e)(4)(i) of Subpart A (definition of “insured loss”) and 50.50(a) of Subpart I.

Consistent with the claims procedures rule, this proposed rule stated that a factor Treasury would consider in approving a proposed settlement is whether the settlement excludes punitive damages, regardless of how the parties to the settlement agreement characterize the payment. An insurer shall be required to identify any portion of a proposed settlement amount that is attributable to punitive damages, or that is intended to compromise a claim or demand for punitive damages in a cause of action for which punitive damages could be awarded. And Treasury will review proposed settlements to determine whether all or part of the settlement amount is intended to compromise an actual or threatened claim for punitive or exemplary damages, even if the settlement does not indicate that the payment includes punitive or exemplary damages.

The real estate industry association stated that, “[o]ne of the best elements of the NPRM [Notice of Proposed Rulemaking] is its detailed discussion of steps that will be taken to ensure that settlements do not include indemnity for punitive damages claims.” The ad hoc industry working group suggested that the proposed rule be modified to require the review of amounts “attributable to an award of punitive or exemplary damages,” presumably following the literal language of section 107(a)(5) of the Act. The working group stated that while claims for punitive damages are made routinely, actual awards are rare. Without the modification, the working group comment suggested, Treasury's review would be highly subjective, involve substantial legal and factual analysis, and create inordinate delay, yet would promise little value. After review of these comments, Treasury is finalizing the rule as proposed in order to ensure that punitive damages are not awarded through settlements.

Several commenters requested that Treasury explain how it would determine what portion of a proposed settlement might be attributable to a claim for punitive damages when the settlement does not indicate that the payment includes such damages. No methods of review were suggested by these comments. The real estate industry association, however, suggested that Treasury could require and receive a detailed statement from the insurer (under section 50.83) explaining how any proposed settlement ensures that punitive damages are not included. Treasury considered the comments and decided that a requirement for the insurer to identify any portion of a proposed settlement amount that is attributable to punitive damages (or that is intended to compromise a claim or demand for punitive damages) is sufficient.

Section 50.82(b)(3) of the proposed rule (now re-designated as paragraph (c)(3) in the final rule) stated that a factor Treasury would consider in approving a proposed settlement is whether the settlement amount offset amounts received from the United States pursuant to any other Federal program. Section 103(e)(1)(B) of the Act states, “The Federal share of compensation for insured losses under the Program shall be reduced by the amount of compensation provided by the Federal Government to any person under any other Federal program for those insured losses. See also section 50.51(b) of Subpart I. The ad hoc industry working group objected to Treasury's consideration of this as part of the settlement approval process because, as explained by the working group, an insurer generally does not have the ability under the terms and conditions of a property and casualty insurance policy to reduce the value of a claim by such collateral source amounts. Treasury is adopting this requirement in the final rule because it is required under the Act to adjust the Federal share of compensation by these amounts, Treasury is in effect asking, as a practical versus contractual matter, whether the insurer has already taken collateral source payments into consideration in arriving at the settlement amount ( i.e. , would the settlement have been higher but for the compensation from the other Federal Program?). Section 50.82(c)(3) of the final rule is finalized as proposed, without change.

Another factor Treasury proposed to take into account in reviewing proposed settlements was the amount of attorneys' fees and other legal expenses paid out of the settlement proceeds. The proposed rule was based on Treasury's concern about inflated, unsupported insured losses. In order to address this concern, Treasury proposed to evaluate whether attorneys' fees and expenses in connection with the settlement were unreasonable or inappropriate, in whole or in part, and whether they caused the insured losses under the underlying commercial property and casualty insurance policy to be overstated.

Another commenter asked if review of attorneys' fees included review of defense attorneys' fees and expenses? Such costs would not be reviewed at the pre-approval stage but would be reviewed as part of the insurer's claim for loss adjustment expenses. See sections 50.50(a) and 50.5(e)(3).

In the preamble to our proposed rule, we described how Treasury would examine the appropriateness of attorneys' fees and expenses, generally by considering such factors as those weighed by Federal courts regarding the reasonableness of attorneys' fees and expenses. The real estate industry association praised this approach.

Many of the comments addressed this section of the proposed rule. The ad hoc industry working group contended that the review of attorneys' fees contained in the proposed rule was unnecessary because bar association ethics rules (prohibiting unreasonable fees) and procedural review by courts (presumably over settlements of filed legal actions) are a sufficient check on legal fees that may inflate the settlement amounts paid by insurers.

In light of some of the comments and upon further consideration, Treasury has decided to revise section 50.82(c)(4) of the final rule to more clearly focus on the issue of whether insured losses have been inflated. Under the final rule, Treasury will consider whether the settlement amount has been inflated by such things as unjustified professional fees and expenses of attorneys, experts, and other professionals. The intent is to focus on whether such fees or other expenses have caused the settlement amount to exceed the value of the insured loss as compared to similar losses. In order to apply this revision to the pre-approval submission and in response to a request for clarification by a commenter, Treasury is also making a related revision to section 50.83(d)(7) to clarify that insurers are to submit to Treasury the net amount to be received by the third-party after the payment of professional fees and expenses. Section 50.83(d)(7) is revised to now require that insurers inform Treasury of “[t]he amount to be paid that will compensate for any items such as fees and expenses of attorneys, experts, and other professionals for their services and expenses related to the insured loss and/or settlement and the net amount to be received by the third-party after such payment.”

Some commenters explained that insurers might not always be able to obtain this information. Treasury understands the possible difficulty in obtaining information but believes the insurer is in the best position to obtain this information and it is hoped that a third-party would provide such information to the insurer knowing that it is a requirement upon which Treasury's approval, and in turn the insurer's eventual agreement to finalize the settlement, may depend. Insurers should recognize that the factors listed in section 50.82(c) will be viewed as a whole, with different emphasis on different factors depending on the particulars of the cause of action. If an insurer cannot obtain the information required by section 50.82(c)(4), it should simply indicate that fact to Treasury, as well as what attempts it made to discover the information. An insurer could also provide its best estimate based on its prior business experience of what professionals charge under the circumstances of the particular claim. Having provided such guidance, Treasury has decided to not change the rule.

Under section 50.82(d) of the rule, if an insurer settles a cause of action after Treasury has rejected the proposed settlement, or if an insurer settles a cause of action without seeking Treasury's approval in advance, as required by section 50.82(a), the insurer will not be entitled to the Federal share of the amount paid as part of its claim for federal payment unless the insurer can demonstrate, to the satisfaction of the Treasury, extenuating circumstances. Also, the insurer shall not be entitled to include the paid settlement amount as an insured loss in its aggregate insured losses (whether or not those aggregate insured losses exceed the insurer deductible) for purposes of calculating the Federal share of compensation due to the insurer under the Program.

In its proposed rule, Treasury requested comments on how frequently claims are received by commercial property and casualty insurers under commercial liability policies where the insured settles directly with a claimant and then notifies the insurer after the settlement has been consummated. No one commented on the frequency of such situations or the size of claims usually involved. The ad hoc industry working group cited situations under the law of three states that may allow an insured to settle causes of action without the knowledge or consent of their insurer. The working group comment suggested one possible approach to address these situations is to specifically state in the rule that settlements without insurer consent are “extenuating circumstances” that will not preclude Federal compensation of the insurer's payment of the settlement or indemnification of the insured.

Although there may be situations where this does occur, perhaps under relevant State law, Treasury prefers to evaluate each situation when it occurs, based on the particular circumstances as presented by the insurer. Accordingly, Treasury is not changing the rule and adopts section 50.82(d), as proposed, as final.

Section 50.83 of the proposed rule set out a procedure for an insurer to submit proposed settlements for advance approval by Treasury. Generally, within 30 days after Treasury's receipt of a complete notice of the proposed settlement and an insurer's request that the proposed settlement be approved, Treasury may issue a written response and either approve or disapprove the proposed settlement, in whole or in part. If Treasury does not issue a written response within 30 days after its receipt of a complete notice (or within the time as extended in writing by Treasury), the request for advance approval of the settlement will be deemed approved under section 50.83(c). (The settlement will still be subject to review under the claims procedures rule.)

The majority of the comments either supported or did not object to the within 30-day pre-approval review process. The ad hoc industry working group suggested that 30 days is too long. Treasury emphasizes that the rule anticipates a decision by Treasury within 30 days, and through the “deemer” provision, no later than 30 days. While it is true, as a comment noted, that the “deemer” provision allows Treasury to extend the 30-day period, Treasury expects such instances to not be common. Treasury is aware of its responsibility to manage the Program effectively and efficiently and will employ its best efforts to administer the pre-approval process in an expedient manner. For reasons stated previously in the proposed rule preamble, Treasury is not changing the 30-day time period in the rule. See 69 FR 25341, 25346.

Several commenters pointed out that the process does not envision any type of expedited review of settlements where the agreements in principal may be reached shortly before a Federal cause of action is about to be tried. The commenters suggest Treasury consider approaches to accommodate such situations. Treasury has made no change to the proposed rule. Treasury expects that attorneys representing the insureds will advise the Federal district court about Treasury's approval role.

Section 50.83 of the proposed rule also outlined minimum information Treasury thought might be relevant and useful in considering whether to approve a proposed settlement. One comment was supportive of the proposed rule. Others, primarily representing or themselves insurers, believed the rule requested too much information which would be burdensome on insurers and cause substantial delay. Comments were received on the various items, some of which have resulted in some modifications, which are now discussed.

In careful consideration of the insurer's comments, Treasury has changed the section 50.83(d) of the final rule in the following ways in order to ensure that Treasury is preliminarily only seeking the minimum information required by Treasury:

• As explained earlier in the discussion of section 50.82(c)(1) (ensuring that the settlement is of an insured loss under the terms and conditions of the insurance policy), the final rule now adds a revised requirement at paragraph (d)(2) to 50.83, requiring a certification by the insurer that the settlement is for a third-party's loss, the liability for which is an insured loss under the terms and conditions of the underlying commercial property and casualty insurance policy. This revision is being made because Treasury needs less information since it will no longer be performing a complete review of the insurer's coverage analysis as part of the pre-approval process, as originally proposed;

• Paragraph (d)(4) of section 50.83 of the final rule now requires a statement from the insurer or its attorney in support of the settlement rather than a more onerous one recommending the settlement and requiring the basis for the recommendation;

• As explained earlier in the discussion of section 50.82(c)(4) and the proposed review of attorneys' fees and expenses, paragraph (d)(7) of section 50.83 of the final rule is revised to call for the amount to be paid out of the settlement proceeds that in turn will compensate professionals for their services and expenses related to the insured loss and/or settlement and the net amount to be received by the third-party claimant. In addition to conforming to the changes made to 50.82(c)(4), this paragraph now combines (and clarifies) section 50.82(d)(6) and (7) of the proposed rule;

• Relevant agreements called for in the proposed rule are now, under section 50.83(d)(10) of the final rule, only required to be submitted if requested by Treasury; and

• Paragraph (d)(12) of section 50.83 is clarified to assure insurers that Treasury will request and require only such other information that is related to the insured loss and that it deems necessary to evaluate the proposed settlement.

Treasury has decided not to adopt several of the other suggestions by the commenters, such as: Treasury receive the same information submitted to a claims officer who approves the settlement on behalf of the insurer; a statement of risks and disadvantages of settlement with an assessment of the strengths and weaknesses of the claim; and a disclosure whether coverage is disputed and other coverage issues. It was also suggested that the submissions for approval be verified under oath. For the reasons stated earlier, Treasury declines to adopt the suggestions except that, for the reasons stated earlier, it will require certification of the insurer's coverage determination under section 50.83(a)(2) of the final rule.

Finally, the ad hoc industry working group commented that the proposed rule did not include provisions to protect confidential or privileged information submitted to Treasury under section 50.83. Any issues relating to the protection or disclosure of confidential or privileged information are adequately addressed through the procedures and exceptions ( e.g. , exception (b)(4) and (5)) applicable under the Freedom of Information Act, 5 U.S.C. 552, and Treasury's FOIA regulations at 31 CFR part 1, subpart A. Insurers wishing to protect such information should follow those procedures, including labeling the information pursuant to those regulations.

Section 107(c) provides that the United States shall have the right of subrogation with respect to any payment or claim paid by the United States under the Act. In section 50.85 of the proposed rule, Treasury proposed a requirement that insurers take steps to preserve the Federal Government's rights of subrogation under section 107(c).

The ad hoc industry working group claimed that the requirement to preserve the subrogation rights of the United States conflicts with claims procedures rule that allows insurers to use business judgment in deciding whether to pursue subrogation opportunities. See Section 50.51(a). Treasury believes there is no conflict. Under the claims procedures rule, when an insurer pursues subrogation opportunities, the outcome inures to the benefit of the United States through an adjustment to the Federal share of compensation. As we stated at 60 FR 39296, 39300 (June 29, 2004), if an insurer decides to forego subrogation, the United States itself can pursue those opportunities. This does not conflict with section 50.84 of the final rule, which is designed to ensure that insurers do not waive subrogation rights and to prevent the very situation the working group identified when it stated, “waiver of subrogation rights often takes place in settlement.” Treasury is not changing the rule on the basis of this comment. Given the language in section 107, insurers are prohibited from negotiating away the Federal Government's subrogation rights.

The group of London-based insurers and reinsurers pointed out that the proposed rule required insurers to “take all steps necessary to preserve the subrogation rights of the United States.” The commenter explains that it is not clear what affirmative steps insurers must take to preserve these rights. The commenter suggested revising the rule to instead require that insurers avoid taking action that would prejudice the Federal Government's right of subrogation. Treasury is accepting this commenter's suggestion and is changing the language of section 50.84 accordingly.

Several commenters pointed out that the proposed rule does not address causes of action settled and/or paid after the occurrence of an event not yet, but later certified by the Secretary pursuant to section 102 of the Act as an “act of terrorism.” The comments raised issues that may warrant further study and consideration and Treasury has decided not to address this issue at this time.

The ad hoc industry working group raised the issue of the time it may take for the Secretary to certify an event as an act of terrorism pursuant to section 102 of the Act. As previously explained in the preamble to other regulations, Treasury believes it unwise and inappropriate to establish a set time frame within which the Secretary would be required to make a certification that an “act of terrorism” had occurred. See 68 FR 41250, 41252 (July 11, 2003). The ad hoc industry working group comment requested that Treasury promulgate a rule allowing for: (1) A “conditional” determination if the facts strongly lead to a conclusion of foreign or domestic involvement; or (2) a regulatory provision acknowledging the possibility of a delayed certification and urging state regulatory consideration of that possibility; or (3) qualified immunity where there is a delay in the certification process. Treasury declines to adopt these suggestions.

This rule is a significant regulatory action for purposes of Executive Order 12866, “Regulatory Planning and Review,” and has been reviewed by the Office of Management and Budget (OMB).

Pursuant to the Regulatory Flexibility Act, 5 U.S.C. 601 et seq. , it is hereby certified that this rule will not have a significant economic impact on a substantial number of small entities. Accordingly, a regulatory flexibility analysis is not required. The rule establishes requirements for advance approval of settlements when claims are to be submitted for insured losses. There is no impact on small insurers unless an act of terrorism occurs and federal compensation is sought by small insurers entitled to reimbursement for their insured losses. If an act of terrorism occurs and Federal payment is sought through a claim, the rule's impact on small insurers is likely to be minimal because most of the information that would have to be submitted in connection with Treasury approval of settlements largely duplicates information already contained in an insurer claim file or an attorney case file. Moreover, the $2 million and $10 million thresholds for the submission of settlements to Treasury for approval is likely further to minimize burdens on small insurers.

The collection of information contained in this rule has been approved by the OMB in accordance with the requirements of the Paperwork Reduction Act, 44 U.S.C. 3507(d) and assigned OMB Control Number 1505-0196. An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a valid control number assigned by OMB.

The collection of information is the notice of proposed settlement in section 50.83 that insurers must submit to implement the settlement approval process prescribed by section 50.82. The information will be used by Treasury to evaluate the reasonableness of proposed settlements in order to approve them in advance. The submission of specified information in connection with a proposed settlement is mandatory for any insurer that seeks payment of a Federal share of compensation.

The burden associated with this collection of information is estimated to be 4 hours with respect to each claim. Comments on the accuracy of this estimate and suggestions on how to reduce this burden should be sent to the Terrorism Risk Insurance Program, Room 2100, 1425 New York Avenue, NW., Washington, DC 20220 and to the Desk Officer for the Department of the Treasury, Office of Information and Regulatory Affairs, Office of Management and Budget, Washington, DC 20503.

The Individual Case Management Program (ICMP). Under the provisions of section 704(3) of the NDAA-93 [Pub. L. 102-484], 10 U.S.C. 1079(a)(17) was enacted which allowed the DoD to establish the ICMP, also known as the Individual Case Management Program for Persons with Extraordinary Conditions (ICMP-PEC). This allowed a reasonable deviation from the restrictive statutory coverage of health services for patients who had exceptionally serious, long-range, costly and incapacitating conditions. The ICMP was officially implemented in March 1999 as a waiver program that provided coverage for care and services that were normally restricted from coverage under the Basic Program. Specifically, when a beneficiary was determined to meet the TRICARE definition of custodial care, coverage under the Basic Program was limited to one hour of skilled nursing care per day, twelve physician visits per year related to the custodial condition, durable medical equipment and prescription medications. The Department recognized that the exclusion of coverage when a family member is deemed to be a custodial care patient is both a financial and emotional burden. Consequently, the Department used the ICMP/ICMP-PEC authority to cover medically necessary care and to enable TRICARE case managers to maximize available resources for these beneficiaries.

Repeal of the ICMP. Section 701(g) of the NDAA-02 repealed 10 U.S.C. 1079(a)(17), the statutory authority for the ICMP. However, section 701(d) allows the Department to continue to provide payment for home health care or custodial care services not otherwise authorized under the Basic Program as if the ICMP were still in effect. Payment may occur when a determination is made that discontinuation of payment would result in the provision of services inadequate to meet the needs of the eligible beneficiary and would be unjust to the beneficiary. Eligible beneficiaries are defined in section 701(d)(3) as covered beneficiaries who were regarded as custodial care patients under the ICMP/ICMP-PEC and received medically necessary skilled services for which the Secretary provided payment before December 28, 2001.

Custodial Care. Section 701(c) of the NDAA-02 provides a statutory definition of custodial care that is more consistent with other federal programs. The change also results in the narrowing of the statutory exclusions of custodial care that has the effect of eliminating current program restrictions on paying for certain medically necessary care.

Program for Persons with Disabilities (PFPWD). This program is now renamed the Extended Health Care Option (ECHO). The PFPWD was established by Congress in 1966 and was originally called the Program for the Handicapped (PFTH). The name was changed to PFPWD in 1997 to reflect the national shift away from the label of handicapped and in an effort to be more sensitive to our beneficiaries with special needs. The program was established to provide financial assistance for active duty family members who are moderately or severely mentally retarded or have a serious physical disability. The purpose of the program was to help defray the cost of services not available either through the Basic Program or through other public agencies as a result of state residency requirements. Section 701(b) of the NDAA-02 strikes 10 U.S.C. 1079(d), (e), and (f), which were the statutory authority for the PFPWD, and re-authorizes the program with new sub-sections (d), (e), and (f). These new sub-sections add an extraordinary physical or psychological condition as a qualifying condition and limits the requirement to use public facilities to the extent that they are available and adequate to certain benefits under sub-section (e). They also include discretion to increase the monthly Government cost-share for allowable services from a maximum of $1,000 per month and expand the benefit to allow for coverage of ECHO home health care and services beyond the Basic program. Section 701(e) also includes the discretion to allow coverage for custodial care and respite care.

Purpose. The primary purpose of the ECHO is to provide extended benefits to eligible beneficiaries that assist in the reduction of the disabling effects of an ECHO qualifying condition and that are not available through the Basic Program. Under 10 U.S.C. 1079(e), ECHO benefits may be provided only to the extent such service, supply or equipment is not a covered benefit under the Basic Program. This may include comprehensive health care services, including services necessary to maintain, minimize or prevent deterioration of, function of an eligible beneficiary.

Eligibility. Participation in the ECHO is voluntary and is available only for TRICARE-eligible family members of active duty service members who have a qualifying condition. Qualifying conditions are limited under 10 U.S.C. 1079(d)(3)(B) to beneficiaries who have

(a) Moderate or severe mental retardation; or

(b) A serious physical disability, as defined in 32 CFR 199.2; or

(c) An extraordinary physical or psychological condition, as defined in 32 CFR 199.2.

ECHO Benefits. ECHO benefits established herein include diagnostic procedures to establish a qualifying condition, inpatient, outpatient, and comprehensive home health care supplies and services, training, habilitative or rehabilitative services, special education, assistive technology devices, institutional care within a State when a residential environment is required, transportation under certain circumstances, certain other services such as assistive services of a qualified interpreter or translator for deaf or blind beneficiaries in conjunction with receipt of other allowed ECHO benefits, equipment adaptation and maintenance, and respite care, and ECHO home health care.

ECHO Respite Care. Under 10 U.S.C. 1079(e)(6), the Department may provide respite care under the ECHO program. Respite care is defined in 32 CFR 199.2 as short term care for a patient in order to provide rest and change for those who have been caring for the patient at home, usually the patient's family. DoD recognizes that caring for a special needs beneficiary poses special challenges, especially for active duty families. This rule establishes an ECHO benefit to provide a maximum of 16 hours per month of respite care. The respite care benefit is available for ECHO beneficiaries in any month during which the beneficiary receives ECHO benefits other than respite care under the ECHO Home Health Care benefit. Respite care services will be provided by a TRICARE-authorized home health agency and will provide health care services for the covered beneficiary, and not baby-sitting or child-care services for other members of the family. The benefit is not cumulative, that is, any respite care hours not used in one-month will not be carried over or banked for a subsequent month(s). The Government's cost-share incurred for the ECHO respite care services accrue to the ECHO maximum monthly benefit of $2,500.

Government Cost-share Liability for ECHO. The Government's monthly cost-share of all benefits provided to a beneficiary in a particular month under the PFPWD was statutorily limited to $1,000 by 10 U.S.C. 1079(e)(2). The Government's monthly cost-share of any benefits provided under ECHO is now statutorily limited to $2,500 by section 701(b) of the NDAA-02 (10 U.S.C. 1079(f)(2)(A)) for benefits related to training, rehabilitation, special education, assistive technology devices, and institutional care in private, non-profit, public, and state institutions and facilities, and if appropriate, transportation to and from such institutions and facilities. Because the NDAA-02 provided no statutory limitation concerning the amount of the Government's monthly cost-share for all other benefits under ECHO, the Department has discretion to determine the maximum monthly Government cost-share. Therefore, this rule increases the monthly Government cost-share from $1,000 to $2,500 for all benefits under ECHO, except for the new ECHO Home Health Care (EHHC) benefit as established herein. The primary reason for this increase is that the maximum government cost-share has not been adjusted since 1980. We will continue to review this issue to insure that the government's cost-share reasonably meets the needs of beneficiaries.

ECHO Home Health Care (EHHC). Under 10 U.S.C. 1079(e), extended benefits may be provided to eligible beneficiaries to the extent such benefits are not provided under provisions of chapter 55, title 10, United States Code, other than under this section. Under 10 U.S.C. 1079(e)(2), the ECHO may include “comprehensive home health care supplies and services which may include cost effective and medically appropriate services other than part-time or intermittent services (within the meaning of such terms as used in the second sentence of section 1861(m) of the Social Security Act).” Section 701(a) of the NDAA-02 requires home health care services under the Basic Program be provided in the manner and under the conditions described in section 1861(m) of the Social Security Act. Therefore, this rule establishes an ECHO Home Health Care (EHHC) benefit for qualifying beneficiaries.

EHHC Eligibility. To qualify for EHHC, the beneficiary must meet all general ECHO program eligibility requirements and must

(a) Physically reside within the 50 United States, the District of Columbia, Puerto Rico, the Virgin Islands, or Guam; and

(b) Be homebound, as defined in § 199.2 and as modified in this rule; and

(c) Require medically necessary skilled services that exceed the maximum level of coverage provided under the Basic Program's home health care benefit, or

(d) Require frequent interventions, other than skilled medical services, by the primary caregiver(s) (as “primary caregiver” is defined in § 199.2) such that EHHC services are necessary to allow primary caregiver(s) the opportunity to rest; and

(e) Be case managed (as “case management” is defined in § 199.2), including a periodic assessment of needs, and receive services as outlined in a written plan of care; and

(f) Receive home health care services from a TRICARE-authorized home health agency as described in § 199.6(b)(4)(xv).

EHHC Benefit. Covered TRICARE-authorized home health agency services are the same as, and provided under the same conditions as, those services provided under the TRICARE Basic Program under § 199.4(e)(21), with the exception that the EHHC benefit is not limited to part-time or intermittent home health care. Therefore, this rule sets out that TRICARE beneficiaries who are eligible for the ECHO and require home health care services beyond the coverage limits under the Basic Program will receive all home health care services under EHHC and no portion will be provided under the Basic Program.

EHHC Plan of Care. The level of ECHO home health care services authorized will be based on a written plan of care that supports the medical necessity of those services in excess of what can be authorized by the Basic Program, or, in the case of a beneficiary who requires frequent interventions, the need for EHHC in order to allow the primary caregiver(s) the opportunity to rest. The plan of care must include identification of the professional qualifications or skill level of the person required to provide the care. Reasonable justification for the medical necessity of the level of provider must be included in the plan of care, otherwise, reimbursement will not be authorized for that level of provider.

EHHC Respite Care. This rule establishes respite care within the EHHC benefit specifically tailored for families with a beneficiary who has a medical condition(s) that requires frequent interventions by the primary caregiver. For the purpose of this respite care, the term “frequent” means “more than two interventions during the eight-hour per day period that the primary caregiver would normally be sleeping.” The service performed during the interventions may have been taught to the primary caregiver by a medical professional, but the services performed by the primary caregiver are such that they can be performed safely and effectively by the average non-medical person without direct supervision of a licensed nurse or other health care provider. Therefore, when an eligible beneficiary's care plan reflects a need for frequent interventions by the primary caregiver, the beneficiary is eligible for EHHC respite care services in lieu of the ECHO respite care benefit. EHHC beneficiaries in this situation are eligible for eight hours per day for five (5) days per week of respite care by a TRICARE-authorized home health agency. The home health agency will provide health care services for the covered beneficiary so that the primary caregiver is relieved of his/her responsibility for providing such care for the duration of that period of respite care in order that the primary caregiver(s) may rest. The TRICARE-authorized home health agency will not provide baby-sitting or child care services for other members of the family. The benefit is not cumulative, that is, respite care hours not used in a given day will not be carried over or banked for use on another occasion. Also, EHHC respite care periods will not be provided consecutively, that is, a respite care period on one day will not be immediately followed by an EHHC respite care period the next day, thus prohibiting a continuous sixteen hour period of respite care. The government's cost-share incurred for these services accrue to the fiscal year maximum ECHO Home Health Care benefit.

Government Cost-share Liability for EHHC. TRICARE-authorized home health agencies who provide services under the Basic Program are reimbursed under § 199.14(h) using the same methods and rates as used under the Medicare home health agency prospective payment system under section 1895 of the Social Security Act (42 U.S.C. 1385fff) and 42 CFR part 484, subpart E, except for children under age ten and except as otherwise necessary to recognize distinct characteristics of TRICARE beneficiaries and as described in instructions issued by the Director, TRICARE Management Activity. However, the Medicare home health agency prospective payment system is designed to reimburse providers who provide part-time or intermittent services; it is not designed to reimburse providers for services that exceed those limits. Therefore, this rule set outs that the Department will reimburse home health agencies the allowable charges or negotiated rates. The maximum annual fiscal year cap for EHHC services is what the highest locally wage-adjusted maximum Medicare Resource Utilization Grouping (RUG-III) category cost to the Department would be if such services were provided in a TRICARE-authorized skilled nursing facility. ( See Federal Register 67 FR 40597, June 13, 2002, concerning the TRICARE Sub-Acute Care Program; Uniform Skilled Nursing Facility Benefit; Home Health Care Benefit; Adopting Medicare Payment Methods for Skilled Nursing Facilities and Home Health Care Providers). Because the highest RUG-III category is used to determine the EHHC fiscal year cap, the Department will not attempt to determine what RUG-III category would apply to the beneficiary if such beneficiary were in fact admitted for care into a TRICARE-authorized skilled nursing facility. The fiscal year cap will be recalculated each year following publication of the “Medicare Program; Prospective Payment System and Consolidated Billing for Skilled Nursing Facilities—Update; Notice”, or similar, by the Centers for Medicare and Medicaid Services in the Federal Register .

The maximum monthly Government cost-share to be paid to the home health agency for ECHO home health care will be the allowable charges or negotiated rates, but in no case will such payment exceed one-twelfth of the fiscal year cap calculated as above.

When EHHC beneficiaries move within the 50 United States, the District of Columbia, Puerto Rico, the Virgin Islands, or Guam, the annual fiscal year cap will be recalculated as above to reflect the correct wage-adjusted maximum RUG-III category cost for the beneficiary's new location and will apply for the remaining portion of that fiscal year.

EHHC Reimbursement. A TRICARE-authorized home health agency must bill for all authorized ECHO home health care services through established TRICARE claims mechanisms. No special billing arrangements will be authorized in coordination with coverage that may be provided by Medicaid (subject to any State Agency Billing Agreements), or other Federal, State, community or private programs.

For authorized ECHO home health care and respite care, TRICARE will reimburse the allowable charges or negotiated rates.

Beneficiary Cost-share Liability for ECHO, including EHHC. Under 10 U.S.C. 1079(f), members are required to share in the cost of any benefits provided to their dependents under ECHO. ECHO benefits are not subject to a deductible amount. Regardless of the number of ECHO eligible family members, the sponsor's monthly cost-share for allowed ECHO benefits is based upon the rank of the uniformed service member. Under 10 U.S.C. 1079(f)(1)(A), members with a rank of E-1 are required to pay the first $25 incurred per month, and members with a rank of O-10 are required to pay the first $250 incurred per month. This rules sets out the cost-share for members with ranks in-between such that the majority will pay less than $100 per month, with the most senior enlisted member paying less than $50 per month.

Sponsor rank-based cost-sharing (refer to Table 1, 32 CFR 199.5) applies to benefits covered by the ECHO and these cost-shares do not apply toward the Basic Program's catastrophic cap under 10 U.S.C. 1079(b)(5). Also, the waiver of cost-shares for active duty family members enrolled in TRICARE Prime does not apply to ECHO as the statutory basis for the ECHO program and its cost-shares is separate and distinct from the Basic Program, including TRICARE Prime.

Other Requirements. Other ECHO requirements are as follows:

Registration. Sec 701(b) of the NDAA-02 (10 U.S.C. 1079(d)(1)) requires registration to receive ECHO benefits. Sponsors of potentially qualifying beneficiaries will seek to register their family member(s) for ECHO benefits through the applicable Managed Care Support Contractor (MCSC). The MCSC will determine eligibility and update the Defense Enrollment Eligibility Reporting System (DEERS) to reflect the beneficiary's ECHO eligibility. No ECHO benefits may be authorized unless the beneficiary is registered in DEERS as ECHO-eligible.

EFMP Enrollment. Each of the Military Services has its own Exceptional Family Member Program (EFMP). Although the EFMPs can interface with the Military Health System, they are actually military personnel programs. The purpose of those programs is to require military personnel offices to evaluate the ability of a military and civilian community to provide appropriate medical and/or educational services to service members' dependents who have special medical or educational needs before the Service re-assigns the member to a new location. Although each Service requires its members who have family members with special needs to enroll in the EFMP, some members do not comply with this requirement. The result is that some members arrive at assignment locations that are unable to accommodate the special medical and/or educational needs of their dependent(s). Dependents of members required to be enrolled in EFMP are similar if not identical to those who qualify for the ECHO program. The Services do not routinely provide EFMP enrollments to TRICARE, therefore, to provide a greater degree of coordination of services for TRICARE beneficiaries, this rules sets out that members will be required to provide evidence they are enrolled in their Services' Exceptional Family Member Program when registering for ECHO benefits. This requirement will enhance the probability that personnel are assigned to locations where there are sufficient qualified individual or institutional providers to provide the ECHO benefit to their dependents.

Use of Public Facilities. For ECHO benefits related to training, rehabilitation, special education, assistive technology devices, and institutional care in private, non-profit, public, and state institutions and facilities, and if appropriate, transportation to and from such institutions and facilitates, the statute expressly requires use of public facilities to be the extent such facilities are available and adequate as determined under this regulation.

We provided a 60-day public comment period following publication of the Proposed Rule in the Federal Register at 68 FR 46526 on August 6, 2003. Two individuals provided several comments, summarized below.

Comment: The first commentor questioned the Department's decision regarding where the ECHO, in particular ECHO Home Health Care and respite care, will be available.

Response: The ECHO will generally be available wherever there are TRICARE beneficiaries eligible for the ECHO and appropriate TRICARE-authorized providers.

The focus of the ECHO Home Health Care benefit is to provide ECHO beneficiaries with the same benefit structure as provided by the Basic Program's Home Health Agency Prospective Payment System (HHA-PPS) but without its limitation that the services be provided on a “part-time or intermittent” basis. In order to assure the quality of care for TRICARE beneficiaries, the HHA-PPS provides that only Medicare-authorized Home Health Agencies are eligible for designation as TRICARE-authorized providers. Likewise, the Department also elected to utilize those same home health agencies to provide the ECHO respite care. Consequently, ECHO respite care and the ECHO Home Health Care benefits are limited to locations where there are Medicare-authorized home health agencies. Currently that is limited to the 50 United States, the District of Columbia, Puerto Rico, the Virgin Islands, and Guam.

Comment: That commentor also remarked about the cost of transportation to receive ECHO-authorized benefits.

Response: This rule sets out that costs for public and private transportation necessary to receive authorized ECHO benefits will be reimbursed subject to the limits herein.

Comment: The second commentor requested the Department provide the ECHO respite care benefit to multiple TRICARE beneficiaries within group settings, such as a day care center, and prorate the allowable cost among those receiving the respite care.

Response: The Department has identified several issues regarding the comment. First, other than when allowed by specific exceptions to its policies, TRICARE professional outpatient benefits are provided one-on-one, that is, one patient with one provider per episode of care. Consequently, there is no general provision for “group” type episodes-of-care or settings.

Second, the regulatory language at 32 CFR 199.2 defines respite care as “ * * * short-term care for a patient in order to provide rest and change for those who have been caring for the patient at home, usually the patient's family.” Although there is no statutory restriction on where respite care services are provided, it is the Department's decision that such care be provided in the beneficiary's primary residence.

Last, as set out in this rule, both the ECHO respite care and the ECHO Home Health Care respite care benefits will be provided by TRICARE-authorized home health agencies. These providers will be reimbursed on the basis of allowable charges or negotiated rates, neither of which provides pro-rated assignment of TRICARE benefits nor pro-rated payments based on multiple TRICARE beneficiaries receiving care in a group setting.

The following modifications were made as a result of developing the implementing instructions:

(1) We clarified that TRICARE reimbursement for ECHO home health care and respite care will be the allowable charges or negotiated rates.

Executive Order 12866 requires that a comprehensive regulatory impact analysis be performed on any economically significant regulatory action, defined as one that would result in an annual effect of $100 million or more on the national economy or which would have other substantial impacts. The Regulatory Flexibility Act (RFA) requires that each Federal agency prepare, and make available for public comment, a regulatory flexibility analysis when the agency issues a regulation which would have a significant impact on a substantial number of small entities. This rule is not an economically significant regulatory action and will not have a significant impact on a substantial number of small entities for purposes of the RFA. This rule, although not economically significant under Executive Order 12866, is a significant rule under Executive order 12866 and has been reviewed by the Office of Management and Budget.

This rule will not impose additional information collection requirements on the public under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3511). Existing DoD information systems to include the Defense Enrollment Eligibility Reporting System (DEERS) will be upgraded to reflect ECHO registration.

The Nonindigenous Aquatic Nuisance Prevention and Control Act of 1990 (NANPCA) [Pub. L. 101-646], enacted by Congress on November 29, 1990, established the Coast Guard's regulatory jurisdiction over ballast water management (BWM). To fulfill the directives of NANPCA, the Coast Guard published a final rule on April 8, 1993, titled “Ballast Water Management for Vessels Entering the Great Lakes” in the Federal Register (58 FR 18330). This rule established mandatory BWM procedures for vessels entering the Great Lakes in 33 CFR part 151, subpart C.

A subsequent final rule titled “Ballast Water Management for Vessels Entering the Hudson River” was published on December 30, 1994, in the Federal Register (59 FR 67632). This final rule amended 33 CFR part 151 to extend the BWM requirements into portions of the Hudson River.

The National Invasive Species Act (NISA) [Pub. L. 104-332] enacted by Congress on October 26, 1996, reauthorized and amended NANPCA. NISA reemphasized the significant role of ships' ballast water in the introduction and spread of nonindigenous species (NIS). NISA authorized the Coast Guard to develop a voluntary national BWM program and mandated the submission of reporting forms without penalty provisions. On May 17, 1999, the Coast Guard published an interim rule on this voluntary program titled, “Implementation of the National Invasive Species Act of 1996 (NISA)” (64 FR 26672) and finalized the rule on November 21, 2001 (66 FR 5838).

NISA also instructed the Secretary of the Department in which the Coast Guard is operating (the Coast Guard was operating under the Department of Transportation when NISA was enacted) to submit a Report to Congress evaluating the effectiveness of the voluntary BWM program. Congress anticipated that the Secretary might determine that either compliance with the voluntary guidelines was inadequate, or the rate of reporting was too low to allow for a valid assessment of compliance. In either case, Congress stipulated the development of additional regulations to make the voluntary guidelines a mandatory BWM program. The Secretary's Report to Congress, signed June 3, 2002, concluded that compliance with the voluntary guidelines, found in 33 CFR part 151, subpart D, was insufficient to allow for an accurate assessment of the voluntary BWM regime. Accordingly, the Secretary stated his intention to make the voluntary BWM guidelines mandatory. A copy of this Report to Congress can be found in the public docket (USCG-2002-13147) at http://dms.dot.gov.

On June 14, 2004 (69 FR 32864), we published a final rule titled “Penalties for Non-submission of Ballast Water Management Reports” that implemented penalties for failure to comply with the mandatory requirements found in 33 CFR part 151 and widened the applicability of the reporting and recordkeeping requirements to all vessels bound for ports or places within the U.S., with minor exceptions.

On July 30, 2003, we published a notice of proposed rulemaking titled “Mandatory Ballast Water Management Program for U.S. Waters” in the Federal Register (68 FR 44691). We received 38 letters commenting on the proposed rule. No public meeting was held on this rulemaking.

As directed by NISA and as stated in the Secretary of Transportation's Report to Congress in June 2002, the Coast Guard has determined that the voluntary BWM program is inadequate because sufficient compliance has not occurred. Therefore, as of the effective date of this rule, the Coast Guard has converted the voluntary BWM program into a mandatory program. This rule will increase the Coast Guard's ability to protect against introductions of NIS via ballast water discharges.

On March 1, 2003, the Coast Guard became a component of the Department of Homeland Security. As a result, the Secretary of the Department of Homeland Security assumed all duties once bestowed on the Secretary of the Department of Transportation with respect to this rule. The Secretary of Homeland Security concurs with the Coast Guard's rule regarding the mandatory BWM program.

This final rule revises 33 CFR part 151, subpart D, by requiring a mandatory BWM program for all vessels equipped with ballast water tanks bound for ports or places within the U.S. and/or entering U.S. waters. The mandatory BWM requirements for vessels entering the Great Lakes and Hudson River from outside the U.S. Exclusive Economic Zone (EEZ) remain unchanged.

The mandatory program requires all vessels equipped with ballast water tanks entering U.S. waters after operating beyond the EEZ to employ at least one of the following BWM practices:

(a) Prior to discharging ballast water in U.S. waters, perform complete ballast water exchange in an area no less than 200 nautical miles (nm) from any shore.

(b) Retain ballast water onboard the vessel.

(c) Prior to the vessel entering U.S. waters, use an alternative environmentally sound method of BWM that has been approved by the Coast Guard.

Although the national mandatory BWM program provides vessels with the option of using one of three BWM practices, ballast water exchange is likely to be the most used practice because—

• Some vessels engaged in trade are unlikely to hold their ballast water after arriving in U.S. waters from outside the EEZ, as this would mean they would not be able to conduct cargo operations;

• Alternative environmentally sound methods of BWM are still being developed and will likely be of limited availability in the near future; and

Therefore, under this rule, the BWM practice of conducting mid-ocean ballast water exchange prior to discharging ballast water in U.S. waters will be the practice used by the majority of vessels at this time.

Mid-ocean ballast water exchange is currently the most practicable method to help prevent the introductions of NIS into U.S. waters. Water in the open ocean contains certain physical, chemical, and biological conditions (such as high salinity). Organisms contained in ballast water that is exchanged in mid-ocean will not, or are unlikely to survive in an open ocean system. Likewise organisms that are contained in ballast water after a mid-ocean exchange is conducted will not, or are unlikely to survive if introduced into a freshwater or coastal system.

As mid-ocean ballast water exchange will be the most likely used BWM practice at this time, there are those vessels with voyage and/or safety concerns that will not be able to conduct ballast water exchange. Voyage and/or safety concerns may include security concerns since these issues have increased significantly due to recent events. NISA requires us to take into consideration different operating conditions in developing the mandatory BWM program. Therefore, a vessel that cannot practicably meet the requirements of paragraph (a) above due to a voyage that does not take it into waters at least 200 nm from any shore for a sufficient length of time or due to safety concerns will retain its ballast onboard. The vessel will not be prohibited from discharging the minimum amount of its ballast water necessary to maintain the safety of the vessel in areas other than the Great Lakes and the Hudson River. However, the vessel must discharge only the amount of ballast water operationally necessary for safety concerns. An entry must be made in the ballast water records supporting the reasons that the vessel could not comply with the regulatory requirements. Ballast water records must be made available to the local Captain of the Port (COTP) upon request.

This final rule also revises the criteria for a mid-ocean exchange by removing the constraints of exchanging ballast water in waters at a depth of 2,000 meters. Currently, there is no international consensus on a water-depth criterion for ballast water exchange. For example, Australian legislation has a depth requirement of 200 meters, and Israel's ballast water exchange requirement has no depth restriction, while the International Maritime Organization (IMO) Convention for the Control and Management of Ship's Ballast Water and Sediments, recently adopted on February 9, 2004, has a criterion of 200 meters. As there is no international consensus to mid-ocean ballast water exchange criteria, at this time, we believe defining mid-ocean ballast water exchange as taking place at least 200 nm from shore allows more vessels to conduct exchange and simplifies enforceability.

The Coast Guard recognizes that there are two currently feasible methods of conducting an exchange:

• An empty/refill exchange. The tank (or pair of tanks) is pumped down to the point where the pumps lose suction, and then the tank is pumped back up to the original level.

• A flow-through exchange. Mid-ocean water is pumped into a full tank while the existing coastal or fresh water is pumped or pushed out through another opening. As defined by the Coast Guard, a volume of water equal to three times the ballast tank capacity must be pumped for a flow-through exchange.

Failure to employ at least one of the BWM practices outlined above will result in a penalty, unless the vessel is exempt due to safety or voyage constraints or specifically exempted from the regulation.

Each vessel subject to this rule (33 CFR part 151 subpart D) will be required to develop and maintain a BWM plan. The plan shall be specific to each vessel and shall fulfill two purposes: (1) Show that there is a BWM strategy for the vessel; and (2) allow any master, or other ship's officer as appropriate, serving on that vessel to understand and follow the BWM strategy for the vessel. The IMO has issued guidelines on the content of BWM plans in IMO Resolution A.868(20) Annex 1, Chapter 7. Any plan meeting these IMO guidelines will meet the regulatory requirement laid out in § 151.2035(a)(7). This Resolution is available on the IMO's Global Ballast Water Management Programme Web site [ http://globallast.imo.org ]. For your reference, we have also placed a copy of the IMO guidelines in the docket for this rule at the location listed above under ADDRESSES. Failure to maintain a BWM plan onboard the vessel or to make the required ballast water reporting forms available will result in penalties.

We received 38 letters on the proposed rulemaking for BWM. Most letters contained more than one comment. These included general comments as well as specific comments. We address the general comments first and then the specific comments.

We received 16 comments in general support of the rule. One of these commenters supported the requirement that vessels must maintain BWM plans and that they should be modeled after IMO guidelines. One commenter supported the provisions of the rule that would not require vessels to deviate from their voyages or delay their voyages in order to conduct ballast water exchange.

One commenter stated that effective BWM and reporting are critical to maintaining the ecological and economic well being of coastal Alaska.

Three commenters stated that the U.S. mandatory BWM program should be consistent with IMO guidelines and supported our removal of the depth requirement for conducting ballast water exchange. One commenter stated that the Coast Guard did not adequately explain why ballast water exchange is acceptable in waters less than 2,000 meters deep.

We agree with the commenters. We have developed the BWM program to be as consistent with IMO guidelines as practicable. For example, and as recognized by the commenters, under the voluntary BWM program, we requested that ballast water exchange take place in an area 200 nm from shore and at a depth of 2,000 meters. To be consistent with IMO guidelines, we modified the mandatory program to require that ballast water exchange take place 200 nm from shore, without regard to water depth. We believe this harmonization will help vessel operators that must follow both IMO guidelines and U.S. requirements. As stated in the proposed rulemaking (68 FR 44691), there is not consensus on water depth criterion for ballast water exchange. Because there is no scientific consensus on a specific water depth that is suitable for exchange, and for the reasons stated above, we aligned our requirements with IMO guidelines.

One commenter stated that there should be no vessels exempt from the mandatory BWM program.

We disagree with the commenter. NISA authorizes specific exemptions for crude oil tankers engaged in coastwise trade and Department of Defense and Coast Guard vessels. Therefore, we do not currently have the authority to include these vessels in the applicability for the final rule.

One commenter requested that the Coast Guard host a public meeting on the Programmatic Environmental Assessment (PEA).

The Coast Guard does not intend to hold a public meeting for the PEA. We believe that the comment period provided ample opportunity for the public to suggest other alternatives to the one examined in the PEA.

Two commenters stated that there should be a publicly accessible database for nationwide ballast water discharges.

National ballast water discharge data is publicly available and can be found at the Web site for the National Ballast Information Clearinghouse at http://invasions.si.edu/NBIC/ballast.html.

One commenter asked if vessels discharging ballast water should be regulated under the Environmental Protection Agency's (EPA) National Pollution Discharge Elimination System (NPDES) Program.

This comment was the subject of a petition submitted to EPA on January 13, 1999. EPA responded to this petition on September 9, 2003 to comply with a court order (68 FR 53165). The Coast Guard opined, during the legal proceedings, that regulation of vessels discharging ballast water should remain under the authority of the Coast Guard. EPA, for the reasons set out in its September 9, 2003, petition denial, does not regulate vessels discharging ballast water under the NPDES program.

One commenter asked if the Coast Guard would identify “high-risk vessels” and if we would encourage their owners to install ballast water treatment systems. This commenter also asked if the Coast Guard has funding to conduct research onboard vessels.

The Coast Guard does not have the ability to identify “high-risk vessels” with respect to NIS, nor have we defined this term in our regulations. Further, the Coast Guard does not have funding to conduct research onboard vessels; however, we have developed a Shipboard Technology Evaluation Program (STEP) that encourages owners to install and test various technologies for ballast water treatment. This program was established in January 2004, through a Navigation and Inspection Circular (NVIC 01-04) and announced in a Notice of Availability published in the Federal Register on January 7, 2004 (69 FR 1082).

One commenter asked how the Coast Guard, in conjunction with EPA and the States, will develop education and outreach programs for BWM.

We intend to develop guidance regarding BWM procedures and recommended practices. This guidance will take into account coordination with EPA and other Federal and State agencies. Additionally, class societies and IMO have published guidance on best practices and procedures for BWM that is specific to ship type.

One commenter stated there has been a misunderstanding among mariners on what constitutes a “full exchange.”

As defined in § 151.2025, there are two methods of exchange, either “flow through” or “empty/refill.” Both exchange methods, as defined in this section, describe what constitutes a full exchange. A “full exchange” using the “flow through” method means that three full tank volumes of water have been exchanged. A “full exchange” using the “empty/refill” method means that the ballast tanks are pumped down to the point where the pumps lose suction, and the tank is then refilled to the original level.

One commenter suggested we revise § 151.2030 to remove the distinction between U.S. waters and the Great Lakes. Another commenter stated that the national BWM program should be the same as the program on the Great Lakes.

We agree with these comments; however, the intent of this rule is simply to convert the voluntary national guidelines for BWM to a mandatory, national program. We intend to merge the Great Lakes program and the national program into a single program in a future rulemaking.

One commenter stated that § 151.2037 is not enforceable and is inconsistent with § 151.2035(b) and recommended removing the term “voyage concerns.”

We disagree with this comment. If a vessel cannot comply with § 151.2035(b) because of “voyage concerns,” that vessel is responsible for documenting this action. If there is no documentation, the Coast Guard will assess a monetary penalty for failing to comply with § 151.2037.

One commenter stated that a minimum ballast water transfer quantity or capacity should be established and that BWM or reporting should not be required for volumes below these amounts.

We disagree with the commenter. As directed by NISA, we are required to analyze BWM operations for vessels, regardless of a vessel's ballast capacity or volume of ballast water carried on any particular voyage. Therefore, we are not establishing a minimum quantity or capacity requirement.

One commenter requested clarification on what is expected of vessels in innocent passage in terms of compliance with the rule.

As stated in § 151.2015 titled “Is a vessel in innocent passage exempt from the mandatory requirements?” vessels merely traversing the territorial seas of the U.S. ( i.e. , not entering or departing a U.S. port, or not navigating the internal waters of the U.S.) are exempt from the requirements of 33 CFR part 151. Vessels merely traversing the territorial seas of the U.S. would be considered engaged in “innocent passage.”

One commenter requested clarification on the definition of “waters of the U.S.,” asking if the term means “territorial waters” (12 nm from shore) or the U.S. EEZ (200 nm from shore).

“Waters of the U.S.,” as stated in 33 CFR 151.2025, means waters subject to the jurisdiction of the United States as defined in 33 CFR 2.05-30, including the navigable waters of the United States. For this regulation, the navigable waters include the territorial sea as extended to 12 nautical miles from the baseline, pursuant to Presidential Proclamation No. 5928 of December 27, 1988. We are revising that definition to correct the citation from 33 CFR 2.05-30 to 33 CFR 2.38.

One commenter requested clarification on distance and depth requirements for ballast water exchange.

As stated in § 151.2035(b)(1), ballast water exchange must be performed in an area no less than 200 nm from any shore. Neither the proposed rulemaking nor the final rule for mandatory BWM contains a depth requirement for ballast water exchange.

Two commenters requested clarification for the term “discharge only the amount operationally necessary.”

This term was intended to allow vessel operators some flexibility in their cargo operations and BWM practices, while protecting the receiving environment to the extent practicable. If ballast water exchange has not been conducted prior to entering U.S. waters, and a vessel operator must conduct cargo operations in a U.S. port, the operator may release the amount of ballast water necessary to conduct safe cargo operations. The vessel operator must make a note of the discharge into the U.S. port on the ballast water reporting form.

Four commenters expressed concern regarding the breadth of these regulations. Two commenters stated concern that some vessels are exempt from conducting ballast water exchange due to voyage constraints and suggested that these vessels employ alternative BWM methods. Two commenters stated that ballast water exchange is not an “effective solution” and should not be the “default solution.” The Coast Guard should instead focus on a “zero discharge” standard.

We understand that ballast water exchange is not the final answer in preventing the introduction of NIS. Currently, there are no alternative BWM methods to ballast water exchange that have been approved by the Coast Guard. We are exploring environmentally sound alternative BWM methods that are at least as effective as ballast water exchange and intend to approve those methods that meet the above criteria in the future. We are not mandating the use of alternative methods in this final rule. Additionally, the Coast Guard intends to establish ballast water discharge standards that prevent the introduction of NIS and are both environmentally protective and economically feasible. As described in the Notice of Intent for our Programmatic Environmental Impact Statement (68 FR 55559), one of the alternatives under consideration would “result in the discharge of no detectable viable organisms larger than 0.1 microns,” which is, in essence, a “zero discharge” alternative.

One commenter stated that it is premature to establish a mandatory BWM program without first establishing ballast water discharge standards.

We disagree with this commenter. The intent of this final rule is to convert the voluntary BWM program to a mandatory program if we deemed the voluntary BWM program inadequate, as required by NISA. We believe it is inefficient to develop discharge standards without first having an overarching BWM program in place. The Coast Guard is in the process of establishing ballast water discharge standards and evaluating shipboard treatment technologies that could be employed to meet these standards. Ballast water discharge standards will be the subject of a future rulemaking.

Three commenters stated that the mandatory BWM program does not address vessels with no ballast on board (NOBOBs) and that ballast water exchange is not a final answer to preventing the introduction of NIS.

While our final rule for mandatory BWM does not address NOBOBs, we believe that addressing these vessels is an important factor in the prevention of NIS introductions. As a first step, the Coast Guard now requires NOBOBs to submit ballast water reporting forms, as stated in the final rule titled “Penalties for Non-submission of Ballast Water Management Reports” published on June 14, 2004 (69 FR 32864). We will continue to explore the issue of NOBOBs entering U.S. waters, and these vessels may be included in a future rulemaking.

One commenter suggested removing the term “voluntary guidelines” in § 151.2015 and replacing it with “mandatory program.”

We agree with the commenter and have amended § 151.2015 to reflect this change.

Three commenters suggested that the definition of ballast water tanks be clarified.

We have added the definition for “ballast tank,” currently found in § 151.1504 (151 subpart C) to § 151.2025 (151 subpart D). This definition will help clarify which vessels must comply with the rule.

One commenter recommended that language regarding the BWM plan in § 151.2035(a)(7) should be changed from “ship's officer” to “those responsible for its implementation.”

We agree with the commenter and have amended § 151.2035(a)(7) to clarify the specificity needed in the BWM plan.

One commenter recommended that language in § 151.2035(b)(4) should state that reception facilities be approved by the Coast Guard for receipt and treatment of ballast water.

We disagree with the commenter. The Coast Guard does not currently have the statutory authority to approve reception facilities; therefore adding the language requested by the commenter would be inappropriate. In order to eliminate the confusion created by this provision, and for the reasons discussed in greater detail in the “Environment” section, below, we are deleting § 151.2035(b)(4).

Two commenters recommended that the Coast Guard, in consultation with Canada and IMO, adopt a single set of national or regional ballast water exchange zones along the West Coast to address concerns regarding coastwise voyages. An additional ten commenters asked the Coast Guard to adopt regulations addressing coastwise trade and recommended that we convene a panel of experts to develop alternative ballast water exchange zones within the EEZ.

The final rule does not address coastwise trade because vessels on these voyages cannot conduct a mid-ocean ballast water exchange, due to the fact that they do not travel outside 200 nm of any shore. The Coast Guard is examining the possibility of establishing alternative ballast water exchange zones. As part of this effort, we participated in a workshop for alternative ballast water exchange zones in October 2003, and believe the ideas exchanged at this and future workshops could provide a sound, scientific basis for establishing ballast water exchange zones within the EEZ.

One commenter stated that vessels engaged in coastwise trade should be required to submit ballast water reporting forms.

We agree. As stated in the final rule titled “Penalties for Non-submission of Ballast Water Management Reports” (69 FR 32864), as of August 13, 2004, these vessels are required to submit ballast water reporting forms.

One commenter stated that vessels on domestic voyages that do not conduct ballast water operations outside the EEZ should be exempt from this rule.

We agree and as stated in § 151.2005(b), only those vessels equipped with ballast tanks that enter U.S. waters from beyond the EEZ must conduct BWM, with the exception of those vessels exempted in §§ 151.2010 and 151.2015.

Four commenters asked the Coast Guard to recognize the uniqueness of domestic barges and towing operations by accepting different approaches to ballast water management.

The Coast Guard appreciates the uniqueness of all types of vessels. However, if a barge or tug vessel operates outside the EEZ, it will be required to conduct ballast water management, unless it meets the requirements under § 151.2037.

Three commenters asked the Coast Guard to exempt inland towing vessels and barges from BWM requirements, as they are not equipped with ballast water tanks.

We disagree. Inland towing vessels and barges may be covered even if they are not equipped with ballast water tanks. As stated in the definition for “ballast tank,” any vessel that carries ballast water must comply with these regulations. NISA, while allowing for exemptions from BWM, mandates that the BWM program be based on the best scientific information possible. We do not currently have information that would allow us to make specific exemptions for inland towing vessels and barges. We note, however, that those inland towing vessels and barges that never carry ballast water do not fall within the applicability section of this regulation; therefore, no specific exemption is needed. Additionally, vessels that do not transit outside the EEZ, such as most inland towing vessels and barges, are not subject to mandatory BWM requirements.

Four commenters asked the Coast Guard not to require BWM plans for barges and towing vessels that operate within the EEZ. One of these commenters also asked the Coast Guard to provide a template to assist them in developing their plans.

We believe that if towing vessels and barges are equipped with ballast water tanks or use other tanks to ballast and deballast water, these vessels will be required to maintain a BWM plan specific to those vessels. At this time, the Coast Guard does not intend to develop a template for a BWM plan. We recommend that these vessels seek assistance from their class societies or maritime associations. We also suggest that vessel owners refer to IMO guidelines for IMO Resolution A.868(20) Annex 1, which are available in the public docket for this rule.

We received four comments regarding the ballast water reporting form. Two commenters asked the Coast Guard to develop a new ballast water reporting form specific to barges and towing vessels. One commenter expressed concern with the ballast water reporting form. One commenter recommended that the ballast water reporting form include a listing of all locations where ballast water was discharged.

Comments regarding the ballast water reporting form were addressed in the Discussion of Comments section of the final rule for “Penalties for Non-submission of Ballast Water Reporting Forms” [69 FR 32864]. At this time we do not intend to develop a ballast water reporting form that is specific to barges and towing vessels; however, we are exploring a potential redesign of the reporting form. Additionally, we wish to note that the locations of all ballast water discharges are already part of the ballast water reporting form. Operators are required to log the coordinates (latitude/longitude) or port where the ballast water was discharged. Ballast water sources are required to be similarly reported on the form.

Two commenters asked the Coast Guard to allow tug and barge operators that carry ballast water and serve domestic coastwise trade to submit reports every 30 days, rather than 24 hours prior to arrival at the first U.S. port. These commenters argued that monthly reporting would ease the administrative burden on the vessel operator.

We disagree with this comment. To change the submission requirements of ballast water reports for tugs and barges from 24 hours to 30 days would delay the accounting of BWM practices, thus denying the Coast Guard the means of enforcing compliance with mandatory ballast water reporting requirements. If the operators of these vessels know their destinations in advance, they may submit multiple reports of their BWM practices to the Coast Guard prior to their arrival.

One commenter stated that coastwise barges will be unable to comply with § 151.2035(b)(1 through 3) because it is “unsafe” for barges to conduct ballast water operations in the open sea.

As previously stated, vessels engaged in coastwise trade will not be expected to conduct mandatory BWM under this final rule. Additionally, § 151.2037 states that a vessel that cannot meet the requirements of § 151.2035(b)(1-3) because of safety concerns will not be prohibited from discharging ballast water in areas other than the Great Lakes and Hudson River; however, the vessel must discharge only that amount that is operationally necessary and make ballast water records available to the local COTP upon request.

Three commenters asked how the Coast Guard would ensure that a vessel has conducted BWM.

The vessel owner or operator must maintain accurate copies of the ballast water records onboard the vessel as required by 33 CFR 151.2045 and the forms must be readily available upon request. Additionally, we will use the ballast water reporting forms that must be submitted in advance of a vessel arriving at a U.S. port as required by 33 CFR 151.2040 to verify and ensure that the vessel has conducted BWM. We are actively pursuing ballast water exchange verification technologies, and when these technologies are available, we will employ them as appropriate.

One commenter requested a discussion on penalties, including failure to keep required records, failure to record why BWM was not conducted, and the range of potential penalties for these violations.

We addressed penalties for violations of BWM and non-submission of reporting forms at length in the preamble to the final rule titled “Penalties for Non-submission of Ballast Water Reporting Forms” [69 FR 32864].

Two commenters raised issues regarding penalties. One commenter asked if monetary penalties for violating these regulations would be based on a flat fee or a weighted fee based on ship size or amount of ballast water. One commenter asked that the Coast Guard assess penalties that deter inaccurate reporting or failure to report ballast water discharge information.

Monetary civil penalties associated with violations of this rule will not be based on a flat fee or based on ship size or ballast water amount. Penalties for failure to comply with any of the BWM regulations, including reporting requirements, will be assessed on a case-by-case basis. We have the discretion to issue a penalty of up to $27,500, depending on the facts of each individual case, and each day is considered a separate violation, pursuant to NISA.

One commenter urged the Coast Guard to use the existing Port State Control (PSC) program to enforce the BWM program.

We partially agree with the commenter. BWM reports will not be considered in the “scoring matrix” used to prioritize boardings and inspections under the Coast Guard's PSC program at this time. However, inspectors boarding vessels that arrive in U.S. ports may ask for any documentation regarding a vessel's BWM practices during the inspection process. Inspectors may also target specific vessels if they believe these vessels are not in compliance with the mandatory BWM provisions. As a result, BWM maybe become a future part of PSC. We intend to publish a NVIC that describes our intended enforcement activities for BWM. The NVIC will be available to all interested stakeholders through their local COTP or the Office of Operating and Environmental Standards at http://www.uscg.mil/hq/gm/mso/index.html.

One commenter recommended that a fund be established from noncompliance fees to remediate ballast water-related impact areas.

We think this type of program is a novel concept; however, the Coast Guard does not currently have the authority to establish or administer such a program.

Five commenters stated that establishing ballast water discharge standards should be a priority for the Coast Guard.

We agree with commenters; however, ballast water discharge standards will be addressed in a future rulemaking.

One commenter stated that vessels on voyages outside the EEZ that do not perform any ballasting operations while outside the EEZ should not have to submit a ballast water reporting form.

We disagree with the commenter. As stated in the final rule titled “Penalties for Non-submission of Ballast Water Management” [69 FR 32864], vessels are required to submit a ballast water reporting form if they transit within U.S. waters, regardless of where they operate, with minor exceptions, such as a vessel in innocent passage.

Two commenters stated that the rule does not give any consideration to the National Aquatic Invasive Species Act (NAISA).

While introduced into Congress, NAISA has not yet been enacted. We will monitor NAISA's progress through Congress, but will not begin implementing any portions of the Act before it becomes law.

One commenter stated that the Coast Guard's highest priority should be establishing an experimental technology approval program.

On January 7, 2004, the Coast Guard published NVIC 01-04, as announced in the Federal Register (69 FR 1082), describing the STEP application process. We are actively reviewing and providing feedback on all applications received to date.

One commenter recommended that the Coast Guard consider a specific treatment technology.

The Coast Guard cannot recommend specific technologies without first evaluating their effectiveness and environmental soundness. We encourage any parties that believe they have shipboard technologies to prevent the introduction of NIS to participate in the Coast Guard's STEP.

One commenter suggested that the Coast Guard encourage the Canadian and Mexican governments to adopt BWM regulations similar to ours.

We agree that international coordination, particularly with Canada and Mexico, is essential for the successful prevention of NIS introductions. The U.S. is currently working with Canada under the auspices of the International Joint Commission to address the prevention of NIS. Both Canada and Mexico participate as invited observers to the Aquatic Nuisance Species Task Force. We will continue to work with all countries to address the challenges posed by invasive species.

This rule is a “significant regulatory action” under section 3(f) of Executive Order 12866, Regulatory Planning and Review. The Office of Management and Budget has reviewed it under that Order. It requires an assessment of potential costs and benefits under section 6(a)(3) of that Order. It is significant under the regulatory policies and procedures of the Department of Homeland Security. A final Regulatory Evaluation is available in the docket as indicated under ADDRESSES. A summary of the Regulatory Evaluation follows and is available in the public docket for this rule.

We received 5 comments on the Regulatory Evaluation. One commenter stated that annual costs for BWM should be explained in the final rule.

We have included a summary of the annual costs for BWM in this preamble to the final rule. A detailed analysis of annual costs for BWM can be found in the final Regulatory Evaluation, which is available in the public docket for this rule.

Two commenters stated that our estimated costs for ballast water exchange were too low. One commenter stated that a single exchange for a large bulk carrier would be several times more than our estimate. The second commenter stated that the annual cost for container ships would be higher than our estimate.

Our cost-per-exchange estimates are based on information from class societies, ballast water literature, and the U.S. Maritime Administration. We believe that the alternate estimates provided by the commenters greatly overstate, in one case by an order of magnitude, the costs of ballast water exchange. Additionally, these commenters did not provide documentation or substantiation for their alternate estimates. We have not, therefore, modified our cost estimates based on these comments.

One commenter generally agreed with the analysis, but expressed concern that costs to the environment were understated and more information should be provided. Another commenter stated that we must consider the costs to local communities and ecosystems if NIS continue to gain a foothold in Alaskan waters.

We did not estimate the annual benefit of BWM in monetary terms. Instead, we supplied a literature review providing estimated damages resulting from invasions. In this review, we discuss potential damages from NIS to local communities and ecosystems. Much of this literature revolves around the damages caused by the zebra mussel in the Great Lakes and Mississippi River basin. In our Regulatory Evaluation, we were careful to note that we do not believe that this rule will prevent a species as destructive as the zebra mussel from becoming established because the uncertainties surrounding invasions are numerous. We believe that ballast water exchange will provide a measure of protection to the environment. However, ballast water exchange is not the final answer to preventing invasions and, therefore, we do not wish to overstate the potential benefits of exchange. We will revisit environmental damages in our Regulatory Assessment and Environmental Impact Statement in a future rulemaking for ballast water discharge standards. A summary of the Regulatory Evaluation follows.

This Regulatory Evaluation identified the vessel population affected by the rule and provides cost and benefit models for the current principal option of BWM provided for under the rule-ballast water exchange. Any vessel equipped with ballast tanks entering U.S. waters from outside the EEZ must conduct BWM, with minor exceptions. The vessel population was categorized by vessel type under the assumption that vessels in different cargo services and of different sizes likely manage ballast water in different ways. We estimated that approximately 7,420 vessels will be affected and approximately 11,500 ballast water exchanges will be performed annually. Annual costs totaled approximately $15.8 million. The 10-year present value cost for this rule is $116.7 million. These costs do not account for the Great Lakes program, which was not part of this rule.

The benefit assessment expanded on the analysis conducted for costs by focusing on the probability of viable organisms being introduced into U.S. waters through ballast water discharge, both before the rule and following the implementation of mandatory BWM. A probability of a reduction in the number of invasions of NIS was calculated using data on voyages, vessel types, ballast water volumes, and exchange effectiveness, as well as order-of-magnitude assumptions about the probabilities of inoculations, introductions, and invasions resulting from ballast water discharges. The calculations indicated the rule may result in avoiding approximately 10 inoculations that result in invasions for each year the rule is in effect. While there is considerable uncertainty in these calculations and the order-of-magnitude assumptions (referred to as the “rule of 10s” in the Regulatory Evaluation) are admittedly an oversimplification of a complex problem, we believe their simplicity and transparency are compelling. To date, there is no national estimate of the invasion rate of NIS, and we cannot compare our baseline invasion estimate to other, more limited estimates regarding invasions. Our findings are broadly consistent, however, with other estimates of the rate of NIS invasions. One study finds that in the San Francisco Bay and Delta, invasions have increased from one new species every 55 weeks (1851-1960) to one new species every 14 weeks (1961-1995) (Cohen and Carlton, 1998). Another study posits that invasion rates may have increased in the San Francisco Bay and the Great Lakes over the past several decades (Mills, et al., 1993). Finally, some researchers believe that the increase of initial invasions is best described by an exponential function (Ruiz, et al., 2000). Using our simple methodology, we found that an invasion occurs about twice every 3 weeks somewhere in the U.S.

There is considerable difficulty in estimating monetized damages resulting from NIS invasions. Some species impose significant, long-term damages on marine industries and infrastructure. Other species may create subtle disturbances in ecosystems that are difficult to quantify. Still others may be relatively benign. There have been attempts to estimate monetized damages for a few species, most notably the zebra mussel. One study estimated costs to Great Lakes water users, mostly due to fouling of intake structures, of $120 million over the time period 1989 to 1994 (Hushak, 1996). Another estimated cumulative zebra mussel impacts of $750 million to $1 billion over the time period 1989 to 2000 (Carlton, 2001). Other species for which monetized damage estimates have been developed include the Asian clam ($1 billion per year, OTA, 1993) and European green crab ($44 million per year, CRS, 1999). Eight Federal agencies that sit on the National Invasive Species Council collectively spent $514 million in 1999 and $631 million in 2000 for the control and management of NIS (GAO, 2000).

We have not reviewed the methodologies used to produce these estimates in detail, though all of them (except expenditures by Federal agencies) involve considerable uncertainty. They are indicative, however, of the magnitude of damages that may result from particularly destructive invasions. It is likely, however, that most invasions would result in considerably lower damages than the numbers reported in these studies. Because of the lack of data on damages potentially associated with any but the most destructive invasions, we have not tried to monetize the benefits of the rule. If the rule resulted in avoiding even one invasion of this magnitude over the course of several decades, however, the benefits of the rule would most likely justify the costs.

We did not receive any comments on small entities. Of the affected population of all vessels arriving at U.S ports, we estimate that 21 vessels of the 171 U.S. flag vessels, are owned by 10 small businesses. Approximately 35 large companies own the remaining 150 U.S.-flagged vessels. We estimate all vessels will choose the alternative of conducting a mid-ocean ballast water exchange. The cost of complying with this rule is the cost of exchanges performed by the vessel added to the cost of additional maintenance required for the ballast water pumping system. The cost per exchange is a function of vessel type. Each vessel's costs will be a function of the cost of exchange for that vessel type multiplied by the number of trips into U.S. waters from outside the U.S. EEZ. Thus the annual impact on the revenue for a small business will vary with the number of entries the vessel makes from outside the U.S. EEZ. In order to estimate the upper bound of that impact, we calculated the cost of exchange for the maximum number of exchanges possible for the years 1999 and 2000. We then assumed that weather conditions and transit tracks allowed exchanges for all of these entries. For the annual cost of the rule, the number of vessels owned by each small business is multiplied by the number of exchanges performed, and the resulting product is then multiplied by the cost of exchange for the particular vessel type, and added to the maintenance cost of 10 percent of the capital cost of the ballast pump. Of the 10 small businesses that own vessels affected by the rule, we found revenue for nine. For the remaining company where no revenue information was available, we assumed revenue of $1 million for the purposes of the analysis. Table 1 gives the effect of the rule on the average annual revenues for the small business affected. For more detailed information, refer to the Regulatory Evaluation in the docket.

Under section 213(a) of the Small Business Regulatory Enforcement Fairness Act of 1996 (Pub. L. 104-121), we want to assist small entities in understanding this rule so that they can better evaluate its effects on them and participate in the rule. If the rule will affect your small business, organization, or governmental jurisdiction and you have questions concerning its provisions or options for compliance, please consult Bivan Patnaik, G-MSO-4, Coast Guard, telephone 202-267-1744, e-mail: Bpatnaik@comdt.uscg.mil .

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 modifies an existing collection of information under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520). We received several comments regarding general collection of information issues. These comments were addressed in the discussion of comments above.

As required by 44 U.S.C. 3507(d), we submitted a copy of the proposed rule to the Office of Management and Budget (OMB) for its review of the collection of information. OMB approved the change to the collection on September 9, 2003: OMB Control Number 1625-0069, expiring on September 30, 2006.

You are not required to respond to a collection of information unless it displays a currently valid OMB control number.

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 impose a substantial direct cost of compliance on them. We received three comments pertaining to Federalism.

Two commenters asked how the Coast Guard is developing partnerships with State agencies to coordinate various BWM policies and research programs for treatment installation. A third commenter asked if States wishing to require stricter standards could issue “supplements” that would be enforced only in the issuing States.

As stated in the “Federalism” section of the proposed rulemaking, Congress clearly intended for a Federal-State cooperative regime and not for Federal preemption of State requirements. Thus, each State is authorized under NISA to develop its own regulations, including its own research programs, if it believes that Federal regulations or programs are not stringent enough.

We have analyzed this rule under Executive Order 13132. NANPCA contains a “savings provision” that provides States the authority to “adopt or enforce control measures for aquatic nuisance species, [and nothing in the Act would] diminish or affect the jurisdiction of any States over species of fish and wildlife.” 16 U.S.C. 4725. It also requires that “all actions taken by Federal agencies in implementing the provisions of [the Act] be consistent with all applicable Federal, State and local environmental laws.” Thus, the congressional mandate is clearly for a Federal-State cooperative regime in combating the introduction of aquatic nuisance species into U.S. waters from ships' ballast tanks. This makes it unlikely that preemption, which would necessitate consultation with the States under Executive Order 13132, would occur.

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. We did not receive any comments regarding unfunded mandates.

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. We did not receive any comments regarding the taking of private property.

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 did not receive any comments regarding civil justice reform.

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

This rule does not have tribal implications under Executive Order 13175, Consultation and Coordination with Indian Tribal Governments, 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. We did not receive any comments regarding Indian Tribal governments.

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. Although it is a “significant regulatory action” under Executive Order 12866, it is not likely to have a significant adverse effect on the supply, distribution, or use of energy. It has not been designated by the Administrator of the Office of Information and Regulatory Affairs as a significant energy action. Therefore, it does not require a Statement of Energy Effects under Executive Order 13211. We did not receive any comments regarding energy effects.

The Coast Guard considered the environmental impact of this rule and concluded that preparation of a PEA is necessary and is available in the public docket for this rule. The PEA and Finding of No Significant Impact (FONSI) have been completed and are available in the public docket for inspection. We received nine comments regarding the environment.

Two commenters expressed concern regarding limitations on ballasting in areas near coral reefs, dredging operations, tidal flushing, darkness, and sediment, stating that these types of areas are where their barges load and discharge. One of these commenters also added his concern that his company will not be able to comply with the BWM options.

While we appreciate the commenters' concerns and the effects this rule will have on general operations, we believe that the requirements for ballasting and the options for BWM are necessary to protect the environment from the damages caused by NIS. In order to comply with these requirements, the commenters will have to adjust their ballasting operations accordingly.

One commenter stated that the Coast Guard should include an Essential Fish Habitat determination in the PEA, as required by the Magnuson-Stevens Fishery Act.

We agree with the commenter and have included language regarding essential fish habitat in the PEA.

Two commenters requested that we include language in § 151.2035 regarding conducting BWM near pods of whales, convergence zones, and boundaries of major currents in order to protect threatened or endangered species.

We agree and have amended § 151.2035 to reflect these changes.

Under the consultation process of the Endangered Species Act, the Fish and Wildlife Service (FWS) and the National Marine Fisheries Service (NMFS) recommended that the Coast Guard work with ballast water reception facilities and any relevant permitting authorities to address any potential effects to listed species or critical habitats and compliance with the Endangered Species Act.

We have consulted extensively with FWS and NMFS in regards to the issue of approval of facilities to receive ballast water. Currently, there are no ballast water reception facilities in the United States approved for the treatment of ballast water to remove NIS. The Coast Guard is not involved in the regulatory or approval process for ballast water reception facilities. Anyone wishing to establish a ballast water reception facility that would discharge to waters of the United States would need to obtain a National Pollutant Discharge Elimination System (NPDES) permit under the Clean Water Act. Forty-five States and the U.S. Virgin Islands have been approved to issue NPDES permits, and would be the relevant permitting authority. In the remainder of the States, territories, and Indian country that have not been approved to issue NPDES permits, the NPDES permitting authority would be EPA. In the case of a ballast water reception facility that discharges into a local sewage collection system rather than directly to waters of the United States, the discharge would need to comply with local pretreatment requirements and national prohibited discharge standards under section 307 of the Clean Water Act. Non-storm water discharges into a municipal separate storm sewer system are prohibited. Because of these issues, we cannot state with certainty that allowing vessels to discharge their ballast water into a reception facility would be as effective as ballast water exchange in preventing and controlling infestations of NIS as per NISA. As a result, we are eliminating this option from § 151.2035.

The only additional comment regarding reception facilities was a request for Coast Guard approval of such entities, an act that we are not legally authorized to perform. As stated previously, there are no ballast water reception facilities in the United States approved for the treatment of ballast water to remove NIS, nor do we believe there are any applications for approval for such facilities on file. Additionally, all vessels equipped with ballast water tanks would need to be retrofitted with ballast water shore connections in order to utilize a shore-side reception facility. As stated in the Regulatory Evaluation, we do not expect any vessels to utilize the option of discharging into a shore-side facility. Accordingly, we do not believe that eliminating this option from § 151.2035 will have any immediate effect on regulated industry.

The Coast Guard will continue to work with other Federal agencies, such as FWS and NMFS, to examine and resolve issues surrounding ballast water treatment facilities.

Three commenters encouraged the Coast Guard to pursue environmentally sound alternatives to ballast water exchange.

We agree with the commenters. As required by NISA, we are working to facilitate development of alternatives to ballast water exchange that are environmentally sound. To do this, we encourage industry and others to participate in the STEP announced in the Federal Register on January 7, 2004 (69 FR 1082, NVIC 01-04).

In considering the environmental impact of this rule, as stated earlier in this section, we believe the PEA is necessary because this rule requires vessels with ballast tanks entering U.S. ports around the country, subject to conditions discussed above, to have completed one of the mandatory BWM practices. Although the national mandatory BWM program provides vessels with ballast tanks the option of using one of three BWM practices, ballast water exchange is likely to be the most used practice for reasons discussed earlier. However, this PEA is necessary to ensure the potential environmental effects of the three BWM practices are considered.

The Coast Guard has considered the implications of the Coastal Zone Management Act (16 U.S.C. 1451, et seq. ) with regard to this rule. Under this Act, the Coast Guard must determine whether the activities proposed by it are consistent with activities covered by Federally approved coastal zone management plans for each State, which may be affected by this federal action. A listing of 29 States and Territories with federally approved coastal zone management plans can be found in Appendix E of the PEA for this rule.

The Coast Guard has determined that the mandatory BWM program will have no effect on the coastal zones of the listed States and Territories. In addition, we found the regulations in the final rule were consistent, to the maximum extent practicable, with the enforceable policies of the Federally-approved coastal zone management plans and submitted a consistency determination to that effect. The State Administrators for each of the listed States and Territories with coastal zone management plans responded, concurring with the Coast Guard consistency determination that implementing a mandatory BWM program would be consistent with their respective coastal zone management plans.

The Coast Guard provided the U.S. Fish and Wildlife Service and the National Marine Fisheries Service with a copy of the final rule and its environmental assessment of the rule. This information initiated an informal Section 7 Consultation per the Endangered Species Act (16 U.S.C. 1531, et seq. ), which resulted in both agencies concurring with the Coast Guard's determination that this rule is not likely to adversely affect listed or proposed species or their critical habitats.

Section 508 requires Federal agencies to ensure that the electronic and information technology (EIT) they procure allows individuals with disabilities access to EIT comparable to the access of those who are not disabled, unless the agency would incur an undue hardship. The statute was amended by the Workforce Investment Act of 1998, Public Law 105-220, 112 Stat. 536 (1998), to add enforcement provisions and to require agencies to add a complaint process for section 508. A complaint process under section 508 for members of the public who are disabled was added to part 255 through a Federal Register publication of a proposed rule on February 25, 2002 (67 FR 8489-8493). A final rule for the section 508 complaint process for members of the public was published in the Federal Register on December 10, 2002. This final rule was effective January 9, 2003.

A section 508 complaint process for employees and applicants who are disabled is now being added to part 255.

A new subparagraph (3) has been added to (h) Qualified individual with a disability in order to give applicants and employees the definition of a “qualified individual with a disability” under section 501 of the Rehabilitation Act.

The title of this section has been changed to reflect that it explains how various types of complaints will be processed and to distinguish it from the complaint procedures in paragraph (d) of this section.

(a) Section 504 complaints, employment.

Paragraph (a) has been renamed and now provides that section 504 complaints alleging employment discrimination and brought by employees or applicants are to be processed under the procedures established for section 501 complaints.

(b) Section 504 complaints, members of the public.

Paragraph (b) has been renamed and now provides that section 504 complaints alleging disability discrimination in any program or activity of the Postal Service and brought by members of the public are to be processed under the procedures of this part.

(c) Section 508 complaints, members of the public, employees and applicants.

Paragraph (c) has been renamed and now provides that the procedures of this part shall apply to section 508 complaints alleging failure to provide access to electronic and information technology and brought by members of the public, employees, or applicants.

(d) Complaint Procedures.

Paragraph (d) has been renamed and renumbered. It was previously paragraph (c). It explains the complaint procedures for section 504 complaints brought by members of the public and section 508 complaints brought by members of the public, employees, or applicants. The actual complaint procedures are unchanged.

(e) No retaliation.

This paragraph was renumbered. It was previously paragraph (d). It has not been changed.

For the purpose of this document, we are giving meaning to certain words or initials as follows:

(i) The words or initials Act or CAA mean or refer to the Clean Air Act, unless the context indicates otherwise.

(ii) The words EPA, we, us or our mean or refer to the United States Environmental Protection Agency.

(iii) The initials SIP mean or refer to State Implementation Plan.

(iv) The words State or Wyoming mean the State of Wyoming, unless the context indicates otherwise.

On May 10, 2004 (69 FR 25866), EPA published a notice of proposed rulemaking (NPR) for the State of Wyoming. The NPR proposed approval of a State Implementation Plan (SIP) revision restructuring and renumbering the Wyoming Air Quality Standards and Regulations (WAQS&R). The formal SIP revision was submitted by the State of Wyoming on September 12, 2003. The SIP revision restructures the WAQS&R from a single chapter into thirteen separate chapters and renumbers the provisions within each chapter. The revision contains no substantive changes from the prior codification that is approved into the SIP.

The following table cross references the renumbered and prior numbered SIP chapters and sections. The table identifies the renumbered SIP sections we are approving as replacing the prior numbered SIP sections.

EPA received no comments on the May 10, 2004 notice of proposed rulemaking. As proposed, EPA is approving the Restructuring and Renumbering of Wyoming Air Quality Standards and Regulations submitted by the Governor of Wyoming on September 12, 2003 as a revision to the Wyoming SIP.

The table in Section I above identifies the renumbered SIP chapters and sections we are approving as replacing the prior numbered SIP chapter and sections in the federally approved SIP. The renumbered provisions were adopted September 13, 1999 and effective October 29, 1999.

Section 110(l) of the Clean Air Act states that a SIP revision cannot be approved if the revision would interfere with any applicable requirement concerning attainment and reasonable further progress towards attainment of the NAAQS or any other applicable requirements of the Act. We believe the Wyoming SIP revision that is the subject of this document will not interfere with any applicable requirement concerning attainment and reasonable further progress towards attainment of the NAAQS or any other applicable requirements of the Act because the State is merely restructuring and renumbering its SIP and the State's revision is no less stringent than the requirements currently contained in their 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 . A major rule cannot take effect until 60 days after it is published in the Federal Register . This action is not a “major rule” as defined by 5 U.S.C. 804(2).

Under section 307(b)(1) of the Clean Air Act, petitions for judicial review of this action must be filed in the United States Court of Appeals for the appropriate circuit by September 27, 2004. 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).)

This supplementary information section is organized as follows:

This action only applies to the Argonne National Laboratory.

1. Submitting CBI. Do not submit this information to EPA through regulations.gov or e-mail. Clearly mark the part or all of the information that you claim to be CBI. For CBI information in a disk or CD ROM that you mail to EPA, mark the outside of the disk or CD ROM as CBI and then identify electronically within the disk or CD ROM the specific information that is claimed as CBI. In addition to one complete version of the comment that includes information claimed as CBI, a copy of the comment that does not contain the information claimed as CBI must be submitted for inclusion in the public docket. Information so marked will not be disclosed except in accordance with procedures set forth in 40 CFR part 2.

2. Tips for Preparing Your Comments. When submitting comments, remember to:

a. Identify the rulemaking by docket number and other identifying information (subject heading, Federal Register date and page number).

b. Follow directions—The agency may ask you to respond to specific questions or organize comments by referencing a Code of Federal Regulations (CFR) part or section number.

c. Explain why you agree or disagree; suggest alternatives and substitute language for your requested changes.

d. Describe any assumptions and provide any technical information and/or data that you used.

e. If you estimate potential costs or burdens, explain how you arrived at your estimate in sufficient detail to allow for it to be reproduced.

f. Provide specific examples to illustrate your concerns, and suggest alternatives.

In this action, EPA is approving a site-specific revision to the Illinois VOC SIP for Argonne's (a United States government-owned research and development facility in DuPage County, Illinois) degreasing operations. Specifically, EPA is approving an Adjusted Standard from 35 Ill. Adm. Code 218.182 (Illinois' cold cleaning degreasing regulations) for Argonne's solvent cleaning operations. Pursuant to this adjusted standard, the applicable vapor pressure and other associated requirements of 35 Ill. Code 218.182 do not apply to cold cleaning involving the preparation of sample materials and associated apparatus used for research and development testing and analysis at Argonne. These revised requirements were adopted in the Illinois Pollution Control Board's December 18, 2003, Adjusted Standard AS 03-4.

The use of organic solvents that do not meet the cold cleaning vapor pressure requirements, in Section 218.182, is necessary for cold cleaning activities at Argonne involving the preparation of sample materials and associated apparatus for testing and analysis and, typically, the cold cleaning performed at the facility is not done in a conventional cold cleaning degreasing system. The nature of VOCs with higher vapor pressures (the ability to evaporate quickly) is the characteristic needed to perform acceptable cleaning activities in certain research applications, and the use of a wiping technique would result in unacceptable residues on the item to be cleaned.

The amount of solvents used for cold cleaning is relatively small and is not expected to exceed 2000 lbs/year. Also, cold cleaning performed at Argonne is different from typical cold cleaning operations. It does not use typical cold cleaning apparatus, and uses milliliters, rather than gallons, of solvents, and laboratory beakers rather than a sink.

In summary, acceptable cleaning solvents are unavailable for Argonne's research applications and the total increase in emissions is relatively minor.

Pursuant to this adjusted standard, the applicable vapor pressure and other requirements of Illinois' cold cleaning regulation do not apply to cold cleaning involving the preparation of sample materials and associated apparatus used for research and development testing and analysis activities conducted at Argonne. The research and development related cleaning activities include washing and rinsing slides, drying glassware, sample preparation, specimen cleaning, gel stain/destaining, membrane rinsing, and the cleaning of small parts and equipment associated with the preparation of sample materials for testing and analysis. The requirements of the adjusted standard do not apply where solvents meeting the vapor pressure limits of 35 Ill. Adm. Code 218.182 can be used without subsequently adversely affecting the validity of research results.

The Illinois EPA submitted the following information and supporting documentation (along with other less substantive procedural documents) in support of its request for an Adjusted Standard for Argonne's solvent cleaning operations.

(a) Argonne's Petition for an Adjusted Standard from 35 Ill. Adm. Code 218.182 filed with the Illinois Pollution Control Board on April 17, 2003. This petition provides a description of its research activities and the nature of the cold cleaning operations performed at Argonne and its difficulties in adequately preparing equipment for certain research applications without the use of common laboratory solvents, such as methanol, ethanol, isopropanol, hexane, and toluene, all of which have vapor pressures that exceed the vapor pressure limit in Illinois' regulation.

(b) Written testimony and associated documents were filed by Argonne with the Illinois Pollution Control Board on September 2, 2003. Argonne's written testimony describes the technical difficulties with wiping and solvents meeting the cold cleaning rule, administrative difficulties with the cold cleaning rule, a summary of research-related cold cleaning activities at Argonne and solvent usage information from 1999-2001.

(c) Written testimony and associated documents were filed by Illinois EPA with the Illinois Pollution Control Board on September 2, 2003. Illinois EPA's testimony supported the infeasibility of Argonne complying with Illinois's existing cold cleaning operation and documented the minimal effect that this adjusted standard would have on ozone air quality.

(d) The transcript of the hearing for the Adjusted Standard held on September 16, 2003. This transcript includes the testimony of experts from both Argonne and Illinois EPA which supports the merits of the adjusted Standard.

(e) The December 18, 2003, Opinion and Order of the Illinois Pollution Control Board, which approved Argonne's Adjusted Standard from the cold cleaning degreasing rules in 35 Ill. Adm. Code 218.182.

A public hearing was held on September 16, 2003, in Wood Dale, Illinois. Both Wood Dale and Argonne are in DuPage County.

Argonne petitioned for an Adjusted Standard from Illinois' cold cleaning rule because the vapor pressure limitations in Illinois' rule prevented it from using solvents that would adequately clean the equipment for its research applications. This rule is being approved because it was adequately documented that compliance with Illinois' cold cleaning rule would interfere with the validity of Argonne's research and because the adjusted standard would have only a minimal effect on air quality.

For the reasons given above, EPA is approving into the Illinois VOC SIP an Adjusted Standard for Argonne, from 35 Ill. Adm. Code 218.182, for its cold cleaning degreasing involving the preparation of sample materials and associated apparatus used for research and development testing and analysis activities conducted at Argonne. This Adjusted Standard (AS 03-4) was adopted by the Illinois Pollution Control Board on December 18, 2003.

The EPA is publishing this action without prior proposal because we view this as a noncontroversial amendment and anticipate no adverse comments. However, in the proposed rules section of this Federal Register publication, we are publishing a separate document that will serve as the proposal to approve the state plan if relevant adverse comments are filed. This rule will be effective September 27, 2004 without further notice unless we receive relevant adverse written comments by August 27, 2004. If we receive such comments, we will withdraw this action before the effective date by publishing a subsequent document that will withdraw the final action. All public comments received will then be addressed in a subsequent final rule based on the proposed action. The EPA will not institute a second comment period. Any parties interested in commenting on this action should do so at this time. If we do not receive any comments, this action will be effective September 27, 2004.

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 . A major rule cannot take effect until 60 days after it is published in the Federal Register . This action is not a “major rule” as defined by 5 U.S.C. 804(2).

Under section 307(b)(1) of the Clean Air Act, petitions for judicial review of this action must be filed in the United States Court of Appeals for the appropriate circuit by September 27, 2004. 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).)

On August 1, 2003, the Commission released a Declaratory Ruling, published at 68 FR 55898, September 29, 2003, in CC Docket No. 98-67; FCC 03-190. In the Declaratory Ruling, the Commission clarified that certain TRS mandatory minimum standards do not apply to captioned telephone VCO service, and waived other TRS mandatory standards for captioned telephone VCO service, for all current and future captioned telephone VCO service providers, for the same period of time beginning on the release date of the Declaratory Ruling. This is a summary of the Commission's Public Notice, DA 04-2061, released July 9, 2004. Annual reports required to be filed pursuant to the captioned telephone VCO service Declaratory Ruling should be sent by hand or messenger delivery, by electronic media, by commercial overnight courier, or by first-class or overnight U.S. Postal Service mail (although we continue to experience delays in receiving U.S. Postal mail). The Commission's contractor, Natek, Inc. will receive hand-delivered or messenger-delivered paper filings or electronic media for the Commission's Secretary at 236 Massachusetts Avenue, NE., Suite 110, Washington, DC 20002. The filing hours at this location are 8 a.m. to 7 p.m. All hand deliveries must be held together with rubber bands or fasteners. Any envelopes must be disposed of before entering the building. Commercial and electronic media sent by overnight mail (other than U.S. Postal Service Express Mail and Priority Mail) must be sent to 9300 East Hampton Drive, Capitol Heights, MD 20743. U.S. Postal Service first-class mail, Express Mail, and Priority Mail should be addressed to 445 12th Street, SW., Washington, DC 20554. All filings must be addressed to the Commission's Secretary, Marlene H. Dortch, Office of the Secretary, Federal Communications Commission, 445 12th Street, SW., Room TW-B204, Washington, DC 20554. When filing annual reports, please reference CC Docket No. 98-67.

Copies of any subsequently filed documents in this matter will be available for public inspection and copying during regular business hours at the FCC Reference Information Center, Portals II, 445 12th Street, SW., Room CY-A257, Washington, DC 20554. They may also be purchased from the Commission's duplicating contractor, Best Copy and Printing, Inc. (BCPI), Portals II, 445 12th Street, SW., Room CY-B402, Washington, DC 20554. Customers may contact BCPI, Inc. at their Web site: www.bcpiweb.com or call 1-800-378-3160.

To request materials in accessible formats for people with disabilities (braille, large print, electronic files, audio format), send an e-mail to fcc504@fcc.gov or call the Consumer & Governmental Affairs Bureau at (202) 418-0530 (voice) or (202) 418-0432 (TTY). This Public Notice can also be downloaded in Word and Portable Document Format (PDF) at http://www.fcc.gov/cgb.dro.

As background, TRS, as mandated by Title IV of the Americans with Disabilities Act of 1990, makes the telephone system accessible to individuals with hearing or speech disabilities. See 47 U.S.C. 225. This is accomplished through TRS facilities that are staffed by specially trained CAs using special technology. The CA relays conversations between persons using various types of assistive communication devices and persons who do not require such assistive devices. On August 1, 2003, the Commission released the captioned telephone Voice Carry Over (VCO) service Declaratory Ruling finding that: (1) Captioned telephone VCO service is a type of TRS; (2) eligible providers of such service are eligible to recover their costs in accordance with section 225 of the Communications Act; (3) certain TRS mandatory minimum standards do not apply to the provision of captioned telephone VCO service; and (4) certain TRS mandatory minimum standards are waived for captioned telephone VCO service for certain time periods.

An electronic copy of this document may be downloaded by using a computer, modem, and suitable communications software from the Government Printing Office's Electronic Bulletin Boards Service at (202) 512-1661. Internet users may reach the Office of the Federal Register's home page at: http://www.nara.gov/fedreg and the Government Printing Office's database at: http://www.access.gpo.gov. You can also view and download this document by going to the webpage of the Department's Docket Management System ( http://dms.dot.gov ). On that webpage, click on “search.” On the next page, type in the four-digit docket number shown on the first page of this document. Then click on “search.”

Title 49 of the Code of Federal Regulations (CFR), § 1.53(e), delegates to the Administrator of the Research and Special Programs Administration the authority to carry out functions and activities related to emergency preparedness and response vested in the Secretary by 49 U.S.C. 101 and 301 or delegated to the Secretary by or through the Defense Production Act of 1950, 50 U.S.C. App. 2061 et seq. ; Executive Order 12148, as amended; Executive Order 12656, as amended; Executive Order 12742, as amended; Executive Order 12919, as amended; Reorganization Plan No. 3 of 1978; and such other statutes, executive orders, and other directives that may pertain to emergency preparedness and response.

The functions related to emergency preparedness and response are currently performed by the Research and Special Programs Administration's Office of Emergency Transportation (OET). The OET's mission is to serve as the Departmental emergency coordinator and it provides leadership for emergency preparedness and response activities; develops national preparedness and response policies and procedures in coordination with other Federal, state, local, and private sector authorities; operates the Department's Crisis Management Center; and participates on behalf of the United States in international emergency preparedness and response planning and related activities with the North Atlantic Treaty Organization (NATO) and other allies.

The Secretary has determined that the functions and activities currently being performed by the OET should be coordinated with and subject to review by the Office of Intelligence and Security in the Office of the Secretary. Therefore, this final rule modifies the current delegation of Secretarial authority to the Administrator, Research and Special Programs Administration, in 49 CFR 1.53(e) to carry out the functions and activities currently relating to emergency transportation performed by the OET and gives notice that these functions and activities shall be coordinated with, reviewed by, and subject to the concurrence of the Director of the Office of Intelligence and Security.

This rule is being published as a final rule and made effective on the date signed by the Secretary. As the rule relates to Departmental management, procedures, and practices, notice and comment on it are unnecessary under 5 U.S.C. 553(b)(3)(A). In addition, the Secretary finds that there is good cause to make this rule effective upon the date of signature, July 14, 2004, pursuant to 5 U.S.C. 553(d)(2), as a change to internal policy.

The final rule is not considered a significant regulatory action under Executive Order 12866 and the Regulatory Policies and Procedures of the Department of Transportation (44 FR 11034). There are no costs associated with this rule.

This action has been analyzed in accordance with the principles and criteria contained in Executive Order 13132, dated August 4, 1999. This final rule does not have a substantial direct effect on, or sufficient federalism implications for, the States, nor would it limit the policymaking discretion of the States. Therefore, the consultation and funding requirements do not apply.

This final rule has been analyzed in accordance with the principles and criteria contained in Executive Order 13084 (“Consultation and Coordination with Indian Tribal Governments”). Because this final rule does not significantly or uniquely affect the communities of the Indian tribal governments and does not impose substantial direct compliance costs, the funding and consultation requirements of Executive Order 13084 do not apply.

The Regulatory Flexibility Act (5 U.S.C. 601 et seq. ) requires an agency to review regulations to assess their impact on small entities unless the agency determines that a rule is not expected to have a significant impact on a substantial number of small entities. I hereby certify this final rule, which amends the CFR to reflect a modification of authority from the Secretary, will not have a significant economic impact on a substantial number of small businesses.

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

The Department has determined that the requirements of Title II of the Unfunded Mandates Reform Act of 1995 do not apply to this rulemaking.

NMFS manages the groundfish fishery in the GOA exclusive economic zone according to the Fishery Management Plan for Groundfish of the Gulf of Alaska (FMP) prepared by the North Pacific Fishery Management Council under authority of the Magnuson-Stevens Fishery Conservation and Management Act. Regulations governing fishing by U.S. vessels in accordance with the FMP appear at subpart H of 50 CFR part 600 and 50 CFR part 679.

The 2004 final harvest specifications for groundfish of the GOA (69 FR 9261, February 27, 2004), established the third seasonal apportionment of the halibut bycatch allowance for the trawl deep-water species fishery in the GOA for the period 1200 hrs, A.l.t., July 4, 2004, through 1200 hrs, A.l.t., September 1, 2004, as 400 metric tons.

In accordance with § 679.21(d)(7)(i), the Administrator, Alaska Region, NMFS, has determined that the third seasonal apportionment of the 2004 Pacific halibut bycatch allowance specified for the trawl deep-water species fishery in the GOA has been reached. Consequently, NMFS is prohibiting directed fishing for the deep-water species fishery by vessels using trawl gear in the GOA. The species and species groups that comprise the deep-water species fishery are: all rockfish of the genera Sebastes and Sebastolobus , deep water flatfish, rex sole, arrowtooth flounder, and sablefish.

This action responds to the best available information recently obtained from the fishery. The Assistant Administrator for Fisheries, NOAA, (AA), finds good cause to waive the requirement to provide prior notice and opportunity for public comment pursuant to the authority set forth at 5 U.S.C. 553(b)(B) as such a requirement is impracticable and contrary to the public interest. This requirement is impracticable and contrary to the public interest as it would prevent NMFS from responding to the most recent fisheries data in a timely fashion and would delay the closure of the deep-water species fishery by vessels using trawl gear in the GOA.

The AA also finds good cause to waive the 30-day delay in the effective date of this action under 5 U.S.C. 553(d)(3). This finding is based upon the reasons provided above for waiver of prior notice and opportunity for public comment.

This action is required by § 679.20 and is exempt from review under Executive Order 12866.

NMFS manages the groundfish fishery in the GOA exclusive economic zone according to the Fishery Management Plan for Groundfish of the Gulf of Alaska (FMP) prepared by the North Pacific Fishery Management Council under authority of the Magnuson-Stevens Fishery Conservation and Management Act. Regulations governing fishing by U.S. vessels in accordance with the FMP appear at subpart H of 50 CFR part 600 and 50 CFR part 679.

The 2004 TAC specified for northern rockfish in the Western Regulatory Area of the GOA is 770 metric tons (mt) as established by the 2004 harvest specifications for groundfish of the GOA (69 FR 9261, February 27, 2004).

In accordance with § 679.20(d)(1)(i), the Administrator, Alaska Region, NMFS (Regional Administrator), has determined that the 2004 TAC for northern rockfish in the Western Regulatory Area will soon be reached. Therefore, the Regional Administrator is establishing a directed fishing allowance of 630 mt, and is setting aside the remaining 140 mt as bycatch to support other anticipated groundfish fisheries. In accordance with § 679.20(d)(1)(iii), the Regional Administrator finds that this directed fishing allowance has been reached. Consequently, NMFS is prohibiting directed fishing for northern rockfish in the Western Regulatory Area of the GOA.

This action responds to the best available information recently obtained from the fishery. The Assistant Administrator for Fisheries, NOAA, (AA), finds good cause to waive the requirement to provide prior notice and opportunity for public comment pursuant to the authority set forth at 5 U.S.C. 553(b)(B) as such a requirement is impracticable and contrary to the public interest. This requirement is impracticable and contrary to the public interest as it would prevent NMFS from responding to the most recent fisheries data in a timely fashion and would delay the closure of the directed fishery for northern rockfish in the Western Regulatory Area of the GOA.

The AA also finds good cause to waive the 30-day delay in the effective date of this action under 5 U.S.C. 553(d)(3). This finding is based upon the reasons provided above for waiver of prior notice and opportunity for public comment.

This action is required by § 679.20 and is exempt from review under Executive Order 12866.