Discussion of Changes

CCC published regulations on August 26, 2002 (67 FR 54928), to implement the Sugar Program provisions of Title I of the Farm Security and Rural Investment Act of 2002 (the 2002 Act). That rule governed various activities affecting sugar beet and sugar cane producers and processors and the domestic market for sugar. In this rule, CCC is making two changes to Sugar Program regulations as a result of definitions that have had an unintended affect on program administration. The changes are as follows:

The definition of “ability to market” is being changed to discourage excess sugarcane acreage and reduce the uncertainty and burden of sugar production forecasting. “Ability to market” is used in conjunction with two other factors to determine each cane sugar state's marketing allotment and each sugarcane processor's allocation within a state. “Ability to market” was measured as the quantity of raw sugar produced during the applicable crop year. This definition disregards beginning stocks, which is part of a processor's ability to fulfill its allocation. This exclusion discourages cane processors from filling their allocation from stocks and encourages continued planting to maintain their allocation.

The accrual of large stocks that must be carried over into the next year due to the imposition of marketing allotments is increasing the likelihood of problems with the current definition of “ability to market”. The problem created by excluding beginning stocks would be aggravated in cane disasters. A substantial loss in forecast cane sugar production would result in a considerable reduction in a processor's sugar marketing allocation, regardless of the processor's stock level.

The current definition of “ability to market” requires CCC to estimate crop year production for each state and processor using periodic processor surveys. State allotments and processor allocations are adjusted as these estimates change throughout the year. This process creates uncertainty for the sugarcane processors and a significant administrative burden for CCC and processors.

Hawaii and Puerto Rico already have a fixed allotment and their state allotment and processor definition of “ability to market” will not be changed. For the mainland states, the new definition for “ability to market” will be based on the states’ and processors' 1999 through 2003 crop year production history. The mainland states' “ability to market” will be measured as the production from the highest production year for each state in the base period. This same measure of “ability to market” will be used to divide the Florida cane sugar marketing allotment among the state's processors. CCC will divide the Louisiana cane sugar marketing allotment among the state's processors using an average of (1) an Olympic average over the base period and (2) the 2003 crop. CCC will use the 2003-crop estimate of production that it used to develop the July World Agricultural Supply and Demand Estimates.

Since the other two factors are based on historical production, the cane states' allotments and processor allocations will now be based completely on historical data. Since allotments and allocations are not dependent on current production, the data collection burden on CCC and the processors, and the incentive to maintain sugarcane acreage is reduced. Allocations will balance with available sugar as processors sell over-allocation sugar to processors that need it, in accordance with the regulations, and as CCC reassigns unused allocation between processors and unused allotment between states.

The “ability to market” definition does not affect the reassignment process. The 2002 Act requires CCC to determine, from time to time, if a processor is unable (and conversely, able) to market its allocation. Consistent with the 2002 Act, CCC uses the best available data to make its determination and specifically lists then-current inventories of sugar, the estimated production of sugar and expected marketings, and other pertinent factors. CCC determines if a processor is unable to market its allocation by comparing a processor's sugar supply (with some exceptions) with its allocation. Specifically, CCC calculates a processor's available crop-year supply as its beginning stocks, plus production and purchased over-allocation sugar, less sales of over-allocation sugar, and desired ending stocks (generally zero). CCC recognizes that it should reduce supply by nonhuman use sales and exports but has not done so to date. Early reassignments require CCC to use estimates subject to error and allocation cannot be returned to a processor because too much was taken away. Thus, CCC will be more conservative in reducing a processor's allocation earlier in the year than later. At this time, CCC has no measure of its early conservatism but will work with the processors losing allocation to permit them a margin of error beyond the formula results. This process worked satisfactorily in FY 2003.

The second change CCC is making is to clarify the definitions of market and marketing to include sales for non-domestic consumption, nonhuman consumption, and sales to another processor to enable that processor to fulfill its marketing allocation. The current definition for market and marketing excludes these sales. However, 7 CFR 1435.307 describes these types of sales as “marketings,” but exempts them from being subject to the restriction of a processor's marketing allocations. CCC is developing procedures to ensure that sales for non-domestic consumption and nonhuman consumption, which also are not counted against a processor's sugar marketing allocation, are bona fide sales that do not affect the domestic food use market.

The new definition provides that the sale of sugar for non-domestic consumption, nonhuman consumption, or to another processor will be a sugar “marketing” regulated by 7 CFR 1435. This result is accomplished by deleting the sentence that excludes these sales from the “marketing” definition. The regulation retains the exemption for sales made before May 1, reported to CCC within 51 days.

The third change CCC is making is to clarify the definition of sugar to include in-process sugar, such as thick juice, in the current 7 CFR part 1435 definition, but implied elsewhere in the regulation language.

CCC modifies the reassignment provisions in § 1435.309 to explain more fully CCC's reassignment procedures. This rule also replaces the “by May 1” in section 1435.309(a) with language of the 2002 Act, “from time to time”. May 1 is not an appropriate time to make reassignment determinations for all processors because CCC permits processors to buy or sell over-allocation sugar until May 1. The deadline “by April 15” is eliminated in section 1435.309(b) for the same reason.

These changes will not be published with a request for public comment, and will be implemented with a final rule. Section 1601(c) of the Farm Security and Rural Investment Act of 2002 (2002 Act) provides that the regulations needed to administer Title I of the 2002 Act, including those involved here, may be promulgated without regard to the notice and comment provisions of 5 U.S.C. 553 or the Statement of Policy of the Secretary of Agriculture effective July 24, 1971, (36 FR 13804) relating to notices of proposed rulemaking and public participation in rulemaking. The rule will be effective upon publication in order to provide its benefit to producers as soon as possible.

This interim rule has been designated as “Not significant” under Executive Order 12866 and has not been reviewed by the Office of Management and Budget.

This final rule applies to the following Federal assistance programs, as found in the Catalog of Federal Domestic Assistance: 10.051—Commodity Loans and Loan Deficiency Payments.

The Regulatory Flexibility Act does not apply to this rule because CCC is not required by 5 U.S.C. 553 or other law to publish a notice of proposed rulemaking for the subject of this rule.

The environmental impacts of this rule have been considered under the National Environmental Policy Act of 1969 (NEPA), 42 U.S.C. 4321 et seq. , the regulations of the Council on Environmental Quality (40 CFR parts 1500-1508), and regulations of the Farm Service Agency (FSA) of the Department of Agriculture (USDA) for compliance with NEPA, 7 CFR part 799. An environmental evaluation was completed and the proposed action has been determined not to have the potential to significantly impact the quality of the human environment and no environmental assessment or environmental impact statement is necessary. A copy of the environmental evaluation is available for inspection and review upon request.

This rule has been reviewed under Executive Order 12778. This rule preempts State laws that are inconsistent with it and is not retroactive. Before judicial action may be brought concerning this rule, all administrative remedies must be exhausted.

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

Title II of the Unfunded Mandates Reform Act of 1995 (UMRA) does not apply to this rule because CCC is not required by 5 U.S.C. 553 or any other law to publish a notice of proposed rulemaking for the subject of this rule. Further, this rule contains no unfunded mandates as defined in sections 202 and 205 of UMRA.

Section 1601(c) of the 2002 Act provides that these regulations may be promulgated and the programs administered without regard to chapter 5 of title 44 of the United States Code (the Paperwork Reduction Act). Accordingly, these regulations and the forms and other information collection activities needed to administer the provisions authorized by these regulations are not subject to review by the Office of Management and Budget under the Paperwork Reduction Act.

CCC is committed to compliance with the Government Paperwork Elimination Act, which requires Federal Government agencies to provide the public the option of submitting information or transacting business electronically to the maximum extent possible. However, the information collections required by 7 CFR part 1435 rule are not yet fully implemented for the public to conduct business with FSA electronically. CCC Sugar Program forms are available on the agency's Internet web site. Forms may be completed and saved on a computer, but must be printed, signed and submitted to FSA in paper form.

In Title 16 of the Code of Federal Regulations, parts 0 to 999, revised as of January 1, 2004, part 305 is corrected by:

1. Replacing Sample Label 3 on page 311 with Sample Label 3 on page 306, and adding the following Prototype Label 3 in place of Sample Label 3 on page 306, and

2. Replacing Sample Label 4 on page 312 with Sample Label 4 on page 307, and adding the following Prototype Label 4 on page 307.

The Social Security Administration has been working to strengthen the process for assigning SSNs, our “enumeration” process. Concerns about national security, along with the growing problem of identity theft, have prompted us to identify additional areas where we can strengthen the integrity of the enumeration process. We have undertaken many initiatives but mention just a few here as background. As part of the SSN application process, we now verify the birth records submitted as evidence for U.S.-born citizens age one or older, and verify the immigration status of non-citizens with DHS. We have heightened the importance of our screening process for all evidentiary documents and recently promulgated new regulations lowering the age for mandatory in-person interviews.

As part of our overall review of our enumeration processes for citizens and non-citizens alike, we considered our policy of assigning SSNs to F-1 students who do not have specific work authorization from DHS or from their schools. It might be helpful to look at how the Immigration and Nationality Act (INA) defines the F-1 nonimmigrant classification to better understand the context in which we made our regulations change.

The INA, in section 101(a)(15)(F)(i), 8 U.S.C. 1101(a)(15)(F)(i), describes an F-1 nonimmigrant as “an alien having a residence in a foreign country which he has no intention of abandoning, who is a bona fide student qualified to pursue a full course of study and who seeks to enter the United States temporarily and solely for the purpose of pursuing such a course of study.” (Italics added.) This definition provides the purpose of the F-1 student's stay in the U.S.—to study. Working in the U.S. is ancillary. In this respect, the F-1 classification is different from certain other nonimmigrant classifications that are based upon the type of work the nonimmigrant will be performing while in the U.S.

DHS regulations do provide, however, that F-1 students, while maintaining valid nonimmigrant student status, may work in the U.S. under certain circumstances. Under 8 CFR 214.2(f)(9)-(10), F-1 students may be authorized to work off-campus in optional practical training (OPT) and in an internship with a recognized international organization, or in cases of severe economic hardship. For these off-campus situations, they must apply to DHS for employment authorization. DHS then determines whether the applicant is eligible for employment authorization, and, if so, issues the applicant an EAD.

In the case of OPT, the employment must be directly related to the F-1 student's major area of study. If offered employment in an internship with a recognized international organization, the student must have a written certification from the international organization that the proposed employment is within the scope of the organization's sponsorship. In cases of extreme economic hardship, the student must present documentation as to why it is critical to be allowed to work off-campus ( i.e. , loss of financial aid or on-campus employment without fault on the part of the student, substantial fluctuations in the value of currency or exchange rate, inordinate increases in tuition and/or living expenses, unexpected changes in the financial condition of the student's source of support, medical bills, or other substantial and unexpected expenses).

An F-1 student may also be eligible to participate in a CPT program that is an integral part of an established curriculum at the school where the student is enrolled. The work must be approved by the Designated School Official (DSO), who signs the student's Student and Exchange Visitor Information System (SEVIS) Form I-20, Certificate of Eligibility for Nonimmigrant Student Status, with the particulars of the employment, including whether the training is full time or part time, the name and location of the employer, and the start and end dates of the employment. For CPT, the student is neither required to submit a Form I-765 to DHS, nor required to present an EAD. See 8 CFR 214.2(f)(10)(i).

Under 8 CFR 214.2(f)(9)(i) and 274a.12(b)(6)(i), an F-1 student may also work “on campus” for a “specific employer incident to status” on the school's premises or at an off-campus location that is educationally affiliated with the school. F-1 students may perform such work without submitting a Form I-765 to DHS or having a DSO report on-campus employment or endorse the student's SEVIS Form I-20. However, 8 CFR 274a.12(b)(6)(i) does state, “Part-time on-campus employment is authorized by the school.” DHS regulations are silent on how the school must authorize that on-campus employment because there is no DHS specific requirement as to how a school provides such authorization to F-1 students. It is clear that such work must not displace a U.S. resident and must be an integral part of the student's educational program. In addition, there are limitations on when the work may be performed ( e.g. , not more than 30 days prior to the actual start of classes) and the maximum number of work hours.

When there is no EAD or school endorsement to document employment, SSA's experience indicates that many F-1 students are assigned SSNs when the students do not have jobs, are not intending to work, and, in some cases, where the school does not have on-campus employment available. Currently, for on-campus employment, where there is no EAD card or school annotation regarding employment on the SEVIS Form I-20, SSA accepts a letter from the DSO affirming that the student is enrolled in a full course of study and is therefore authorized to work on campus. However, our field experience shows that these letters are not always reliable. An October 2003 General Accounting Office (GAO) Report to the Chairman, Subcommittee on Social Security, Committee on Ways and Means, House of Representatives, entitled “Social Security Administration: Actions Taken to Strengthen Procedures for Issuing Social Security Numbers to Noncitizens but Some Weaknesses Remain” (GAO-04-12), cited an SSA Office of Inspector General (OIG) investigation that “uncovered a ring of 32 foreign students in four states who used forged work authorization letters to obtain SSNs. * * * However, an unknown number of other students associated with this ring had already obtained illegal SSNs with forged work authorization letters.” Because of these types of investigations and numerous similar anecdotal field reports about significant anomalies between authorized work and actual work, we are revising our regulations for assigning SSNs to F-1 students. To ensure the authenticity of the student's work authorization from the school and to address student allegations about employment, we are requiring the F-1 student to provide evidence from the DSO of on-campus employment authorization and verification of employment or a promise of employment from the actual on-campus employer.

Assigning SSNs based on work that is authorized to be performed on campus, which we do not verify and which our experience and audits have shown to be often unsubstantiated—in effect assigning SSNs for non-work—runs counter to efforts SSA has initiated. These efforts also include those in response to Congressional inquiries and OIG and GAO audits to strengthen enumeration integrity and decrease opportunities for potential SSN fraud and misuse. It also runs counter to SSA's recently promulgated regulation, “Evidence Requirements for Assignment of Social Security Numbers (SSNs): Assignment of SSNs for Nonwork Purposes,” published in the Federal Register on September 25, 2003 (68 FR 55304), and effective October 27, 2003. This regulation, available online at http://www.socialsecurity.gov/regulations/articles/rin0960_af05f.htm , limits the number of valid non-work reasons for assigning an SSN to a non-citizen.

Because of these considerations, SSA is changing its regulations for SSN assignment to F-1 students for on-campus work. While we recognize that this change in our regulations will cause some inconvenience for F-1 students and schools, we believe that SSA's mission and the recommendations made by OIG, GAO and Congress to strengthen the enumeration process require that we make these revisions. We will provide assistance to schools and employers in implementing these regulatory changes as outlined below and will continue to work with educational associations and DHS as the process moves forward.

The Commissioner of the Social Security Administration has been given broad powers under law to carry out the provisions of the Social Security Act (the Act) and to establish procedures deemed necessary for that purpose. Section 205(a) of the Act states: “The Commissioner of Social Security shall have full power and authority to make rules and regulations and to establish procedures, not inconsistent with the provisions of this title, which are necessary or appropriate to carry out such provisions, and shall adopt reasonable and proper rules and regulations to regulate and provide for the nature and extent of the proofs and evidence and the method of taking and furnishing the same in order to establish the right to benefits hereunder.” [Italics added]

Under section 205(c)(2)(A) of the Act, the Commissioner of Social Security is required to “establish and maintain records of the amounts of wages paid to * * * each individual and of the periods in which such wages were paid * * *.” In addition, under section 205(c)(2)(B)(i)(I) of the Act, the Commissioner is required to assign Social Security numbers to the maximum extent practicable “to aliens at the time of their lawful admission to the United States either for permanent residence or under other authority of law permitting them to engage in employment in the United States and to other aliens at such time as their status is so changed as to make it lawful for them to engage in such employment.” [Italics added] We consider the F-1 student to be in a status permitting on-campus work, which makes the student eligible for an SSN and a restricted Social Security card, when we have received evidence from the DSO that the school has authorized such work and the student has made arrangements to work for a specific employer.

Section 205(c)(2)(B)(ii) goes on to add that “The Commissioner of Social Security shall require of applicants for social security account numbers such evidence as may be necessary to establish the age, citizenship, or alien status, and true identity of such applicants, and to determine which (if any) social security account number has previously been assigned to such individual.”

SSA's regulations at 20 CFR 422.107(a) implement the Act with respect to the evidence required to support an application for an SSN: “An applicant for an original social security number card must submit documentary evidence which the Commissioner of Social Security regards as convincing evidence of age, U.S. citizenship or alien status, and true identity.” [Italics added] Additionally, they provide, “A social security number will not be assigned, or an original, duplicate, or corrected card issued, unless all the evidence requirements are met.”

Our regulations at 20 CFR 422.105 currently state that a nonimmigrant alien whose immigration Form I-94, Arrival/Departure Record, does not reflect a classification permitting work must submit a current document issued by U.S. immigration authority that verifies authorization to work has been granted.

Our regulations at 20 CFR 422.107(e) currently state that “When a person who is not a U.S. citizen applies for an original social security number or a duplicate or corrected social security number card, he or she is required to submit, as evidence of alien status, a current document issued by the [INS] in accordance with [its] regulations. The document must show that the applicant has been lawfully admitted to the United States, either for permanent residence or under authority of law permitting him or her to work in the United States, or that the applicant's alien status has changed so that it is lawful for him or her to work.” If the applicant submits a valid unexpired immigration document(s) that shows current authorization to work, we will assign an SSN and issue a card that is valid for work.

Current SSA procedures require an F-1 student who needs an SSN for work to present evidence of age, identity, F-1 immigration status, and work authorization. This work authorization can either be from DHS in the form of an EAD document or from the F-1 student's school for on-campus employment or CPT. In the past, when an F-1 student applied for an SSN, we believed that the student had a job or imminent plans to secure a job. However, our recent experience has shown that some F-1 students, who do not have an EAD and are not authorized by their schools for on-campus curricular practical training, but who do have a letter from the DSO, apply for SSNs even when there is limited or no general on-campus employment available. Some F-1 students have informed us that they do not intend to work but need the SSNs to obtain goods or services in the community.

Because of these factors, we are requiring additional evidence for F-1 student SSN applicants. The purpose of the SSN is to keep track of an individual's earnings in the U.S. over his or her lifetime and to pay Social Security benefits. The assignment of SSNs for purposes other than that for which the SSN is intended can lead to potential misuse and/or fraud, which can impact society in the form of illegal employment in the U.S., fraudulent entitlement to Federal and State benefits and services, and other types of illegal activity such as bank and credit card fraud and identity theft. In order to strengthen the security of the enumeration process, we are requiring additional evidence from F-1 students before we will assign SSNs to them because they are allowed to work only in certain circumstances. We want to confirm that the student needs the SSN for such authorized work. If F-1 students are not planning to work in the kinds of jobs allowed by their F-1 status, then they would not have a legitimate need for the SSNs and the SSNs would not be assigned.

A number of published government audits and reports support this change. Three are cited here and are accessible online:

• SSA (OIG) study, “Using Social Security Numbers To Commit Fraud” (A-08-99-42002, May 1999) at http://www.ssa.gov/oig/ADOBEPDF/A-08-99-42002.pdf ;

• GAO Report to the Chairman, Subcommittee on Social Security, Committee on Ways and Means, House of Representatives, “Social Security Administration: Actions Taken to Strengthen Procedures for Issuing Social Security Numbers to Noncitizens but Some Weaknesses Remain” (GAO-04-12, October 2003) at http://www.gao.gov ; and

• SSA's OIG report, “Management Advisory Report: The Social Security Administration's Procedures for Enumerating Foreign Students” (A-05-03-23056, December 17, 2003) at http://www.ssa.gov/oig/office_of_audit/audit2004.htm.

We are revising § 422.105 to state that, unless the F-1 student has an employment authorization document issued by DHS or a SEVIS Form I-20, Certificate of Eligibility for Nonimmigrant (F-1) Student Status, completed and signed by the school's DSO authorizing CPT on the employment page (page 3), the F-1 student applicant must provide additional documentation that confirms both that he or she has authorization from the school to engage in employment and has secured authorized employment. (In 2003, INS's benefit functions became part of the DHS.) This wording differs somewhat from that in the Notice of Proposed Rulemaking to clarify that this rule change only applies to F-1 students for on-campus work (these students have neither EADs nor authorization from their schools on Form I-20 for CPT). In discussions over the last year with DHS officials, they supported our plans to assign SSNs only to those F-1 students who have secured a job. The revision includes a cross-reference to § 422.107(e)(2), where the specific evidence requirements are explained.

We are revising paragraph (e) of § 422.107 of our regulations by redesignating paragraph (e) as paragraph (e)(1) and adding a new paragraph (e)(2) to specify that if an F-1 student does not have an employment authorization document and is not authorized for CPT as shown on the F-1 student's SEVIS Form I-20, Certificate of Eligibility for Nonimmigrant (F-1) Student Status, the F-1 student must provide documentation of both work authorization from the school and secured employment before we will assign an SSN to the student. First, the F-1 student will need to provide documentation from the school that he or she will be engaging in authorized employment. Under this change in our policy, we will not assign an SSN to the F-1 student unless the student provides a SEVIS Form I-20, and provides written confirmation from the DSO of (1) the nature of the employment the F-1 student is or will be engaged in and (2) the identification of the employer for whom the F-1 student is or will be working.

Second, we are also requiring that the F-1 student provide us with documentation that he or she is engaged in or has secured employment; e.g. , a statement from the F-1 student's employer. For purposes of these requirements, evidence of a formal job offer, a promise of a job, or evidence that the student is in fact engaged in that job will be considered “secured” employment.

By adding these additional evidentiary requirements, we believe there will be fewer opportunities for abuse of the enumeration process without having any adverse effects on F-1 students who need to work while they are in the U.S. The additional documentation we would require should be readily available.

In addition to the revisions discussed above, we are also making technical non-substantive revisions to §§ 422.103(b)(3) and (c)(3), 422.104(c), 422.105, 422.107(c), (d)(4), (d)(6), (e)(1) and (e)(2), and 422.110(b) that were not included in the NPRM. The revisions reflect that the Immigration and Naturalization Service has been reconstituted into the Department of Homeland Security.

On December 16, 2003, we published proposed rules in the Federal Register at 68 FR 69978 and provided a 60-day period for interested parties to comment. We received comments from 5 advocacy groups, 1 attorney representing international student interests, more than 70 colleges, universities and graduate schools, and 5 individuals. Because some of the comments received were quite detailed, we have condensed, summarized or paraphrased them in the discussion below. We have tried to present all views adequately and carefully address all of the issues raised by the commenters that are within the scope of the proposed rules.

Comment: A number of commenters suggested that SSA “withdraw” this regulation, questioning the purpose behind the rule and how its promulgation will prevent fraud, reduce misuse of the SSN, and/or deter terrorism. One questioned how this rule, had it been in effect in 2001, might have prevented the 9/11 terrorist attack and how it could prevent terrorist attacks in the future. Questions were raised about SSA's fraud prevention measures and some asked specifically how many international students commit SSN fraud, how this rule will reduce instances of SSN fraud and how international student fraud compares to overall SSN fraud. Comments were made that our rule “purports to solve a problem that does not exist” and criticized our using the May 1999, SSA OIG report, “Using Social Security Numbers To Commit Fraud” (A-08-99-42002), as part of the justification for this rule. This report was said to be too old to use as justification for a current regulation that would create “[s]erious policy changes with * * * far-reaching negative impact.” Some commenters said the OIG report showed only that most of a small sample of international students who had SSNs did not have any earnings for the year studied; it did not indicate that the SSNs were used to work illegally in the U.S. Some mentioned that if F-1 students were to “misuse” their SSNs, it would be an issue for DHS, not SSA, to resolve. And, some commented that the rule provides no follow-up mechanism for SSA to determine whether the SSNs were actually used for work purposes.

Response: As we pointed out in the Proposed Rule language, in the past, when an F-1 student applied for an SSN, we believed that the student had a job or imminent plans to secure a job. However, our recent experience has shown that some F-1 students apply for SSNs even when there is limited or no employment available. Some schools and universities provide all their registered F-1 students with letters authorizing on-campus employment and refer them to SSA offices to apply for SSNs. Often, many of these students inform us that they do not intend to work but need the SSNs to obtain goods or services in the community.

We are revising our policy on the assignment of SSNs to F-1 students because our experience suggests that SSNs are assigned to some F-1 students who are not working and do not intend to work. There are rare instances where an F-1 student might qualify for a non-work SSN. The only valid nonwork reasons for an SSN are: (1) A Federal statute or regulation requires an SSN to get the particular benefit or service to which a nonimmigrant has otherwise established entitlement; and (2) a State or local law requires a nonimmigrant who is legally in the U.S. to provide his/her SSN to get public assistance benefits to which he or she has otherwise established entitlement and for which all other requirements have been met. In all other cases, an F-1 student is not eligible for an SSN unless he or she will be working for a specific employer or in a specific type of employment, such as CPT, OPT or for a recognized international organization, or in cases of extreme economic hardship, as permitted by the F-1 classification. Assigning SSNs that are not needed for authorized work for a specific employer or in specific employment would put into circulation SSNs that may be used for fraudulent purposes or illegally for work not permitted while in the U.S. ( i.e. , in work not permitted by their classification under immigration regulations at 8 CFR 274a.12).

With respect to how this rule relates to actual or potential terrorists, we note that SSA must do its part to strengthen the integrity of the SSN, lessen the fraudulent use of the SSN, and guard against providing SSNs inappropriately that could enable someone to integrate into American society who might intend to engage in criminal behavior or harm our country. The issuance of Federal documents to individuals who intend to do us harm enables those individuals to move more easily in our society. Therefore, in our discussions over the last year with DHS, it supported our plans to assign SSNs only to those F-1 students who have secured jobs.

Numerous studies support our concerns in this area and the need to revise policy. In addition to the reports cited in the Preamble, we reference the following OIG reports:

• “Congressional Response Report: SSN Misuse: A Challenge for the Social Security Administration,” A-08-02-22030, October 3, 2001, http://www.ssa.gov/oig/office_of_audit/audit2002.htm ;

• “Inspector General Statement on the Social Security Administration's Major Management Challenges,” A-02-02-12054, December 7, 2001, http://www.ssa.gov/oig/office_of_audit/audit2002.htm ; and

• “Management Advisory Report: Social Security Number Integrity: An Important Link in Homeland Security,” A-08-02-22077, May 9, 2002, http://www.ssa.gov/oig/office_of_audit/audit2002.htm.

Additional audit reports may be found on SSA's Web site of the Inspector General at http://www.ssa.gov/oig/office_of_audit/index.htm.

The GAO also issued a report to the Chairman, Subcommittee on Social Security, Committee on Ways and Means, House of Representatives, in October 2003 entitled “Social Security Administration: Actions Taken to Strengthen Procedures for Issuing Social Security Numbers to Noncitizens but Some Weaknesses Remain” (GAO-04-12 accessible at http://www.gao.gov ). In this report, based on its work from July 2002 through July 2003, GAO discussed SSA's verification of documents for foreign students seeking SSNs. GAO mentioned that SSA had stepped up its verification efforts for foreign students by requiring that they prove enrollment in a full course of study at a DHS-approved school before assigning SSNs to them. However, on page 7, it also advised the Committee that “SSA still does not require its field staff to verify this information or letters from the school stating the student is authorized to work—with the school,” and “SSA also does not require that students actually have a job to qualify for an SSN, only that they have been authorized by their school to work on campus.” On page 10 of the report, GAO supports its contention that “verification of foreign students * * * remains problematic” by citing a “recent” investigation by SSA's OIG, which we alluded to earlier in the preamble, regarding the ring of 32 foreign students in four states who presented to SSA forged work authorization letters along with their SSN applications. There were other students associated with this ring who had already obtained SSNs using the bogus letters.

In addition, the report cited a foreign student Web site that “advises” foreign students to “shop around” for an SSN by visiting more than one SSA office. The Web site also states, “If you are not authorized to work, ask your Foreign Student Advisor for help. Sometimes they can give you a letter to the SSA stating that you need a SSN for on-campus employment. Sometimes SSA clerks dont really read these letters, they just look at them.” The GAO report included reports of schools, operating out of storefronts, that issued work authorization letters for students, claiming the students were working on campus. Another SSA office recounted to GAO reviewers experiences with schools selling work authorization letters to students who wished to get SSNs. These findings were pointed out in the report to the Committee as vulnerabilities for the integrity of SSA's enumeration system and as contributing to the proliferation of SSNs with the potential for misuse.

Most recently, SSA's OIG issued its final report on the enumeration of foreign students: “Management Advisory Report: The Social Security Administration's Procedures for Enumerating Foreign Students,” A-05-03-23056, December 17, 2003, http://www.ssa.gov/oig/office_of_audit/audit2004.htm. The report pointed out problems that OIG sees in the enumeration of foreign students and stated that, while it recognized that increased security measures will impact on the time necessary to process SSN applications, it recommended that SSA employ more effective front-end controls over the enumeration of foreign students.

The OIG auditors corroborated our field experiences. In its examination of 15 educational institutions that enrolled 61,760 foreign students during the period November 2002 through October 2003 (during which time SSA was already requiring schools to provide evidence of school attendance and work authorization), OIG found that only 4 of the 15 (27 percent) stated that employment or an offer of employment was required to receive a work authorization letter from the school. The remaining 11 schools provided employment letters to all students based on their eligibility for employment. The OIG auditors cited a school that gave out the SS-5, Application for a Social Security Card, to every freshman during orientation as part of the normal registration process at that school. Also, one of the schools OIG examined, which has one of the highest percentages of foreign students among U.S. institutions, had just recently changed its policies to require that the student have a job offer prior to issuing a work authorization letter to SSA.

OIG recognized that work authorization and related work status of an F-1student are difficult to substantiate in the absence of any annotation on the I-20 or an EAD, and went on to recommend that SSA propose the regulatory requirement that evidence of actual employment be required for foreign students to be assigned SSNs. This requirement should help prevent the proliferation of SSNs used for non-work purposes and reduce the potential for fraud by confirming that each F-1 SSN applicant is attending school and is in good academic standing, that there is a legitimate job on campus for him or her, and that each student has individualized, specific documentation to that effect.

This effort, as well as SSA's new verification procedures utilizing data from SEVIS to track foreign students and exchange visitors while they are in the U.S., may not prevent fraud and misuse, but both our enhanced enumeration processes and SEVIS work to make it less likely that fraud and misuse will occur.

With regard to the comments indicating that misuse of the SSN is solely a DHS issue, we point out here that SSA is responsible for investigating unauthorized uses of SSNs under the Act. Following the events of September 11, 2001, we increased management attention to possible enumeration weaknesses. We have developed major new initiatives that affect the assignment of SSNs to citizens and noncitizens alike. The examination of how and to whom we assign SSNs, which includes possible misuse of the SSN—unauthorized assignment or fraudulent application—is an issue of the utmost importance to us. As the Agency responsible for assigning SSNs, and maintaining the earnings records and other personal information for millions of SSN holders, SSA is responsible for investigating the misuse of SSNs.

Comment: Several commenters questioned the legal basis for SSA's regulation with respect to F-1 students and on-campus work, saying that neither the Act nor SSA's regulations require actual employment as a precursor to obtaining an SSN.

Response: As already discussed in the Background section of the Preamble, we believe the Act supports a change in our regulations with respect to the type of evidence we require that is both appropriate and convincing to establish a work-related need for SSNs assigned to F-1 students. While F-1 students are allowed into the U.S. to study, DHS regulations also provide specific types of work in which F-1 students may engage. They are not allowed to work anywhere they wish in the general economy. As part of the application process for an SSN, SSA needs to know where an F-1 student will work in order to verify that the SSN will be used for legitimate and authorized purposes as allowed by the student's immigration classification.

For off-campus work, the F-1 student will have an EAD. If CPT is involved, the F-1 student will have the I-20 completed and signed by the DSO with specific employment information on the employment page (page 3). For on-campus work, DHS regulations require authorization by the school, although no specific endorsement by the school or DHS is necessary. See 8 CFR 274a.12(b)(6)(i). We are revising our regulations to state that we will need to see evidence of employment authorization, as well as evidence that a specific job has been secured, in order to establish a work-related need for the SSN.

The Act and regulations allow the Commissioner, as custodian of the SSN, to make rules and regulations that are necessary and appropriate to administer Social Security programs. Our rule is revising 20 CFR 422.105, “Presumption of authority of nonimmigrant alien to accept employment,” and 20 CFR 422.107, “Evidence Requirements,” to more clearly stipulate what is convincing evidence for F-1 students so as to assign them SSNs.

The additional documentation we are requiring will provide more definitive evidence than our current process of accepting DSO letters that confirm only that the student is enrolled in a full course of study and is work-authorized. SSA's OIG and others have found these procedures to be deficient. The new procedures will link the request for an SSN to an actual job that the student is allowed to hold, consistent with the F-1 status, and will help prevent the proliferation of SSNs for non-work purposes.

Comment: Some commenters questioned SSA's understanding of DHS regulations as they pertain to our asking for additional documentation about the F-1 student's on-campus work, saying that such employment, under immigration regulations, is “incident to their status” or that it is a “benefit” or “entitlement” of their immigration status and, therefore, needs no formal documentation. One commenter said our proposed ruling “effectively negates” DHS regulations allowing F-1 students to work on campus.

Response: We have compared DHS regulations with our draft regulations and disagree that our regulations will negate an F-1 student's on-campus work possibilities. DHS establishes work eligibility for the various immigration categories. For F-1 on-campus work, DHS has delegated the authority to authorize work to the DSOs. See 8 CFR 274a.12(b)(6). DHS regulations at 8 CFR 214.2(f)(9) include a restriction on the number of hours that can be worked while school is in session and provide the specifics for what does and does not constitute “on-campus employment.” For example, this regulation states that, “Employment with on-site commercial firms, such as a construction company building a school building, which do not provide direct student services is not deemed on-campus employment” and, “An F-1 student may engage in any on-campus employment authorized under this paragraph which will not displace United States residents.”

Further, 8 CFR 274a.12(b) provides that an F-1 student is authorized to work with a “ specific employer incident to status” (italics added), i.e. , if that employment is on campus or for purposes of CPT. 8 CFR 274a.12 (b)(6) adds another qualifier about such employment: the student must be in “valid nonimmigrant status.” Also, CPT must be specifically authorized by the DSO before an F-1 student may engage in CPT. The types of off-campus work an F-1 student may perform are governed by other DHS regulations not directly germane to this discussion.

Thus, an F-1 student's ability to work on campus is dependent on meeting certain DHS criteria as stipulated in that Agency's regulations.

When an F-1 student files an application for an SSN, and if the student does not have an employment authorization document from DHS or an I-20 with employment information filled in by the DSO (as well as the signed approval of the DSO) on the employment page (page 3), it is not obvious to an SSA employee that the F-1 student can work. We have no way of knowing if the F-1 student is still in status, and therefore eligible and authorized to work ( i.e. , is still a lawfully enrolled F-1 student at the school in a full course of study and/or otherwise maintaining valid nonimmigrant F-1 student status as stipulated in DHS regulations). For this reason, we require additional documentation to verify or otherwise validate that the F-1 student is still meeting those legal obligations. Thus, we are requiring evidence and verification of a job or job offer in order to ensure that we are assigning an SSN for a legitimate work-related purpose within the scope of the F-1 student's immigration classification.

We do not believe that this additional documentation is “effectively negating” DHS regulations. From our discussions with DHS officials, we understand that they support our plans to assign SSNs to those F-1 students who have secured jobs. We also know of schools and universities in the U.S. that already advise their students not to visit an SSA office until they have a job, job prospects or even a written job offer or “contract” in hand.

Comment: One commenter said that DHS does not require an F-1 student to have a job before applying for an EAD to work off-campus and questioned why SSA is requiring proof of a job before assigning an SSN.

Response: We have discussed this issue with DHS officials in light of the regulations at 8 CFR 214.2(f)(9) that provide the DHS requirements that must be met before F-1 students can work while in the U.S. The DHS regulation cited does not require that an F-1 student prove he or she has an off-campus job before DHS provides the student an EAD. However, it does require that the DSO, as part of the student's application for an EAD, provide adequate “documentation” to prove why the student legitimately needs to work off-campus, and that the student is meeting all other requirements for maintaining lawful nonimmigrant status as an F-1 student at the school. This additional documentation provides support for the off-campus work and helps DHS decide whether to provide an EAD to the student. For SSA, the EAD provides a link to actual work.

Also, for CPT, DHS regulations provide that the DSO must first provide specific employment information on the employment page (page 3) of the SEVIS Form I-20 before the student may begin such work. The DSO updates “the student's record in SEVIS as being authorized for curricular practical training that is directly related to the student's major area of study.” The DSO also indicates “whether the training is full-time or part-time, the employer and location, and the employment start and end date.” Finally, the DSO prints out a copy of the employment page indicating that curricular practical training has been approved, signs and dates it, and returns the SEVIS Form I-20 to the student, prior to the student beginning the CPT. Again, this documentation provides SSA field employees a link to actual work.

The only type of work an F-1 student may engage in that does not require some type of additional documentation under DHS regulations as described above is on-campus work pursuant to 8 CFR 214.2(f)(9(i) and 274a.12(b)(6)(i). Each year, SSA field employees interview numerous F-1 SSN applicants who do not have EADs or work documented on their SEVIS Form I-20s. These are the types of cases that SSA's OIG, in several audits referred to earlier in this document, has found to be most problematic. Because in these cases it is not clear to SSA employees that the F-1 student needs an SSN for work (in the absence of an EAD or specific employment information on the I-20), we are requiring additional documentation from the F-1 student to confirm that he or she needs an SSN in order to work for a specific employer in a type of work allowed by their F-1 classification.

Comment: A number of commenters agreed with our position that it is important to verify an F-1 applicant's claim with respect to employment on campus. A few commenters suggested that one all-inclusive letter, in which the DSO provides information about the type of work the student is performing and verification of that work, suffice as proof of employment.

Response: We appreciate these comments, but the intent of the rule is to provide not only a statement from the school's DSO about the student's enrollment in a full course of study and work information, but also to confirm that information with the actual department or school office employing the student. In those cases where the DSO might also be the actual employer of the F-1 student, we would ask to have that employment confirmed with the human resources department or some other department that is responsible for payroll and wage reporting. If a student has already started a job, a pay slip or stub from the employer for work already performed would be acceptable proof of employment.

The reasons for needing to corroborate the work information that the DSO provides has already been cited above: SSA's experience with “DSO letters” that were fabricated by students, work allegations where there are very limited or no on-campus jobs, and the various OIG and GAO reports that confirm these experiences and recommend we require proof of employment from F-1 students for on-campus work. The verification from the actual employer (or HR/payroll department) is meant to support the DSO's statement about the student's work and confirm the need for the student to be assigned an SSN.

Comment: We received several comments that questioned how this regulation would affect F-1 students who need to perform curricular or optional practical training (CPT and OPT) as part of their program, or who need to work in cases of severe economic hardship.

Response: This regulation only affects F-1 students who want to work or are already engaged in general on-campus work. This regulation is not meant to apply to any other type of work that an F-1 student may be authorized to perform while in this country, including work for CPT purposes. We agree, however, that the regulation language as drafted did not make that clear with respect to CPT. We have thus changed the language of the regulation in this final rule in 20 CFR 422.105, “Presumption of Authority of Nonimmigrant Alien to Engage in Employment,” and 20 CFR 422.107, “Evidence Requirements,” to make it clear that this rule applies only to F-1 students who do not have an EAD and are not authorized by the DSO for curricular practical training (CPT) as shown on the student's SEVIS Form I-20, Certificate of Eligibility for Nonimmigrant (F-1) Student Status. For CPT work, we will not require a DSO letter or separate employment verification because the DSO already provides work authorization and additional specific employment information on the student's I-20 employment page (page 3) as evidence of work. For OPT and other types of off-campus employment, we use the employment authorization document (EAD) that the student receives from DHS as proof of work authorization. These students do not need to provide proof of having a job, as we are requiring of F-1 students for general on-campus work, because they have provided sufficient information to obtain authorization to work off-campus so that we know they are seriously planning to work.

Comment: Some commenters asked about the potential impact of this regulation on individuals who are attending school, particularly graduate school, and receiving a fellowship or assistantship in exchange for teaching or other services.

Response: The regulation as written does not prohibit the F-1 student from presenting his or her acceptance letter, which outlines the stipulations of the work portion of the fellowship or assistantship, as proof of employment. In such cases, we may not require any additional statement from the employer, but we will require the letter from the DSO that certifies the student is attending school and has authorization to engage in on-campus employment.

Comment: Some have asked about the potential impact on individuals who are attending school via academic or athletic scholarships, or some other form of subsidy where the student receives finances that are not in exchange for employment, but must be reported as income to the Internal Revenue Service (IRS).

Response: Those students who are receiving scholarships, and who do not qualify for an SSN under these revised regulations, should contact the IRS to inquire about how to file for an Individual Taxpayer Identification Number (ITIN) for legitimate income tax reporting purposes. See information on ITINs at the IRS Web site at the following URLs: http://www.irs.gov/newsroom/article/0,,id=112728,00.html and http://www.irs.gov/individuals/article/0,,id=96287,00.html.

We understand from discussions with IRS that students must provide evidence that they are not eligible for an SSN (letter from SSA) and a copy of their scholarship acceptance letter when applying for an ITIN under this provision. We recommend that these students seek the guidance of legal counsel or a local IRS representative for exact information and filing requirements.

Form W-7, Application for IRS Individual Taxpayer Identification Number, and instructions on who is eligible for an ITIN, and how and when to submit the W-7 are accessible online at http://www.irs.gov/pub/irs-pdf/fw7.pdf.

Comment: Several individuals commented that if new international students do not have their SSNs in hand, they would be at a severe disadvantage when vying for jobs against those students who already have their numbers and/or against U.S. citizen students.

Response: Those students who are looking for work off-campus are not affected by this regulation and will need to abide by current SSA regulations that require EADs as evidence of work authority before we will assign SSNs to them.

As far as how this regulation change would affect an F-1 student “competing” for an on-campus job with a U.S. student, we do not believe this regulation will create an additional burden for the F-1 student for several reasons. First, it is important to remember that many jobs that fall under the DHS definition of “on-campus” are often jobs that also count as Federal work-study employment available to U.S. students as part of their “financial aid” package. As such, these are jobs for which, under Federal regulations, international students do not qualify. Second, F-1 students cannot be placed in a job if their being hired into the position would displace an eligible U.S. student or U.S. worker for that same position. As is clearly stated in 8 CFR 214.2(f)(9)(i), “An F-1 student may engage in any on-campus employment authorized under this paragraph which will not displace United States residents.” Where direct competition for an on-campus job (which could include those jobs eligible as Federal work-study positions for a U.S. student) occurs between an international student and a U.S. student, DHS regulations require that the position go to the U.S. student.

As far as the concern about how this regulation, in general, might affect those F-1 students who do not yet have SSNs vying against other students who do, we anticipate that SSA's new verification procedures utilizing the data in SEVIS ( see next section) will result in F-1 student applicants being assigned SSNs much more quickly than has been the case in the past. We believe that any disadvantages that might exist for F-1 students who do not yet have their SSNs, versus students who do, will be minimized once the school's employer community understands that F-1 student applicants for on-campus jobs should receive SSNs very quickly after providing evidence to SSA that they have job offers.

Also, F-1 students, once they apply for an SSN, can request that SSA issue them an “acknowledgment letter.” This dated letter confirms that SSA has received an application for an SSN. It can be given to any SSN applicant whose evidence must be verified before final action can be taken to assign or deny an SSN application. An F-1 student can show this letter to an employer as proof that they have filed for an SSN.

Comment: A number of commenters noted the delays in processing SSN requests due to the time it takes for SSA to receive a response from DHS that verifies the student's nonimmigrant status. One commenter noted that, “SSN applications for non-immigrant applicants already take from 2 weeks to 8 months to be approved by the social security office” and that this regulation would cause even more delays. Some students are offered jobs that are of short duration, such as being asked to quickly translate documents, or are asked to help with orientation sessions when they first arrive on campus at the beginning of a new school year. Receiving an SSN timely seems even more critical in these situations.

Response: SSA has recently developed, in conjunction with DHS and the Department of State, an expedited way to verify the nonimmigrant status of F-1 and M-1 (vocational/nonacademic) students and J-1 exchange visitors. For these categories of nonimmigrants, if we cannot verify their status online using the Systematic Alien Verification for Entitlements system (SAVE), we request verification from the Los Angeles Immigration Status Verification Unit (LOS ISV) of DHS. LOS ISV will search SEVIS records. If the school has “registered” or the sponsor has “validated” that student in the SEVIS database upon the student's arrival in the U.S. and before we request verification of that status from LOS ISV, a positive verification response indicating the student is “active” in SEVIS can be sent to SSA within a few days. Once verification of the student's status is received, SSA will assign an SSN and issue an SSN card within two weeks. It is important to note that while this new SEVIS process speeds up the verification of student status, there is no information currently contained in SEVIS that verifies employment for on-campus work.

Comment: Quite a few commenters asked how F-1 students could apply for jobs without first having an SSN. They told us that their schools and/or private on-campus employers do not hire anyone who does not already have an SSN. Many commenters said it is against the law to hire without an SSN, and that SSNs are required for payroll reporting and end-of-year wage reporting.

Response: A valid SSN is necessary for all employees so that employers can properly report their wages to SSA and the IRS as required by law. However, there is no provision in the Act that requires employers to mandate that employees have SSNs before they can be hired. Neither is there any provision in the Act that prohibits an employee from beginning work if he or she has not yet obtained an SSN. Furthermore, when the employer files the annual wage report, if the employee has applied for an SSN but has not yet received it, the employer can still file without the particular SSN by following the procedures located on SSA's Web site at http://www.socialsecurity.gov/employer1.htm . See also the fact sheet entitled, “Employer Responsibilities When Hiring Foreign Workers,” found at http://www.socialsecurity.gov/employer/hiring.htm. However, once the employee has received the number, he or she is required to inform the employer as soon as possible, and may be requested by the employer to show his or her Social Security card. The employer can then file a corrected wage report with SSA and the IRS following instructions that are available on both Agencies' Web sites, http://www.socialsecurity.gov/employer/how.htm and http://www.irs.gov.

We recognize this regulation may cause inconveniences for schools using certain payroll software systems. Schools with this problem may wish to discuss a work-around with their software vendor. Also, schools may contact one of SSA's Employer Services Liaison Officers (ESLOs), who specialize in payroll reporting issues. ESLOs for each State are listed on our Web site at: http://www.ssa.gov/employer/wage_reporting_specialists.htm.

It is SSA's hope that our new expedited method of verifying a student's nonimmigrant status with DHS using SEVIS will minimize the delays for F-1 students in obtaining SSNs. We are receiving positive feedback from our offices that this new verification process that began in January 2004 is greatly reducing verification times.

Comment: Several of the commenters raised concerns that if an F-1 student begins work without an SSN, the employer may withhold that student's paycheck until the SSN is assigned and an SSN card is received in the mail.

Response: Employers are required to abide by Federal and State laws with respect to the payment of wages to employees who have completed the agreed-to amount of work. Also, different States have different payday requirements. A comprehensive list can be found on the Department of Labor's Web site at: http://www.dol.gov/esa/programs/whd/state/payday.htm. We would strongly recommend that employers and/or their payroll or HR departments check Federal and State labor laws and their own legal counsel before withholding payment of wages from their employees.

As previously mentioned, there is no provision in the Act that requires employers to mandate that employees have SSNs before they can be hired. Neither is there any provision in the Act that prohibits an employee from beginning work if he or she has not yet obtained an SSN.

Also, we expect that the decreased amount of time it takes to verify student nonimmigrant status using the new SEVIS verification process should increase the speed with which SSA can assign SSNs and students can pass along their SSNs to employers.

Comment: Several commenters pointed out the F-1 student's need to use the SSN card as one of the proofs of employment eligibility on Form I-9, Employment Eligibility Verification, when they are applying for a job. They feared that if a student were required to receive a job offer before they could receive an SSN, they would not get the number in time to fill out the required I-9 form completely.

Response: The restricted Social Security card given to an F-1 student cannot be used for Form I-9 purposes. Form I-9 was developed for verifying that new employees are eligible to work in the U.S. Section 1 is completed and signed by the employee at the time employment begins and asks the employee to provide his or her name, address, date of birth, SSN and attest that he or she is authorized to work in the U.S. The employer then completes and signs Section 2 after examining certain employee documents, specified as List A, List B and List C documents, on the reverse side of the Form I-9. Any one document from List A establishes both identity and employment eligibility. Therefore, if an employee presents a List A document, he or she does not have to show the employer any other document. However, if the employee does not have a List A document, then he or she must establish identity by providing one document from List B and establish employment authorization by providing one document from List C.

While the SSN card is shown as a List C document, it only applies to “unrestricted” SSN cards—those issued to U.S. citizens, asylees, refugees, legal permanent resident aliens, and citizens of Compact of Free Association countries (Palau, Micronesia and the Marshall Islands)—all of whom are authorized by their status to work without restriction in the U.S. The SSN card issued to an F-1 student does not meet the List C requirement because an F-1 student who is assigned an SSN will always receive a “restricted” SSN card. A restricted SSN card bears one of two legends: “Not Valid For Employment” or “Valid Only With INS Authorization.” (Effective for SSN cards issued March 27, 2004, and later, the printed legend reads “Valid Only With DHS Authorization.”) The F-1 student generally receives the second type. This means that, for employment purposes, a restricted SSN card does not provide employment eligibility. ( See DHS Web site on Form I-9 located at http://uscis.gov/graphics/howdoi/faqeev.htm, which discusses that a restricted SSN card with the legend “Valid Only With INS (or DHS) Authorization” does not satisfy the Form I-9 requirements.) Since all SSN cards given to F-1 students include this legend, although the number is valid for wage and tax reporting purposes, the card itself does not prove employment eligibility. SSA's regulation does not change that fact.

DHS regulations at 8 CFR 274.a.2, accessible at http://uscis.gov/lpBin/lpext.dll/inserts/slb/slb-1/slb-9960/slb-27136/slb-27219?f=templates&fn=document-frame.htm#slb-8cfrsec274a2, discuss verification of employment eligibility and the Form I-9 requirements. Further questions regarding on-campus employment and what documentation is needed to meet the Form I-9 requirements should be directed to the Department of Homeland Security. We have been advised by DHS that the Employer, Business, Investor and School Services (EBISS) helpdesk (1-800-357-2099), which is part of the United States Citizenship and Immigrations Service (USCIS) Customer Service Support Center, is the appropriate place to call for Form I-9 questions.

Comment: A couple of commenters suggested that this regulation would make it harder for an F-1 student to get an SSN and make it more tempting for a student to get a job illegally.

Response: We do not believe that this regulation will make it so difficult to get an SSN that F-1 students will resort to working illegally in the U.S. resulting in negative consequences in their legal status. SSA is working to strengthen the integrity of the SSN while balancing the need to ensure that those who do need SSNs for work are assigned numbers as expeditiously and securely as possible.

Comment: Some commenters questioned the “fairness” of this regulation on this particular alien category. One individual asked whether international students who were denied employment could file a lawsuit for discriminatory practices based on “national origin.”

Response: We do not believe there is anything in the proposed regulation that discriminates against a particular ethnic or national group. Any international F-1 student who meets the evidentiary requirements we have set forth for on-campus employment will be granted an SSN, regardless of nationality or ethnic origin.

Comment: A few individuals commented that the proposed regulation would have a negative impact on the diversity of the academic community and the surrounding community at large, particularly the business community, by imposing a roadblock which could ultimately discourage international students from attending schools in the U.S.

Response: It is certainly not the intention of SSA in the development of this regulation to discourage international students from enrolling in U.S. schools. We are making every effort to provide assistance to schools and F-1 students and will continue to examine ways to minimize any unforeseen impact this regulation change may have on students' work lives in the future.

Comment: A frequently mentioned issue was the expressed concern about the impact that denial, or delayed receipt, of an SSN would have on a student's ability to assimilate into U.S. society. In particular, the lack of access to a driver's license was listed as a significant concern, especially in comments from individuals who represent community colleges and other institutions where the population, or at least a significant portion of it, needs to drive to the campus. Commenters also noted that many foreign students find they cannot lease an apartment, open a bank account or negotiate utility services without an SSN, which has come to be a required element to do business with many providers of goods and services in U.S. society. Some commenters requested that SSA “do something” to prohibit this business use of the SSN.

Response: While we recognize the many uses of the SSN by other Federal and State agencies, organizations and businesses in U.S. society, the primary purpose of an SSN is for SSA to track earnings over a worker's lifetime. SSA cannot control the types of information that private businesses request of their customers. We suggest that schools work with the local businesses in the community on alternatives to requiring SSNs from their foreign students in order to access services.

From our discussions with some credit-checking agencies, we have been informed that credit checks can be run using the name and date of birth information without an SSN. While the SSN is often requested on business forms and applications, the SSN is not always a required data element if the applicant does not have one, but is required if the applicant has been assigned an SSN.

With respect to needing an SSN to open a bank account or cash or deposit payroll checks, it is our understanding from talking to various banks that most banks will cash a payroll check for a non-customer if the check is from their bank. This should be helpful to many F-1 students whose employers' banks have branches in the employees' areas. Some banks charge for this service; others do not. There are other alternative business entities that cash checks for a fee.

Those students who need to open bank accounts, and who do not qualify for an SSN under these revised regulations, should contact the IRS to inquire about how to file for an Individual Taxpayer Identification Number (ITIN) for legitimate income tax reporting purposes. See information on ITINs at the IRS Web site at the following URLs: http://www.irs.gov/newsroom/article/0,,id=112728,00.html and http://www.irs.gov/individuals/article/0,,id=96287,00.html.

We understand from discussions with IRS that students who need to open bank accounts must provide evidence that they are not eligible for an SSN (letter from SSA) and a letter of intent to open an account from the financial institution when applying for an ITIN under this provision. We recommend that these students seek the guidance of legal counsel or a local IRS representative for exact information and filing requirements.

Form W-7, Application for IRS Individual Taxpayer Identification Number, and instructions on who is eligible for an ITIN, and how and when to submit the W-7 are accessible online at http://www.irs.gov/pub/irs-pdf/fw7.pdf.

As stated in Social Security regulation 20 CFR 422.104, the only circumstance in which SSA can assign an SSN to an alien for other than work purposes is when it is for a valid non-work reason. The only valid non-work reasons to assign an SSN to an alien are:

• To satisfy a Federal statute or regulation that requires the alien to have an SSN in order to receive a federally-funded benefit (such as Temporary Assistance to Needy Families) to which the alien has otherwise established entitlement; or

• To satisfy a State or local law that requires an alien who is legally in the U.S. to have an SSN in order to receive public assistance benefits (such as State-funded general assistance) to which the alien has otherwise established entitlement.

See also SSA's recently promulgated regulation “Evidence Requirements for Assignment of Social Security Numbers (SSNs): Assignment of SSNs for Nonwork Purposes,” published in the Federal Register on September 25, 2003 (68 FR 55304), and effective October 27, 2003. In relation to this regulation, we have worked with States to amend their policies regarding the use of an SSN to obtain a driver's license. This regulation is available online at Social Security's Web page http://www.socialsecurity.gov/regulations/articles/rin0960_af05f.htm.

We do not consider the need of an SSN in order to apply to purchase or rent a house or apartment, obtain a driver's license, and apply for a bank account, to be valid non-work reasons to assign a nonimmigrant an SSN. An F-1 student who does not qualify for an SSN may qualify for an ITIN under certain limited circumstances that involve Federal tax reporting or filing requirements. An ITIN is issued by the IRS. See section on “Scholarships” for information on applying for an ITIN.

Currently, there are no statutory restrictions on the private sector's lawful use of the SSN. Action to limit the use of the SSN in the private sector would require Congressional action and is outside the scope of this regulation.

Comment: Several commenters remarked on the extra burden this rule would place on school administrations and F-1 students. Some believe that this regulation will have an adverse economic effect on the community by reducing foreign student attendance at approved schools. One commenter questioned how SSA intends to adequately communicate this revision of policy to our own employees to ensure that it is carried out correctly and equitably. Some questioned how the regulation will be implemented operationally; i.e. , what specific types of documents and information will DSOs and employers be expected to provide?

Response: SSA recognizes that this regulation will: (1) Cause some inconvenience; (2) need to be communicated widely and explained in detail to the academic community; and (3) need to be well-understood and applied equitably and respectfully by SSA field employees.

To lessen the inconvenience and to help schools and F-1 students comply with this rule, we will do the following:

• Provide a “sample” DSO letter format that schools can download from our Web site and/or obtain from local SSA field offices that can be used to document student attendance and work information;

• Provide a “sample” employer letter format that employers can download from SSA's Web site and/or obtain from local SSA field offices that can be used in certifying an F-1's on-campus work relationship (if the student does not have a pay stub or pay slip);

• Provide appropriate assistance to F-1 students in SSA field offices, as well as through the toll-free 800 assistance number (1-800-772-1213), if they are having difficulty securing the needed documentation.

As public information tools, we will develop informational handouts and fact sheets—available online and in SSA field offices—including an explanation of the new evidence requirements. Some other public information materials may be developed as needed.

SSA currently has available online at http://www.ssa.gov/employer/hiring.htm an informational fact sheet for employers, “Employer Responsibilities When Hiring Foreign Workers,” that provides SSA and IRS Web sites, links to employer reporting responsibilities, and how to report if the employee has not yet received his or her SSN.

And, SSA will continue to work with schools and advocacy groups on F-1 student issues as they arise.

For our own employees, we will:

• Issue new national instructions that implement the provisions of the revised regulations;

• Provide appropriate training on how the new procedures are to be implemented; and

• Advise our field and regional offices to provide feedback on how the process is working.

Comment: Several commenters raised the issue of the increased amount of paperwork a school's administration would have to create and process to comply with the proposed regulation. Their concern is that the already strained resources of school administrations will be stretched even further if they are required to provide additional documentation to prove that a student already has employment or an employment commitment before obtaining an SSN.

Response: While we recognize there will be an increased demand on school administrators, the primary concern of SSA must be to ensure the integrity of SSNs by not assigning SSNs for other than work or valid non-work purposes. We certainly sympathize with the plight of administrators and that is why SSA will provide assistance to the schools as described above.

The Office of Management and Budget (OMB) has reviewed these final rules in accordance with Executive Order 12866, as amended by Executive Order 13258. We have also determined that these rules meet the plain language requirement of Executive Order 12866, as amended by Executive Order 13258.

We certify that these final rules will not have a significant economic impact on a substantial number of small entities because they affect only individuals. Thus, a regulatory flexibility analysis as provided in the Regulatory Flexibility Act, as amended, is not required.

We have reviewed these final rules under the threshold criteria of Executive Order 13132 and have determined that they 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. There may be some minimal impact on those States whose academic institutions have not developed an alternative method in their recordkeeping systems for identifying F-1 students not eligible for SSNs. There may also be some minimal impact on States whose academic institutions may be an F-1 student's employer.

The Paperwork Reduction Act (PRA) of 1995 says that no persons are required to respond to a collection of information unless it displays a valid Office of Management and Budget (OMB) control number. In accordance with the PRA, SSA is providing notice that OMB has approved the information collection requirements contained in §§ 422.105(a) & (b) and 422.107(e)(2) of these final rules. The OMB Control Number for these collections is 0960-0684, expiring 01/31/2007.

On August 13, 1996, the President signed into law the Federal Oil and Gas Royalty Simplification and Fairness Act (RSFA). 1 RSFA amends the Federal Oil and Gas Royalty Management Act of 1982 (FOGRMA). 2 Section 7 of RSFA allows MMS and the State concerned (defined under RSFA as “a State which receives a portion of royalties or other payments under the mineral leasing laws from [a Federal onshore or OCS oil and gas lease]”)  3 to provide royalty prepayment and regulatory relief for production from marginal properties for Federal onshore and Outer Continental Shelf (OCS) oil and gas leases. 4 The stated purpose of granting relief to production from marginal properties under RSFA is to promote production, reduce administrative costs, and increase net receipts to the United States and the States. 5 Specifically, paragraph (c) of the new 30 U.S.C. 1726 enacted by RSFA section 7 directed the Secretary of the Interior (and States that had received a delegation of audit authority) to “provide accounting, reporting, and auditing relief that will encourage lessees to continue to produce and develop” marginal properties, “ [p]rovided that such relief will only be available to lessees in a State that concurs.” If royalty payments from a lease are not shared with a State under applicable law, then the Secretary alone determines whether to provide relief.

In response to the RSFA section 7 amendments, MMS conducted three workshops to receive input from a wide variety of constituent groups to develop a proposed rule. The workshops were held at MMS offices in Denver, Colorado, on October 31, 1996; January 23, 1997; and November 5, 1997. Representatives from several Federal and State government organizations participated along with industry organizations representing both small and large Federal oil and gas lessees. The input received during these workshops was instrumental in developing the proposed rule that was published in the Federal Register on January 21, 1999 (64 FR 3360). The proposed rule addressed only accounting and auditing relief. It did not propose prepayment relief. The final rule also does not include any provisions authorizing prepayment relief. That subpart is reserved for possible later rulemaking.

Public comments received in response to the proposed rule were sharply contradictory. The comments fell into two general categories:

1. The States believed that MMS was offering too much relief to industry; and

2. Industry believed that the rule was too complicated and did not offer enough relief.

Because of the contradictory opinions, the Associate Director for Minerals Revenue Management asked the Department's Royalty Policy Committee (RPC) to form a subcommittee to review the marginal property issue and make recommendations to the Department on how MMS should proceed. The RPC appointed a subcommittee with members from several industry associations and the major States affected by the relief provisions. MMS employees and a representative of the Office of the Solicitor served as technical advisors to the subcommittee.

The RPC subcommittee prepared a report and submitted it to the RPC on March 27, 2001. The RPC accepted the subcommittee's recommendations. On August 2, 2001, the Acting MMS Director—on behalf of the Secretary—approved the report and advised MMS to proceed with a supplementary proposed rule incorporating the subcommittee's recommendations. The MMS published a supplementary proposed rule on March 31, 2003 (68 FR 15390), that included the RPC subcommittee's recommendations with one exception described in the response to comments in the next two sections.

MMS received comments on the initial proposed rule published on January 21, 1999 (64 FR 3360), from the following nine entities:

• 3 States;

• 1 State and Indian audit organization;

• 2 oil and gas producers;

• 2 industry associations; and

• 1 law firm [hereinafter the “law firm''] representing 1 industry association and 11 oil and gas companies.

These comments are analyzed and discussed below:

1999 Proposed Rule. In § 204.2, MMS proposed to define the base period as the 12-month period from October 1 through September 30 immediately preceding the calendar year in which the lessee takes or requests marginal property relief.

Public Comments. One State commented that the base period should track as closely as possible to the beginning of the applicable calendar year in which the lessee takes marginal property relief. One producer requested that the base period be moved from October 1 through September 30 to September 1 through August 31 because the proposed period did not allow sufficient time for producers to report. One industry association also requested that the base period be moved back to give industry more time for calculations.

RPC Subcommittee Recommendation. The subcommittee members discussed the need to change the proposed base period. Producer groups indicated that the base period needed to be moved back at least 1 or 2 months. However, one State representative said that the base period needed to be as close to the calendar year as possible, but the State could accept moving it back to September 1 through August 31. The subcommittee ultimately recommended changing the base period to July 1 through June 30. The subcommittee agreed that it was necessary to move the base period back in order for MMS to publish a Federal Register notice before the first of the calendar year listing which States were participating in the marginal property relief options. The subcommittee decided that the following schedule should meet the needs of all parties (industry, States, and MMS):

MMS Response. We agree with the RPC subcommittee recommendation to change the period to July 1 through June 30.

1999 Proposed Rule. In § 204.2, MMS proposed to define producing wells as only those producing oil or gas that contribute to the sum of the barrels of oil equivalent (BOE) used in the calculation of a marginal property under § 204.4. The definition excludes injection or water wells.

MMS Response. MMS is clarifying the definition of “producing wells” in the final rule to further specify which wells will be included in calculating a marginal property. We are adding a sentence to clarify that wells with multiple zones commingled downhole are considered as a single well. Counting each commingled zone as a separate completion overstates the number of producing well days in determining the average daily well production for a property.

Although the proposed rule did not contain a definition of “property,” we added a definition to the final rule for clarification. The rule uses the term “property,” and not all properties will qualify as marginal properties. Therefore, we are defining property as a lease, a portion of a lease, or an agreement that may be a marginal property if it meets the qualifications of this subpart. Section 204.4 explains what criteria a property must meet to qualify as a marginal property.

1999 Proposed Rule. In § 204.4, MMS proposed to define a “marginal property” as a property having average daily well production of less than 15 BOE per well per day during the base period.

Public Comments. The law firm and the two industry associations suggested that MMS establish separate production levels for different situations, particularly offshore and onshore properties. One State was concerned that using all producing wells in the calculation could result in classifying properties with high-producing wells as marginal. The same State also objected to MMS delegating to itself the determination of what marginal production is because RSFA stated that MMS and the States should determine the definition jointly.

RPC Subcommittee Recommendation. The subcommittee members discussed the comment that separate qualification rates should be established for offshore and onshore properties. MMS representatives advised the subcommittee that industry had previously formed an operational group to establish a rate for offshore, but the group could not agree and the idea was dropped. Subcommittee members also discussed whether the States could set their own individual qualification rates. The subcommittee members decided this was not acceptable because of the administrative burden associated with tracking and auditing different rates for different States. One State representative was concerned that some States might want to offer some relief but not at an average daily production of less than 15 BOE. The RPC subcommittee did not recommend any changes in the definition of “marginal property.”

MMS Response. In the final rule MMS retains the definition of “marginal property” contained in the 1999 proposed rule with minor modifications to clarify how a lease qualifies as marginal. We moved the information regarding Indian leases not being eligible for relief to § 204.1, and added to the first sentence of § 204.200 that you may obtain accounting and auditing relief for “Federal onshore or OCS lease” production from a marginal property.

Also, as explained in the proposed rule, under § 204.4(a)(1), if your lease is not in an agreement, then your entire lease is a property that must qualify as a marginal property under paragraph (b) of this section. In other words, these are stand-alone Federal leases, and the entire lease would have to qualify under § 204.4.

Under § 204.4(a)(2), if all or a portion of your lease is in one agreement, then the entire agreement must qualify as a marginal property under paragraph (b) of this section. For example, even if other leases in the agreement are not Federal leases, you must use the production attributable to those leases, as well as your lease, in order to make the calculation under paragraphs (b) and (c) of this section to determine whether the agreement meets the production level limits under paragraph (b). If the agreement does qualify, then the production attributable to your lease is eligible for relief under this part. If there are other Federal leases in the agreement, then production attributable to those leases also could qualify for relief, but the lessees or designees of those leases will need to apply individually.

Under § 204.4(a)(3), if all or a portion of your lease is in more than one agreement, then each agreement must qualify separately as a marginal property under paragraph (b) of this section. In addition, for each agreement that qualifies, only the production attributable to your lease or to the part of your lease in that agreement would be eligible for relief under this part. For example, if 50 percent of your lease is included in agreement “A,” and 50 percent of your lease is included in agreement “B,” then agreement “A” must qualify as marginal in order for the production attributable to your lease included in agreement “A” to be eligible for relief. Likewise, in order for the production attributable to the 50 percent of your lease included in agreement “B” to be eligible for relief, agreement “B” must qualify as marginal. Any production from your lease that is not committed to an agreement also may be eligible for separate relief under paragraph (4) of this section.

Under § 204.4(a)(4), if only a portion of your lease is in an agreement and you have production from the stand-alone portion of the Federal lease that is not in the agreement, then the stand-alone portion must qualify separately as a marginal property under paragraph (b) of this section. For example, if 50 percent of your lease is included in an agreement and 50 percent is not, the 50 percent that is not included in the agreement must qualify separately as marginal property under paragraph (b) of this section. This would be the case even if the 50 percent that is included in the agreement did not qualify as a marginal property.

In this final rule, we deleted the word “entire” from paragraph (a)(1) because it is unnecessary since there is only one lease. In addition, in paragraph (a)(3), we revised the rule to add language like paragraph (a)(2) making it clear that any production from your lease that is not in the agreement may be separately eligible for relief under section (a)(4).

We also modified paragraph (c) by removing “on or attributable to” in the first sentence to clarify that the entire property (whether a stand-alone lease, or agreement) must qualify as marginal, not just the production attributable to your lease, or portion of your lease. We also added language in the first sentence to state that you must divide the sum of all BOE for all producing wells on the property “during the base period” to clarify the calculation. In addition, to clarify that the “property” (whether a stand-alone lease, or agreement) must qualify as marginal, not just the production attributable to your lease which may be only a part of the relevant property ( e.g. , an agreement), we replaced “your property” with “the property.” Also, throughout the final rule, we have replaced “marginal property” with “marginal property production” when required to distinguish between the “marginal property” that the calculation in this section applies to and your “marginal property production” for which you are seeking relief.

MMS agrees with the subcommittee's conclusion that using different State production levels to define “marginal property” would be too administratively onerous for use. Such an approach also would result in a Federal law having different meanings in different States, which would raise serious legal concerns.

Although using all producing wells in the calculation to determine whether a property is marginal may result in some leases or units with high-producing wells being classified as marginal properties, we believe it would be too administratively burdensome to allow relief for individual wells, rather than by lease or unit or communitization agreement (hereinafter referred to as “agreement” in this context) as the rule provides. Moreover, MMS believes that, because a State may opt out on providing relief if it does not concur with the definition of “marginal property,” the final rule allows the Secretary (acting through MMS) and the State to “jointly determine, on a case-by-case basis, the amount of what marginal production from a lease or leases or well or wells, or parts thereof” may obtain royalty accounting and auditing relief, as the statute provides (30 U.S.C. 1726(a)). Several State representatives on the subcommittee ultimately recommended using the production level in the proposed rule.

1999 Proposed Rule. In § 204.5, MMS reiterated the RSFA statutory requirements that any relief granted for marginal properties must promote production, reduce administrative costs, and increase net receipts to the Federal Government and the States.

Public Comments. One State asserted that the proposed rule was contrary to law because it was unlikely to promote production or increase net receipts and there is no way to determine whether or not the relief will increase net receipts. The State also expressed concern about the loss of the time value of royalty receipts if we allow delayed reporting.

RPC Subcommittee Recommendation. The subcommittee discussed numerous times the difficulty in finding possible relief options that would meet all three RSFA objectives. The subcommittee recommended that two relief options be retained—cumulative reporting and “other” relief.

MMS Response. We understand the State's concerns but do not agree that the relief offered will not promote production or increase net receipts. Because use of the annual reporting option is limited in § 204.202 to properties producing 1,000 BOE or less annually, we believe there will be little loss, if any, of time value of the royalties. Moreover, we believe the administrative savings to the lessee will promote production, and the administrative savings to MMS and the States will more than offset any possible loss of interest. A member of MMS's reengineering team informed the subcommittee that each different relief option would require modifications to MMS's compliance programs and thus add cost. In the final rule, we limit our relief options to those recommended by the subcommittee to avoid being cost prohibitive.

However, in order to partially address the State's concerns and to be consistent with RSFA's language, we modified § 204.5(b) to make it clear that MMS, with a State s concurrence, may decide to discontinue any relief granted, at any time. In addition, we made it clear that MMS s decision to discontinue relief is not appealable within the Department. Thus, MMS will consult with the States about whether to discontinue relief, but MMS will issue the decision to discontinue relief.

Section 204.5(b)(1) also explains that, if MMS terminates your cumulative reports and payments relief under this section, your relief continues until the end of the calendar year in which you received the notice. For other types of relief, MMS's notice will tell you when your relief terminates.

1999 Proposed Rule. In § 204.6, MMS proposed that, if MMS denied a request for relief based on a State's denial, then the decision was final for the Department and could not be appealed administratively.

Public Comments. One State expressed the opinion that MMS's interpretation of RSFA was incorrect and left the States open to litigation in Federal court. Another State indicated that the proposed rule did not clearly acknowledge that nothing in RSFA serves to waive a State's immunity from suit.

RPC Subcommittee Recommendation. All of the State representatives on the subcommittee expressed concern over the language in the proposed rule that said if a decision not to grant relief is based on a State's denial, the decision would not be subject to administrative appeal. This would put any challenge to a decision not to grant relief directly into Federal District Court. The States were not willing to accept that risk. Based on this discussion, the subcommittee sent a request to seven State agencies asking their opinion on the comments raised by State representatives on the subcommittee. Only one agency responded, stating that it agreed with the other States' concerns. Consequently, the subcommittee recommended that each State be given the ability to determine, before each calendar year, whether it will allow either the notification-based relief option or the request-based relief option, or both. If a State decides to allow the request-based relief option, the State would thereby agree to let MMS make the final decision on the relief request. That decision could then be appealed administratively within the Department.

MMS Response. We agree with the subcommittee's recommendation. We also think that modifying § 204.207(b) in the final rule to read as follows will eliminate the States' concerns:

In addition, in § 204.206(a), we codified the RPC subcommittee's recommendation that the State be consulted. Thus, the approval process under the final rule is like the current process for issuance of orders where the State has performed the audit. Although the State would be consulted regarding whether to grant, deny, or modify relief, MMS would ultimately issue the decision and the State would not be subject to suit in Federal District Court. Moreover, any State that does not wish to allow accounting and reporting relief may opt out.

1999 Proposed Rule. In § 204.201, MMS proposed that a lessee or the lessee's designee for a Federal property could obtain relief if the property qualifies as marginal. Further, the lessee or lessee's designee could request relief only for the lessee's fractional interest in the property.

Public Comments. One industry association liked the fact that not all lessees in a property have to seek relief in order for an individual lessee to take relief on the lessee's portion. One State commented that RSFA did not allow designees to apply for relief in place of the lessee.

RPC Subcommittee Recommendation. The subcommittee suggested retaining the original proposed language concerning designees.

MMS Response. We agree with the State that RSFA does not specifically state that designees may seek relief on behalf of lessees. However, it also does not specifically preclude such action. Indeed, 30 U.S.C. 1726(c) merely authorizes the Secretary and delegated States to provide relief “to encourage lessees to continue to produce and develop properties” and that relief will only be “available to lessees in a State that concurs” with granting that relief. The statute is silent about who may request relief. Therefore, because the statute is silent and designees are acting as the lessee's agent, we believe it is reasonable and consistent with RSFA to authorize designees to request relief under this rulemaking.

The RPC subcommittee also recommended that we not require all lessees or designees for a property to apply for relief. Therefore, in the final rule, we added language in § 204.201(a)(3) to specifically state that you may obtain relief even if the other lessees and designees for your property do not request relief.

1999 Proposed Rule. In § 204.203, MMS proposed to allow lessees to report quarterly, semiannually, or annually depending upon the volume of royalty BOE produced on the property.

Public Comments. One State objected to allowing payments less often than monthly because that is what is required by lease terms. The law firm commented that cumulative reporting should not be less often than annually. One industry association suggested that the thresholds for the lessee to be allowed to submit cumulative reports should be higher. The other industry association was concerned that lessees could not perform the complicated calculations to determine the level of relief and suggested MMS establish a consistent production level for eligibility for relief. The industry association also stated that the calculations to determine cumulative royalty reporting relief were too narrow and too burdensome, and all marginal properties should get the same relief. The association also suggested that MMS eliminate the requirement to report allowances separately on marginal properties and explain how estimates would work with reporting less often than monthly. One State was concerned that MMS would have to develop a separate database to track reporting dates and royalty rates by lessee.

RPC Subcommittee Recommendation. A representative of the MMS financial reengineering team was invited to a subcommittee meeting on cumulative reporting. The reengineering team representative stated that MMS would have to make some modifications to its financial system in order to process reporting on a periodic, cumulative basis. The representative explained that each reporting frequency would require funding for system modifications; thus, we would probably have to limit the available relief options to avoid being cost prohibitive. Consequently, the subcommittee recommended that only annual cumulative reporting be retained as a notification-based relief option and that this option be limited to marginal properties producing 1,000 BOE or less annually.

MMS Response: We agree with the subcommittee's recommendations. Moreover, with respect to one State's concern regarding the lease instrument's requirement that lessees pay monthly, the Government may, by rule, modify an obligation under the lease terms if doing so does not change the lessee's position to its detriment.

In addition, to clarify the requirements of this section (redesignated from § 204.203 to § 204.202 in this final rule), without changing the substance of the proposed rule, we reorganized this section of the final rule and added language to make clear when you must submit reports and payments, and how you must fill out your Report of Sales and Royalty Remittance, Form MMS-2014.

Further, as originally proposed § 204.202(g) addressed situations where * * * you dispose of a marginal property for which you have taken relief * * * (emphasis added). However, as discussed above, the lease for which you took relief may or may not be the entire marginal property. For example, your lease may be in an agreement, and the agreement is the “marginal property.” If the agreement does qualify and you take relief for your lease production, but later dispose of your lease, you have not disposed of the “marginal property,” only your “ownership interest” in the marginal property. Therefore, we have revised the rule in § 204.202(e) to state “[I]f you dispose of your ownership interest in a marginal property for which you have taken relief. * * *”

Finally, in § 204.202(e)(2) (proposed 204.202(g)(2)), we added language to codify the existing principle that late payment interest is owed if you do not report and pay timely after disposing of your ownership interest in a marginal property as required under this paragraph.

1999 Proposed Rule. In §§ 204.203, 204.204, and 204.205, the level of relief in each reporting option was based on various levels of marginal production. The calculations required lessees to multiply the BOE attributable to a marginal property by the applicable lease royalty rate.

Public Comments. One State commented that it believed MMS did not provide any rationale for the volume cut-offs for relief. Another State commented that it was unclear how MMS derived production levels for the levels of relief.

RPC Subcommittee Recommendation. Discussion in the subcommittee centered on the complexity of the calculations required to determine whether a marginal property qualified for a particular form of accounting relief. The proposed rule included five different production levels for the five different forms or levels of accounting relief. The subcommittee ultimately decided to recommend volume limits based on total BOE rather than royalty BOE. The subcommittee also reduced the number of volume levels from five to one. This simplified the calculations significantly.

MMS Response. We agree with the subcommittee's recommendations.

1999 Proposed Rule. In § 204.204, MMS proposed to allow net adjustment reporting as one of the notification-based relief options. In this reporting scenario, lessees could adjust a previously reported royalty line in a one-line net entry on the Form MMS-2014, rather than using MMS's traditional two-line adjustment process.

Public Comments. One State objected to allowing net adjustments. One industry association stated that net adjustment reporting should be allowed for all leases under MMS's reengineered system. The law firm, however, commented that net adjustments would not be “relief” for marginal properties if it is allowed for all reporters in the reengineered system.

RPC Subcommittee Recommendation. The subcommittee members discussed the problems MMS's financial reengineering team had encountered in trying to implement net adjustment reporting. Because of very specific requirements in FOGRMA for certain data elements to be displayed on the Explanation of Payments (EOP) sent to States and tribes, the reengineering team and MMS's industry partners found net adjustment reporting unworkable. However, MMS continues to look for acceptable net adjustment reporting options for reengineering purposes. Based on MMS's continuing efforts to offer net adjustment reporting for all reporters, the subcommittee recommended that the net adjustment reporting relief option be dropped.

MMS Response. We agree with the subcommittee's recommendation.

1999 Proposed Rule. In § 204.205, MMS proposed to allow “rolled-up” reporting as one of the notification-based relief options. In this reporting scenario, lessees could report all selling arrangements for a revenue source under a single selling arrangement on the Form MMS-2014.

Public Comments. The law firm stated that “rolled-up” reporting was not significant relief. One of the industry associations agreed that, if all product codes could not be rolled up, this was not significant relief.

RPC Subcommittee Recommendation. The subcommittee recommended that the “rolled-up” reporting relief option be dropped. This recommendation was, again, associated with the problem of accommodating required EOP information and the fact that selling arrangements were dropped from the revised Form MMS-2014 effective October 1, 2001.

MMS Response. We agree with the subcommittee's recommendation.

1999 Proposed Rule. In § 204.206, MMS proposed to allow lessees to request approval to report and pay royalties using a valuation method other than that required under 30 CFR part 206.

Public Comments. In comments to the 1999 proposed rule and the 2003 supplementary proposed rule, one State and one industry association did not think alternative valuation relief was necessary because lessees already have that option under current valuation regulations. The law firm was troubled by the provision that the proposed valuation method should “approximate 30 CFR part 206.” The law firm stated that, with all the litigation currently in progress, it would be difficult for someone to determine what that value should be. Another State commented that the proposed rule invited litigation because there was no way for a State or MMS to determine whether an alternative valuation method would “approximate” royalties in the future. The State further added that alternative valuation relief was not accounting, reporting, or auditing relief but really royalty relief.

RPC Subcommittee Recommendation. The subcommittee recommended dropping this option.

MMS Response. We agree with removal of this option because alternative valuation is still an option a lessee may request under “other relief” in § 204.203 of this final rule.

However, MMS believes the comments to the 1999 proposed rule and the 2003 supplementary proposed rule merit further response. First, the current rules under 30 CFR part 206.107(a)(6) do offer “alternative valuation relief.” However, the fact that lessees may request alternative valuation relief under § 206.107(a)(6) does not preclude MMS from offering valuation relief as an option under this subpart. Second, there does not seem to be any real difficulty to ensure that royalties due under an alternative method approximate royalties due under 30 CFR part 206. Either the requested alternative method comes up with nearly the same royalties that would be due under 30 CFR part 206, or it does not. To that end, the 1999 proposed rule required that “any alternative valuation method * * * [m]ust be readily determinable and certain. * * *” If MMS and the State concerned cannot determine that royalties due under the requested method approximate royalties due under 30 CFR part 206, then MMS can deny the request. In fact, in the 1999 proposed rule, MMS assumed that any request “would propose a simplified valuation method because it would reduce administrative costs.”

Finally, “alternative valuation relief” does not equal “royalty relief.” As MMS explained in the 1999 proposed rule and the 2003 supplementary proposed rule, the “alternate valuation relief option” would allow lessees and designees to “request and report and pay royalties using a valuation method other than that required under 30 CFR part 206.” The “royalty relief” the Department offers under different rules is not an alternative valuation method, but rather a “royalty rate reduction.” Accordingly, alternative valuation does not equal royalty relief—the savings under alternative valuation relief are administrative, whereas the savings under royalty relief are decreased royalties paid.

1999 Proposed Rule. In § 204.211, MMS proposed how it would review requests for alternative relief. MMS did not propose timeframes within which it would review requests.

RPC Subcommittee Recommendation. The subcommittee recommended that MMS have 120 days to review alternative relief requests. The subcommittee recommended that, if MMS did not complete the review within the prescribed 120 days, requests would be deemed “approved.”

MMS Response. In the March 31, 2003, supplementary proposed rule, MMS described its concerns about deeming a request “approved” based solely on the length of time elapsed after receipt of the request without any Department review. We explained that one alternative was to deem the request denied if MMS does not approve or disapprove a lessee's request within 120 days after MMS receives the request. Because denial of a request may be appealed, this alternative would give the Department the opportunity to review the request and make an informed decision. The other option was to have no timing requirements by not including any provision at all.

Because of these concerns, we specifically requested comments on:

• Whether there should be a time limit on MMS approval after it receives a request for reporting, accounting, and auditing relief;

• Whether the request should be deemed approved or denied after some time period, and what that period should be; and

• Any other alternative approaches.

MMS did not receive any comments in response to these questions. In this final rule, MMS decided to have no time requirement for reviewing requests for alternative relief under § 204.206.

1999 Proposed Rule. In § 204.207, MMS proposed to allow audit relief such as audits of limited scope, audits coordinated with other State or Federal agencies, or audits by independent public accountants.

Public Comments. One State objected to any limit on the scope of audits. The State further added that independent auditors do not review whether royalties are paid correctly. Another State asserted that it did not think audit relief was warranted and would not participate in it. The third State wanted to remove the audit relief option related to “coordinated royalty and severance tax audits” because it compromised the State's right to audit.

The law firm stated that audit relief was inconsequential because under the current strategy, marginal properties are seldom audited. One industry association agreed that audit relief was not of significant benefit because the States and MMS already practice coordinated audits. The other industry association, however, strongly supported audit relief.

RPC Subcommittee Recommendation. The subcommittee recommended dropping this option.

MMS Response. We agree with removal of this option because audit relief is still an option a lessee may request under “other” relief in § 204.203 of the final rule.

However, the comments to the 1999 proposed rule merit further response. First, in the 1999 proposed rule MMS gave three examples of potential audit relief: (1) audits of limited scope, (2) coordinated royalty and severance tax audits, and (3) reliance by MMS on independent certified audits. Interestingly, both Wyoming and South Dakota allow voluntary environmental audits where the lessees perform self-evaluations and are then immune from prosecution under certain conditions if they report violations. MMS's example in the 1999 proposed rule of possibly accepting a company's “affirmative statement in the audit report of the company's independent certified auditors that they have reviewed the company's royalty accounting practices with respect to marginal properties and found them to be in compliance with Federal lease terms, laws, and regulations” is similar. Although MMS did not propose to allow immunity to lessees who perform their own audits, there is no question that such audit relief would provide relief to lessees who would not have to spend the time and money to respond to MMS or State audit requests. It would also meet RSFA's goals to “reduce administrative costs, and increase net receipts to the United States and the States * * *” by saving MMS and States audit time on properties that produce nominal royalties.

With respect to comments that audit relief could interfere with MMS's or States' right to audit, we believe that § 204.204(a) negates this concern. This section explicitly states that MMS would not approve a request for accounting and auditing relief if the request “(a) Prohibits MMS or the State from conducting any form of audit.” As MMS explained in the 1999 proposed rule, MMS developed an audit strategy to assure compliance with laws, regulations, and lease terms. To administer this strategy, MMS and the States must audit a sample of leases consisting of a wide range of conditions. Therefore, MMS proposed to deny any relief requested under this subpart that prevents it or a State from conducting an audit of a marginal property. Thus, fears of diminished capacity to audit due to audit relief granted seem largely unwarranted.

1999 Proposed Rule. In § 204.208, MMS proposed to allow a lessee to request any type of accounting and auditing relief that was appropriate for a specific marginal property provided that it was not specifically prohibited.

Public Comments. One State opposed the other relief option because the burden to evaluate the request was too great for a meaningless level of cost savings.

RPC Subcommittee Recommendation. The subcommittee members discussed all three approval-based relief options contained in the 1999 proposed rule. Because of sensitive issues in the original proposal, the subcommittee decided to recommend an approval-based relief option called “other” relief.

Other relief would apply to all marginal properties and could be anything within MMS authority that the lessee or his/her designee thinks would be marginal property relief. The lessee or designee would need to submit a proposal to MMS for approval. After consultation with the State or States concerned, MMS would decide whether to grant the requested relief. Examples of what might be considered are audit relief or an alternative valuation method as discussed above under “Alternative Valuation Relief Option”.

MMS Response. We agree with the subcommittee's recommendation. Further, we disagree with one State's comment that such an option is too great a burden relative to any savings. Any relief requested must meet the statutory requirements in RSFA to promote production, increase net receipts, and reduce administrative costs. The other relief option is now addressed in § 204.203 of this final rule.

1999 Proposed Rule. In § 204.209, MMS listed relief items that MMS would not approve if requested by lessees.

Public Comments. One State wanted to add three items to the types of relief that MMS would not approve. The items were any relief request that (1) decreases royalty income below true market value, (2) increases allowances, or (3) reduces royalty-bearing volumes.

RPC Subcommittee Recommendation. The subcommittee recommended retaining the list of disallowed items with no changes.

MMS Response. We agree with the subcommittee. The relief options not allowed are now addressed in § 204.204 of this final rule. We believe § 204.203(a)(1) in the final rule, which provides that any alternative valuation methodology must approximate royalties payable under 30 CFR part 206, addresses the State's concern.

1999 Proposed Rule. In § 204.210(a), MMS described the information a lessee must submit to MMS before taking any notification-based relief.

Public Comment. One industry association supported notification-based relief rather than request-based relief. The other industry association did not want any required notification for taking relief in §§ 204.203, 204.204, and 204.205.

Two States opposed the automatic relief options. One of those States indicated that all relief should be gained through an approval process. One industry association liked the provision that would allow lessees to file a single notification for multiple marginal properties.

RPC Subcommittee Recommendation. The subcommittee recommended only one type of notification-based relief—cumulative annual reporting.

MMS Response. We agree with the subcommittee recommendation to allow only notification-based relief for annual reporting. The notification-based relief option is now at § 204.202 of this final rule.

1999 Proposed Rule. In §§ 204.212 and 204.213, MMS described the approval process for request-based relief.

Public Comments. All three States thought that the approval process placed too much administrative burden on the States. One State objected to MMS telling the States what the scope, timing, or process should be for its review of a request. The same State noted that MMS cannot tell a State who in the State will make determinations on relief or how long they have to make the determinations. One industry association suggested that authority to approve alternative valuation should be delegated to someone below the Assistant Secretary for Land and Minerals Management (AS/LM). The other industry association wanted approval authority for all properties to be with the AS/LM. The law firm, one State, and one industry association commented that they did not agree with the fact that the regulation required States to do things within specified time periods, but not MMS. One State did not agree with the provision that, if the State did not notify MMS of its decision within 30 days, then the State is deemed to agree with MMS's determination. One industry association was concerned that States might be given more than 30 days to review and decide relief options. The same industry association supported publication of States' decisions to allow or disallow certain types of relief and wanted MMS and the States to develop criteria for analyzing relief requests.

RPC Subcommittee Recommendation. The subcommittee recommended that MMS consult with the State concerned about a request for relief rather than requiring a decision from the State in a specific period of time.

MMS Response. The State's concerns regarding timing are no longer an issue because the final rule requires consultation with the State concerned, rather than specific timing requirements. See discussion on § 204.207(b) under the topic “State Liability” above for denials of requests for relief.

1999 Proposed Rule. In § 204.217, MMS proposed that any approved relief would remain in effect for as long as the property qualified as marginal.

Public Comments. One State opposed continuous relief throughout the life of a lease and thought the marginal properties should be monitored periodically. One industry association supported relief for the life of the lease.

RPC Subcommittee Recommendation. The subcommittee did not recommend any changes in § 204.217.

MMS Response. We agree that properties should have relief for the life of the lease only if they continue to qualify as marginal. Moreover, nothing in the final rule precludes MMS from monitoring and auditing leases for compliance with other MMS regulations and lease terms. Section 204.217 is redesignated as § 204.209 in this final rule.

1999 Proposed Rule. In § 204.218, MMS proposed that a lessee could obtain accounting and auditing relief for a marginal property even if the property benefited from other Federal or State production incentive programs.

Public Comments. One State commented that lessees should be required to disclose other types of relief they are receiving. One industry association supported the provision allowing lessees to get marginal property relief even if they benefit from other incentive programs.

RPC Subcommittee Recommendation. The subcommittee did not recommend any changes in this provision.

MMS Response. We agree that lessees should get marginal property accounting and auditing relief even if they benefit from other relief programs. Nothing in RSFA precludes obtaining marginal property relief if a lessee obtains other relief. Section 204.218 is now redesignated as § 204.213 in this final rule.

1999 Proposed Rule. In § 204.210(b), MMS listed the information that lessees must submit in their requests for accounting and auditing relief and the requirement to submit a $50 fee with each request.

Public Comments. One State indicated that the items to be included in the written request for relief were inadequate. Two States said the $50 fee is too low compared to the cost incurred by States and MMS to process requests. The commenters suggested the fees should be shared with the States. Both industry associations opposed the fee. One commented that small independent producers could not afford the fee and objected to the fee because MMS would not refund it for any reason.

RPC Subcommittee Recommendation. The subcommittee recommended elimination of the fee for request-based relief.

MMS Response. Information lessees must submit in their requests for accounting and auditing relief is now addressed in § 204.205 of this final rule. After further legal review, we have decided that it is reasonable not to recover a processing fee for requests or notices under the final rule. MMS recovers its costs under the Independent Offices Appropriations Act of 1952 (IOAA), 6 for Federal offshore leases, and the Federal Land Policy and Management Act of 1976 (FLPMA), 7 for Federal onshore leases. Thus, as part of the March 31, 2003, supplementary proposed rulemaking, we analyzed the proposed marginal property relief's cost recovery fees for reasonableness according to the factors in FLPMA § 304(b). 8 In that supplementary proposed rulemaking, we examined the “reasonableness factors” which FLPMA requires to be considered: (a) Actual costs (exclusive of management overhead); (b) the monetary value of the rights or privileges sought by the applicant; (c) the efficiency to the Government processing involved; (d) that portion of the cost incurred for the benefit of the general public interest rather than for the exclusive benefit of the applicant; (e) the public service provided; and (f) other factors relevant to determining the reasonableness of the costs.

For marginal property relief taken or requested under §§ 204.202 and 204.203, the method used to evaluate the factors under the March 31, 2003, supplementary proposed rulemaking was twofold. First, we estimated actual costs and evaluated each of the remaining FLPMA reasonableness factors (b) through (f) individually to decide whether the factor might reasonably lead to an adjustment in actual costs. If so, that factor was then weighed against the remaining factors to determine whether another factor might reasonably increase, decrease, or eliminate any contemplated reduction. On the basis of that twofold analysis, although MMS's total estimated actual costs were $2,370 to process an average request, MMS determined that a fee of $50 to process relief requests was reasonable.

MMS determined a reduced fee was reasonable primarily based on its evaluation of FLPMA factor (f) “other factors.” MMS's primary consideration under this factor was RSFA's purpose with respect to marginal properties. Congress enacted RSFA to “promote production,”  9 by “encourag[ing] lessees to continue to produce and develop marginal properties.”  10 Congress stated that “certain regulatory * * * obligations should be waived if it can be demonstrated such a waiver could aid in maintaining production that might otherwise be abandoned.”  11 However, RSFA also mandated that any relief should “reduce administrative costs, and increase net receipts to the United States and the States.”  12 Congress stated that granting relief for marginal properties should “result in additional receipts from oil and gas production that would otherwise be abandoned, and would * * * increase oil and gas production on Federal lands by creating economic efficiencies to make Federal leases more competitive with private leases.”  13 Thus, as part of its FLPMA reasonableness analysis, MMS considered (1) whether the benefit from the increase in royalties to be gained from continued production from marginal properties and the decreased administrative burden to MMS from granting such relief merited a reduction in fee charges; and (2) whether recovering the fee would defeat the Congressional intent to provide relief by discouraging companies from requesting relief.

MMS has reexamined the analysis under factor (f) in the March 31, 2003, supplementary proposed rule to determine whether those factors warrant elimination of the proposed fee. We think they do. We agree that the administrative savings to industry if they are granted relief will not be significant enough for them to pay a fee to request relief. Moreover, we agree that the companies that most need the relief are small independents who would be discouraged from applying for relief by even the previously proposed nominal fee of $50. Because the purpose of RSFA is to grant relief to producers so they will continue to produce, we think it is counterproductive to include a fee that will discourage many of the smaller marginal producers from requesting relief. Thus, in the final rule we do not require payment of a processing fee for relief requests.

Section 204.210 explains that if the Bureau of Land Management (BLM) or MMS's Offshore Minerals Management (OMM) retroactively approves the inclusion of a marginal property that qualified for relief as part of an agreement that does not qualify for relief under this subpart, the property qualification ceases as of December 31 of the calendar year that the BLM or OMM approval became effective. In that case, MMS will not retroactively rescind your relief. Since production is allocated to your property under the nonqualifying agreement, you must report and pay based on that allocation. In the proposed rule, we stated in paragraph (c) that if this occurs, you must adjust your royalty payments. To clarify what we meant by paragraph (c) we changed it in the final rule to read that:

For example, assume that you have a stand-alone lease for which you are taking cumulative reports and payments relief beginning January 2005, and your lease retroactively becomes part of a nonqualifying agreement in June 2005 retroactive to January 2005. In that case, your marginal property relief will terminate as of December 31, 2005, with your annual report for calendar year 2005. On your calendar year 2005 annual report, you must report and pay royalties for January 2005 through December 2005 based on the volumes produced on or allocated to your lease under the agreement.

MMS added § 204.214 to clarify that minimum royalty is still due on marginal properties by the date prescribed in your lease and in the amount prescribed therein. Since the annual report and payment under marginal property relief may occur after minimum royalty is due, if the amount of minimum royalty you paid is less than your production royalty obligation, then you would owe additional royalties for the difference. If the minimum royalty you paid exceeds your production royalty obligation, then you would not be entitled to a credit because you must pay at least the minimum royalty amount on your lease each year.

MMS received one comment on the supplementary proposed rule published on March 31, 2003 (68 FR 15390), from a law firm on behalf of one State. This comment is analyzed and discussed below:

Public Comment. The commenter asserted that subsidies and relief have not promoted oil and gas production, increased royalty receipts, or reduced administrative costs. The commenter does not believe reduced administrative costs will be offset by increased royalties. Moreover, the commenter indicated that the State will exercise its option to opt out of marginal property relief. The commenter also expressed concern about several underlying assumptions of the rule and the State's ability to protect school funds from other Federal efforts to reduce lessee obligations.

MMS Response. We have considered the commenter's concerns but do not agree that the relief offered will not promote production, increase royalty receipts, and reduce administrative costs. And, as indicated by the commenter, the State may exercise its option to opt out of marginal property relief.

We have summarized below the estimated costs and royalty impacts of this rule to all potentially affected groups: industry, State and local governments, and the Federal Government. Indian tribes and individual Indian mineral owners are not affected by this rule. The cost and royalty impact information in Item 1 of this section, Procedural Matters, is used as the basis for Department certifications in Items 2 through 14 below.

(1) Notification-based relief—Costs of submitting notifications. Approximately 3,000 Federal oil and gas properties produce 1,000 or less BOE annually. In the first year after this rule becomes effective, we estimate that lessees of 1,000 of these properties will submit notifications that they will take cumulative reporting and payment relief. We do not anticipate that all lessees of qualifying properties will submit notifications because not all States will allow reporting and payment relief, and large corporations may find that modifying their computer systems to report and pay on a few leases annually rather than monthly will not be cost effective.

We further estimate that a lessee will require 2 hours to determine if a property qualifies for cumulative reporting and payment relief and then to prepare and submit the notification to MMS. Consequently, the total estimated burden for all notifications in the first year is 2,000 hours (1,000 properties × 2 hours). Using an estimated $50 per hour cost, the total cost for all lessees to submit these notifications is $100,000 (2,000 burden hours × $50).

Because the reporting and payment relief for a qualified property is for the life of the property as long as the property produces less than 1,000 BOE per year, a notification need be filed only one time. However, we estimate that MMS will receive notifications for approximately 100 newly qualifying properties in each subsequent year. The total estimated burden for each subsequent year is 200 hours (100 properties × 2 hours) for a total cost of $10,000 (200 burden hours × $50).

(2) Notification-based relief—Cost savings of reporting fewer lines. We estimate that an average of 1,000 properties (500 leases and 500 agreements) will involve cumulative reporting and payment relief annually. This means that royalties on these properties will be reported and paid annually rather than monthly. We further estimate that lessees will submit 5,500 fewer lines for leases (1 line per month × 11 months × 500 leases) and 16,500 fewer lines for agreements (3 lines per month × 11 months × 500 agreements) on Form MMS-2014 each year for a total of 22,000 fewer lines per year. Because the time to submit the Form MMS-2014 averages 3 minutes per line, we estimate that lessees will save 1,100 burden hours (22,000 lines × 3 minutes ÷ 60 minutes) or a total of $55,000 (1,100 burden hours × $50) in the first year this rule is effective and for each year thereafter.

(3) Request-based relief—Cost of requesting approval for other accounting and auditing relief. MMS expects approximately 10 requests per year for other accounting and auditing relief. We estimate each request will require 4 hours for a lessee to prepare and submit. This estimate also includes providing information originally omitted from the request and lessee approval of MMS modifications, if any. The total estimated burden is 40 hours (10 requests × 4 hours). The estimated cost to lessees to request other relief is approximately $2,000 per year (40 burden hours × $50).

(4) Request-based relief—Costs or royalty impacts of taking request-based relief. We are unable to quantify the costs or royalty impacts of the request-based relief category at this time because we do not know what types of relief industry will request or how many MMS will approve.

(5) Both types of relief—Cost of notifying MMS that relief has ceased. When a property ceases to qualify for previously granted relief, the lessee or designee is required to notify MMS. MMS expects that 24 properties will cease to qualify for relief each year and that each notification will require 0.25 hours to prepare and submit. The total estimated burden is 6 hours (24 properties × 0.25). The estimated cost to lessees for these notifications is approximately $300 (6 burden hours × $50).

Small Business Issues. Approximately 2,500 companies report and pay royalties to MMS. We estimate that over 97 percent of these companies are small businesses as defined by the U.S. Small Business Administration because they have 500 or fewer employees. We anticipate that most of the relief granted under this rule will benefit small companies. Typically, as properties near the end of their productive life, larger companies with higher overhead, sell their marginal properties to small companies who can operate them more profitably. We expect most small companies will avail themselves of the cumulative reporting and payment relief option. Generally, larger companies may not use this option because of the expense of modifying their large, complex computer systems to report a few leases on an annual rather than a monthly basis. However, we expect that most request-based relief will be sought by larger companies having more sophisticated and complex accounting considerations. If any company, large or small, chooses not to take the accounting and auditing relief offered in this rule, it will incur no additional expense or burden.

This rule will not impose any additional burden on local governments. MMS estimates that States impacted by this rule would incur costs and royalty impacts as calculated below:

(1) Notification-based relief—Costs of determining State participation. Burden hours for review and development of a blanket State policy on accounting and auditing relief are estimated to be 40 hours at the beginning of each year. Only four States have sufficient numbers of marginal properties to require an in-depth analysis of the economic impact of offering accounting and auditing relief. Consequently, we estimate the total annual burden to establish blanket policies for all States to be approximately 160 hours (4 primary States × 40 hours) or a total cost of $8,000 (160 burden hours × $50).

(2) Request-based relief—Costs of consulting with MMS on other accounting and auditing relief. Consultation with MMS on individual requests for other accounting and auditing relief is estimated to be 4 hours per property. As noted previously, MMS expects approximately 10 requests for individual accounting and auditing relief each year for a total burden of 40 hours for all States (10 requests × 4 hours per request) or a total cost of $2,000 (40 burden hours × $50).

(3) Notification-based relief—Royalty impacts of prolonging the life of marginal wells. As discussed in Item A, we estimate that after the first year, cumulative reporting will save industry approximately $45,000 annually ($55,000−$10,000). We expect the reduced cost of operations will prolong the life of marginal wells. If the reporting relief encourages industry to continue to produce oil and gas from marginal properties, States will benefit in the additional receipts. The States generally would receive 50 percent of the royalties collected on additional production. The States also would benefit from continued employment and economic activity resulting from production that would otherwise be abandoned. We cannot determine the length and dollar impact of this additional well life at this time. However, if a State chooses to participate in this reporting relief, we expect the net royalty impact to the State will be positive.

(4) Notification-based relief—Royalty impact of lost time value of money. Because payments would be made annually rather than monthly, States will lose the time value of money on sales made in the 11 months before the royalty payment is due. Generally, States receive 50 percent of the royalties collected for onshore leases.

For example, New Mexico has the largest number of properties qualifying for cumulative reporting and payment relief—approximately 1,280. Using a value of $30 per barrel of oil and $5 per Mcf of gas and a 7 percent interest rate, we estimate that, if all 1,280 qualifying properties take cumulative reporting and payment relief, New Mexico would lose a maximum of $27,000 annually in the time value of money. The calculation for New Mexico marginal properties producing 1,000 BOE per year or less is as follows:

As noted above, we calculated the time value of money lost for qualifying properties in New Mexico to be approximately $53,500 annually (the New Mexico share is $27,000 and the Federal Government's share is $27,000). Because New Mexico has 43 percent of all marginal properties producing 1,000 BOE or less per year, we extrapolated the total loss for qualifying properties in all States to be $124,419 annually ($53,500 ÷ 0.43 = $124,419). The share of the lost time value of money for all States would be $62,209 and the Federal Government's share would be $62,209.

(1) Notification-based relief—Cost savings of processing fewer lines. As noted in Item A(2) above, lessees will report—and MMS will process—approximately 22,000 fewer lines under the cumulative reporting and payment relief option. We estimate that MMS will save approximately $10,340 per year (22,000 lines × $0.47 processing cost per line). We determined the cost per line using cost data from OMB Control Number 1010-0140 ($1,167,900 to MMS to process lines received from industry on the Form MMS-2014 divided by 2,484,000 expected lines per year).

(2) Notification-based relief—Costs to process notifications. In the first year, MMS expects to receive 1,000 notifications from lessees who wish to report annually on their marginal properties. We estimate that recording each notification in MMS's automated records will require 5 minutes per notice. Total time to record the notifications is approximately 83 hours (1,000 notices × 5 minutes ÷ 60 minutes). Using an average cost of $50 per hour, the total cost to the Government is estimated to be $4,150 (83 hours × $50).

In the second year and each year thereafter, MMS expects to receive only 100 notifications. Total time to record the notifications is approximately 8 hours (100 notices × 5 minutes ÷ 60 minutes) or a total cost of $400 (8 hours × $50).

(3) Request-based relief—Costs to evaluate requests for other relief. As noted in Item A(3) above, MMS expects to receive 10 individual accounting and auditing relief requests from lessees annually. We estimate that each request will require 40 hours to analyze. The total estimated cost is 400 hours. The total cost is $20,000 (400 hours × $50).

(4) Notification-based relief—Royalty impact of prolonging the life of marginal wells. As discussed in Item A above, we estimate that after the first year, cumulative reporting will save industry approximately $45,000 annually ($55,000−$10,000). We believe this reduced cost of operations will prolong the life of marginal wells. We cannot determine the length and dollar impact of this additional well life at this time. The Federal Government would generally receive 50 percent of the royalties collected on additional production. We expect the net royalty impact to the Federal Government will be positive.

(5) Notification-based relief—Royalty impact of lost time value of money. The Federal Government will lose the time value of money on sales made in the 11 months before the royalty payment is due. Generally, the Federal Government receives 50 percent of the royalties collected for onshore leases. We think the royalty interest lost to the Federal Government for the time value of money would be the same as for all States or $62,209 annually (see Item B(4) above for the calculation).

This document is not a significant rule and is not subject to formal review by the Office of Management and Budget (OMB) under Executive Order 12866.

a. This rule will not have an effect of $100 million or more on the economy. It will not adversely affect in a material way the economy, productivity, competition, jobs, the environment, public health or safety, or State, local, or tribal governments, or communities.

b. This rule will not create a serious inconsistency or otherwise interfere with an action taken or planned by another agency.

c. This rule will not materially alter the budgetary impact of entitlements, grants, user fees, or loan programs or the rights and obligations of the recipients.

d. This rule does not raise novel legal or policy issues.

The MMS has determined that it will waive the 30-day delay of effectiveness provisions of the APA 5 U.S.C. 553(d), in this rulemaking. Section 553(d) of the APA permits waiver of the 30 day delayed effective date requirement for final rules for, inter alia, good cause or where a rule relieves a restriction. MMS finds that good cause exists because the 30-day delay will result in postponement of the relief for industry until 2006. Alternative Accounting and Auditing Requirements are mandated by Sec. 7(c) of RSFA. The final rule establishes schedules and timeframes for annual reporting relief. If the rule is not effective prior to October 1, 2004, the first deadline, the relief as outlined in the rule will not begin until calendar year 2006. The October 1, 2004, deadline is when MMS would furnish the States a report of marginal properties for the July 2003-June 2004 base period so that the States can decide whether to allow marginal property relief in 2005.

Accordingly the rule must be effective before October 1, 2004, or relief for industry will be postponed until February 2006. Therefore, MMS finds that there is good cause to make the final rule effective immediately upon publication in the Federal Register.

The Department certifies that this rule will not have a significant economic effect on a substantial number of small entities under the Regulatory Flexibility Act (5 U.S.C. 601 et seq. ). Approximately 2,500 companies report and pay royalties to MMS. We estimate that over 97 percent of these companies are small businesses as defined by the U.S. Small Business Administration because they have 500 or fewer employees. We anticipate that most of the relief granted under this rule will benefit small companies. Typically, as properties near the end of their productive life, larger companies with higher overhead sell their marginal properties to small companies who can operate them more profitably.

We expect most small companies will avail themselves of the notification-based cumulative reporting and payment relief option. Generally, larger companies may not use this option because of the expense of modifying their large, complex computer systems to report a few leases on an annual rather than a monthly basis. However, we expect that most larger companies, having more sophisticated and complex accounting considerations, will choose the request-based relief option. If any company, large or small, chooses not to take the accounting and auditing relief offered in this rule, it will incur no additional expense or burden.

Your comments are important. The Small Business and Agricultural Regulatory Enforcement Ombudsman and 10 Regional Fairness Boards were established to receive comments from small businesses about Federal agency enforcement actions. The Ombudsman will annually evaluate the enforcement activities and rate each agency's responsiveness to small business. If you wish to comment on the enforcement actions in this rule, call 1-888-734-3247. You may comment to the Small Business Administration without fear of retaliation. Disciplinary action for retaliation by an MMS employee may include suspension or termination from employment with the Department.

This rule is not a major rule under 5 U.S.C. 804(2), the Small Business Regulatory Enforcement Fairness Act. This rule:

a. Will not have an annual effect on the economy of $100 million or more.

b. Will not cause a major increase in costs or prices for consumers, individual industries, Federal, State, or local government agencies, or geographic regions.

c. Will not have significant adverse effects on competition, employment, investment, productivity, innovation, or the ability of United States-based enterprises to compete with foreign-based enterprises.

This rule will not impose an unfunded mandate on State, local, or tribal governments or the private sector of more than $100 million per year. The rule will not have a significant or unique effect on State, local, or tribal governments or the private sector. A statement containing the information required by the Unfunded Mandates Reform Act (2 U.S.C. 1531 et seq. ) is not required.

In accordance with Executive Order 12630, this rule does not have significant takings implications. This rule does not impose conditions or limitations on the use of any private property; consequently, a takings implication assessment is not required.

In accordance with Executive Order 13132, this rule does not have any significant Federalism implications. This rule does not substantially or directly affect the relationship between Federal and State governments. This rule does not impose any additional burden on local governments. MMS will consult with the State concerned on any notification or request-based relief. Only four States have sufficient numbers of marginal properties that will require a yearly analysis of the economic impact of offering accounting and auditing relief. Any consultation with a concerned State on request-based relief is expected to be minimal as MMS anticipates receiving only about 10 requests annually. Although consultation with the State concerned on whether to allow relief on Federal marginal properties in their State does impose some costs, the amount is not significant and States can opt out of allowing any relief, eliminating the cost.

In accordance with Executive Order 12988, the Office of the Solicitor has determined that this rule will not unduly burden the judicial system and does meet the requirements of sections 3(a) and 3(b)(2) of the Order.

The OMB has approved a new collection of information contained in this rule, entitled “30 CFR Part 204, Alternatives for Marginal Properties,” under 44 U.S.C. 3501 et seq. The OMB-assigned control number is 1010-0155, and OMB approval of this collection expires May 31, 2006. When we renew the ICR in 2006, we will change the title to “30 CFR 204, Subpart A—General Provisions and Subpart C—Auditing and Accounting Relief” to clarify the regulatory language we are covering under 30 CFR 204, Subparts A and C.

The estimated total burden hours currently approved under ICR 1010-0155 is 2,206. The information collection applies only to §§ 204.202(b), 204.203(b), 204.205(a) and (b), 204.206(a) and (b), 204.208(c) and (d), and 204.209(b) of this rule. OMB Control number 1010-0140 covers the burden hours for §§ 204.202(b), (d), and (e), 204.210(c) and (d), and 204.214(b). We received comments from industry, but there were no changes in the burden hours from the proposed rule to the final rule. We will use this information to determine and monitor the eligibility of the lessee or designee for accounting and auditing relief for Federal marginal properties. A response is required to obtain a benefit.

This information collection does not contain confidential information. However, trade secrets and proprietary information are protected if submitted. Storage of such information and access to it are controlled by strict security measures. None of the information requested is considered sensitive.

Submit your comments on the accuracy of this burden estimate or suggestions on reducing the burden to Sharron L. Gebhardt, Lead Regulatory Specialist, Chief of Staff Office, Minerals Revenue Management, MMS, P.O. Box 25165, MS 302B2, Denver, Colorado 80225. If you use an overnight courier service, the MMS courier address is Building 85, Room A-614, Denver Federal Center, Denver, Colorado 80225. You may also e-mail your comments to us at mrm.comments@mms.gov. Include the title of the information collection and the OMB Control number in the Attention line of your comment. Also, include your name and return address. Submit electronic comments as an ASCII file avoiding the use of special characters and any form of encryption. If you do not receive a confirmation that we have received your e-mail, contact Ms. Gebhardt at (303) 231-3211. An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a currently valid OMB control number.

This rule deals with financial matters and has no direct effect on MMS's decisions on environmental activities. Pursuant to the Departmental Manual (DM), 516 DM 2.3A(2), § 1.10 of 516 DM 2, Appendix 1 excludes from documentation in an environmental assessment or impact statement “policies, directives, regulations and guidelines of an administrative, financial, legal, technical or procedural nature; or the environmental effects of which are too broad, speculative or conjectural to lend themselves to meaningful analysis and will be subject later to the NEPA process, either collectively or case-by-case.” Section 1.3 of the same appendix clarifies that royalties and audits are considered to be routine financial transactions that are subject to categorical exclusion from the NEPA process.

In accordance with the President's memorandum of April 29, 1994, “Government-to-Government Relations with Native American Tribal Governments” (59 FR 22951) and DOI DM 512 DM 2, we have evaluated potential effects on federally recognized Indian tribes. This rule does not apply to Indian leases.

This rule is not a significant rule and is not subject to formal review by the OMB under Executive Order 12866. The primary purpose of this rule is to provide accounting and auditing relief to certain lessees of Federal oil and gas properties, largely in the form of reduced records submittal requirements. This rule does not have a significant effect on energy supply, distribution, or use because, although it should promote some additional production on a subset of Federal oil and gas leases, the additional production would not be significant in comparison to total production from Federal oil and gas leases.

In accordance with Executive Order 13175, this rule does not have tribal implications that impose substantial direct compliance costs on Indian tribal governments.

The Sawtooth National Recreation Area (SNRA) in Idaho on the Sawtooth National Forest was created when Congress passed Public Law 92-400 in 1972 to assure the preservation and protection of the natural, scenic, historic, pastoral, and fish and wildife values and the enhancement of recreational values. The act directed the Secretary of Agriculture to develop regulations setting standards for the use, subdivision, and development of privately owned property within the boundaries of the recreation area. The current regulations at Title 36 of the Code of Federal Regulations, part 292, subpart C (36 CFR part 292, subpart C), were adopted in 1974 (39 FR 11544) and were amended in 1976 and 1989 (41 FR 29379, 54 FR 3368). Section 292.16(e)(2)(ii) sets out a residential building standard providing that each residence on private land within the SNRA may have not more than two outbuildings at an aggregate area not to exceed 400 square feet.

The act establishing the SNRA recognizes that the Secretary may from time to time amend these regulations. The SNRA regulations at section 292.14(b) require that any amendment to the regulations shall include publication of a notice of a proposed rulemaking in the Federal Register to provide interested persons the opportunity to comment before adoption of a final rule. The Forest Service promulgated a proposed rule and requested public comment on Apri 22, 2004 (69 FR 21796).

The Forest Service proposed to increase the residential building standard for the two allowable outbuildings to 850 square feet and to limit such outbuildings to one story. The agency previously received numerous comments from the public indicating that the current residential outbuilding size standard is inadequate and supporting the need to increase this size standard. These comments were received in response to the environmental assessment prepared in 2000 for proposed revision of the Sawtooth National Forest land and resource management plan.

This increase in the standard for the maximum square footage of the two allowable residential outbuildings allows the private landowners to construct two-car garages and increase indoor storage areas to protect personal property and equipment, thereby reducing the need for unprotected and unsightly outdoor storage.

General Comments: The proposed rule was published in the Federal Register on April 22, 2004, for a 60-day public comment period (69 FR 21796). In addition, to the Federal Register notice, a news release was distributed to 39 local and regional media outlets, organizations and elected officials. A personal postcard was mailed to more than 450 private landowners within the Sawtooth National Recreation Area. The Forest Service received 9 comments on the proposed rule. Comments were received by the following: 5 individuals, 2 organizations, 1 agency and 1 business. In general, all respondents were supportive of the proposed rule. Respondents recognized the need for a limited increase in the size of outbuildings within the Sawtooth National Recreation Area.

Response: The Department does not intend to make any revisions to the proposed rule. Therefore, the rule, as proposed, is being adopted as final.

Comment on Enforcement of Outbuilding Standards: One respondent expressed concern that the current regulation for outbuildings was not adequately enforced over the last 20 years.

Response: The Forest Service is responsible for enforcement of the new regulation. The Forest Service remains committed to enforce the new regulation to protect the scenic integrity of the Sawtooth NRA.

Comment on working with local counties: One respondent stated that there is a need to work with the local counties for enforcement of the new regulation.

Response: The Forest Service recognizes the need to work with the local communities in enforcement of the new regulation. The Forest Service will be working with the local county assessors office to inform landowners about the new regulations.

Comment on outdoor storage for equipment: One respondent expressed concern about strorage of outdoor recreation equipment. The respondent is concerned that the new regulation will not address some additional outdoor storage needs.

Response: The Department believes that this new regulation will address the respondent's concern about storage of outdoor recreation equipment by providing additional space for private landowners.

Comment on property with current scenic easements: One respondent expressed concern about whether or not property owners with existing scenic easements will be covered under the new regulation.

Response: The Department believes that language used in the property owners existing scenic easement will deterimine whether or not these property owners with existing scenic easements are covered by this regulation.

This final rule has been reviewed under USDA procedures and Executive Order 12866 on Regulatory Planning and Review. The Office of Management and Budget (OMB) has determined that this is not a significant rule. This final rule would not have an annual effect of $100 million or more on the economy, nor adversely affect productivity, competition, jobs, the environment, public health or safety, nor State or local Governments. This final rule would not interfere with an action taken or planned by another agency, nor raise new legal or policy issues. Finally, this rule would not alter the budgetary impact of entitlements, grants, user fees, or loan programs or the rights and obligations of recipients of such programs. Accordingly, this final rule is not subject to OMB review under Executive Order 12866.

This final rule has been considered in light of Executive Order 13272 regarding proper consideration of small entities and the Small Business Regulatory Enforcement Fairness Act of 1996 (SBREFA), which amended the Regulatory Flexibility Act (5 U.S.C. 601 et seq. ). It has been determined that this final rule would not have a significant economic impact on a substantial number of small entities as defined by SBREFA. This final rule imposes minimal additional requirements on the affected public, which includes the owners of private property and residences within the Sawtooth National Recreational Area. The increase of the allowable outbuilding size to 850 square feet is responsive to comments already received from the affected public stating that the current allowable square footage under the existing rule is inadequate. These comments were received in response to an environmental assessment prepared in 2000 for the proposed amendment of the Sawtooth National Forest land and resource management plan. The changes are necessary to protect the public interest, are not administratively burdensome or costly to meet, and are well within the capability of small entities to perform.

Section 31.1b of Forest Service Handbook 1909.15 (57 FR 43180; September 18, 1992) excludes from documentation in an environmental assessment or impact statement “rules, regulations, or policies to establish Service-wide administrative procedures, program processes, or instructions' that do not significantly affect the quality of the human environment. This final rule provides additional storage for residential outbuildings on private lands within the Sawtooth National Recreation Area. The agency's assessment is that this final rule falls within this category of actions and that no extraordinary circumstances exist which would require preparation of an environmental assessment or environmental impact statement. Furthermore, public comments indicating that the current 400-square-foot limit is inadequate were previously received in response to an environmental assessment prepared in 2000 for the proposed amendment of the Sawtooth National Forest land and resource management plan.

This final rule has been analyzed in accordance with the principles and criteria contained in Executive Order 12630, Governmental Actions and Interference with Constitutionally Protected Property Rights, and it has been determined that the final rule does not pose the risk of a taking of private property.

The agency has considered this final rule under the requirements of Executive Order 13132, Federalism, and has concluded that the final rule conforms with the federalism principles set out in this Executive order; would not impose any compliance costs on the States; and would not have substantial direct effects on the States or the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government. Therefore, the agency has determined that no further assessment of federalism implications is necessary.

This final rule, which is applicable only to private lands within the Sawtooth National Recreation Area, does not have tribal implications as defined by Executive Order 13175, Consultation and Coordination with Indian Tribal Governments, and therefore advance consultation with tribes is not required.

This final rule has been reviewed under Executive Order 13211, Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use. It has been determined that this final rule does not constitute a significant energy action as defined in the Executive order.

This final rule does not contain any additional record keeping or reporting requirements or other information collection requirements as defined in 5 CFR part 1320 that are not already required by law or not already approved for use and, therefore, imposes no additional paperwork burden on the public. Accordingly, the review provisions of the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq. ) and its implementing regulations at 5 CFR part 1320 do not apply.

Pursuant to Title II of the Unfunded Mandates Reform Act of 1995, which the President signed into law on March 22, 1995, the Department has assessed the effects of this final rule on State, local, and tribal governments and the private sector. This final rule does not compel the expenditure of $100 million or more by any State, local, or tribal government or anyone in the private sector. Therefore, a statement under section 202 of the act is not required.

This final rule has been reviewed in accordance with Executive Order 12988, Civil Justice Reform. After adoption of this rule as final, (1) all State and local laws and regulations that conflict with this rule or that would impede full implementation of this rule would be preempted, (2) no retroactive effect would be given to this rule; and (3) this final rule would not require the use of administrative proceedings before parties could file suit in court challenging its provisions.

On February 26, 2002, FEMA published an interim rule at 67 FR 8844 implementing Section 322 of the Robert T. Stafford Disaster Relief and Emergency Assistance Act (Stafford Act or the Act), 42 U.S.C. 5165, enacted under Section 104 of the Disaster Mitigation Act of 2000 (DMA 2000), Public Law 106-390. This identified the requirements for State, tribal, and local mitigation plans. On October 1, 2002, FEMA published a change to that rule at 67 FR 61512, extending the date that the planning requirements take effect. The October 1, 2002 interim rule stated that by November 1, 2004, FEMA approved State Mitigation Plans were required in order to receive non-emergency Stafford Act assistance, and local mitigation plans were required in order to receive mitigation project grants. The critical portion of this interim rule provides a mechanism for Governors or Indian tribal leaders to request an extension to the date that the planning requirements take effect for State level mitigation plans. This interim rule allows extensions up to May 1, 2005 to States or Indian tribal governments who submit the necessary justification.

While all States and many Indian tribal governments have been working on the required State Mitigation Plans, and many have been very successful, a few have encountered extraordinary difficulties in meeting the November 1, 2004 deadline. Due to the significant implications of not having an approved plan, FEMA has decided to provide an option for States and Indian tribal governments that may not be able to meet the deadline, in order to allow all States to develop effective Mitigation plans. The option allows the Governor or Indian tribal leader to ask FEMA for an extension. A Governor or Indian tribal leader would be required to submit a written request to FEMA for the extension. The written request would include the justification for the extension; the reasons the plan has not been completed; the amount of additional time needed to complete the plan; and a strategy for completing the plan. FEMA would review each request, and could grant up to a six-month extension. However, the deadline would not be later than May 1, 2005. Governors or Indian tribal leaders could request this extension at any time after publication of this interim rule.

In addition, the current rule requirement states that States, or Indian tribal governments who choose to apply directly to FEMA, must have an approved mitigation plan by November 1, 2004 to be eligible for planning or project grant funding under the Pre-Disaster Mitigation (PDM) program. This rule change allows PDM planning grants to continue to be available to States and Indian tribal governments who do not have a FEMA approved mitigation plan. Local governments, and Indian tribal governments acting as subgrantees, continue to be eligible for PDM planning grants under the current requirement. Mitigation planning is the foundation to saving lives, protecting properties, and developing disaster resistant communities. The PDM program is the primary mechanism that provides grant assistance for mitigation planning. State and Indian tribal governments will be able to apply for a PDM planning grant in order to develop or update their mitigation plan which, when approved by FEMA, will maintain their eligibility for non-emergency Stafford Act assistance.

Finally, this interim rule makes technical and conforming amendments to other sections of FEMA regulations affected by the provision of Part 201 Mitigation planning, and adjusts the general major disaster allocation for the Hazard Mitigation Grant Program (HMGP) from 15 percent to 7 1/2 percent to be consistent with a recent statutory amendment.

FEMA encourages comments on this interim rule.

In general, FEMA publishes a rule for public comment before issuing a final rule, under the Administrative Procedure Act, 5 U.S.C. 533 and 44 CFR 1.12. The Administrative Procedure Act, however, provides an exception from that general rule where the agency for good cause finds that the procedures for prior comment and response are impracticable, unnecessary, or contrary to public interest.

This interim rule provides an option for States and Indian tribal governments to request an extension to the date by which they have to develop State Mitigation Plans required as a condition of receiving non-emergency Stafford Act grant assistance. State and Indian tribal governments are currently under the assumption, consistent with the current requirements, that plans are required by November 1, 2004, whereas this interim rule provides a mechanism to extend that date up to May 1, 2005, in certain cases. It does not affect the date that local plans will be required for other programs, such as the PDM program. In order for State and Indian tribal government resources to be appropriately identified and available to complete the required plans, it is essential that the date extension be made effective as soon as possible. If the rule were delayed beyond the November 1, 2004 deadline, and a State or Indian tribal government did not have a FEMA approved mitigation plan, all entities within that State or Indian tribe would be ineligible for grants to restore damaged public facilities, Fire Management Assistance grants, and HMGP funding. The benefits of this rule will only be realized if the rule is immediately effective and available to State and Indian tribal governments prior to the existing November 1, 2004 deadline. As a practical matter, since FEMA anticipates opening the application period for the FY2004/2005 PDM program in September, this rule is necessary to ensure that FEMA can provide timely guidance to States and Indian tribal governments of their eligibility for PDM planning funds, so they do not miss the opportunity to submit the necessary applications. FEMA believes that it is contrary to the public interest to delay the benefits of this rule. In accordance with the Administrative Procedure Act, 5 U.S.C. 553(d)(3), FEMA finds that there is good cause for the interim rule to take effect immediately upon publication in the Federal Register in order to meet the needs of States and communities by identifying the new effective date for planning requirement under 44 CFR Part 201.

The rule also allows PDM planning grants to continue to be available to States and Indian tribal governments who do not have a FEMA approved mitigation plan. The existing deadline for States to have a FEMA approved mitigation plan is November 1, 2004, and since the next round of competition for PDM funding will occur after that deadline, it is essential that the change in the planning requirement be made effective as soon as possible. This will allow State and Indian tribal governments to apply and compete for planning grants during the next PDM competitive cycle.

Therefore, FEMA finds that prior notice and comment on this rule would not further the public interest. We actively encourage and solicit comments on this interim rule from interested parties, and we will consider them as well as those submitted on the original interim planning rule in preparing the final rule. For these reasons, FEMA believes that we have good cause to publish an interim rule.

44 CFR 10.8(d)(2)(ii) excludes this rule from the preparation of an environmental assessment or environmental impact statement, where the rule relates to actions that qualify for categorical exclusion under 44 CFR 10.8(d)(2)(iii), such as the development of plans under this section.

FEMA has prepared and reviewed this rule under the provisions of Executive Order 12866, Regulatory Planning and Review. Under Executive Order 12866, 58 FR 51735, October 4, 1993, a significant regulatory action is subject to OMB review and the requirements of the Executive Order. The Executive Order defines “significant regulatory action” as one that is likely to result in a rule that may:

(1) Have an annual effect on the economy of $100 million or more or adversely affect in a material way the economy, a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or State, local, or tribal governments or communities;

(2) Create a serious inconsistency or otherwise interfere with an action taken or planned by another agency;

(3) Materially alter the budgetary impact of entitlements, grants, user fees, or loan programs or the rights and obligations of recipients thereof; or

(4) Raise novel legal or policy issues arising out of legal mandates, the President's priorities, or the principles set forth in the Executive Order.

The purpose of this rule is to extend the date by which State and Indian tribal governments have to prepare or update their mitigation plans to meet the criteria identified in 44 CFR Part 201. This interim rule provides a mechanism for States and Indian tribal governments to request an extension of the November 1, 2004 deadline for State Mitigation Plans, and allows State and Indian tribal governments that do not have an approved plan to compete for PDM planning funds after the deadline. As such, the rule itself will not have an effect on the economy of more than $100,000,000, nor otherwise constitute a significant regulatory action.

The Office of Management and Budget has concluded that this rule is not significant for purposes of Executive Order 12866.

Under Executive Order 12898, Federal Actions to Address Environmental Justice in Minority Populations and Low-Income Populations, 59 FR 7629, February 16, 1994, FEMA incorporates environmental justice into our policies and programs. The Executive Order requires each Federal agency to conduct its programs, policies, and activities that substantially affect human health or the environment, in a manner that ensures that those programs, policies, and activities do not have the effect of excluding persons from participation in our programs, denying persons the benefits of our programs, or subjecting persons to discrimination because of their race, color, or national origin.

No action that we can anticipate under the interim rule will have a disproportionately high or adverse human health and environmental effect on any segment of the population. This rule extends the date for development or update of State and Indian tribal mitigation plans in compliance with 44 CFR 201.4. Accordingly, the requirements of Executive Order 12898 do not apply to this interim rule.

This new interim rule simply provides an option to extend the date by which States have to comply with the planning requirements, and clarifies the planning requirements for the PDM program. The changes do not affect the collection of information; therefore, no change to the request for the collection of information is necessary. In summary, this interim rule complies with the provisions of the Paperwork Reduction Act of 1995, 44 U.S.C. 3506(c)(2)(A).

Executive Order 13132, Federalism, dated August 4, 1999, sets forth principles and criteria that agencies must adhere to in formulating and implementing policies that have federalism implications, that is, regulations that have substantial direct effects on the States, or on the distribution of power and responsibilities among the various levels of government. Federal agencies must closely examine the statutory authority supporting any action that would limit the policymaking discretion of the States, and to the extent practicable, must consult with State and local officials before implementing any such action.

We have reviewed this rule under Executive Order 13132 and have concluded that the rule does not have federalism implications as defined by the Executive Order. We have determined that the rule does not significantly affect the rights, roles, and responsibilities of States, and involves no preemption of State law nor does it limit State policymaking discretion.

We will continue to evaluate the planning requirements and will work with interested parties as we implement the planning requirements of 44 CFR Part 201. In addition, we actively encourage and solicit comments on this interim rule from interested parties, and we will consider them in preparing the final rule.

FEMA has reviewed this interim rule under Executive Order 13175, which became effective on February 6, 2001. In reviewing the interim rule, we find that it does not have “tribal implications” as defined in Executive Order 13175 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. Moreover, the interim rule does not impose substantial direct compliance costs on Indian tribal governments, nor does it preempt tribal law, impair treaty rights nor limit the self-governing powers of Indian tribal governments. In fact, this interim rule relieves a burden on Indian tribal governments by allowing them to apply for PDM planning grants after the November 1, 2004 deadline.

FEMA has sent this interim rule to the Congress and to the General Accounting Office under the Congressional Review of Agency Rulemaking Act, Public Law 104-121. This interim rule is a not “major rule” within the meaning of that Act. It is an administrative action to extend the time State and local governments have to prepare mitigation plans required by Section 322 of the Stafford Act, as enacted in DMA 2000.

The interim rule will not result in a major increase in costs or prices for consumers, individual industries, Federal, State, or local government agencies, or geographic regions. It will not have “significant adverse effects” on competition, employment, investment, productivity, innovation, or on the ability of United States-based enterprises to compete with foreign-based enterprises. The rule is not an unfunded Federal mandate within the meaning of the Unfunded Mandates Reform Act of 1995, Public Law 104-4, and any enforceable duties that we impose are a condition of Federal assistance or a duty arising from participation in a voluntary Federal program.

This is a summary of the Commission's Fifth Report and Order, and Order in CC Docket No. 02-6 released on August 13, 2004. The full text of this document is available for public inspection during regular business hours in the FCC Reference Center, Room CY-A257, 445 Twelfth Street, SW., Washington, DC, 20554.

1. In this order, we adopt measures to protect against waste, fraud, and abuse in the administration of the schools and libraries universal service support mechanism (also known as the E-rate program). In particular, we resolve a number of issues that have arisen from audit activities conducted as part of ongoing oversight over the administration of the universal service fund, and we address programmatic concerns raised by our Office of Inspector General (OIG). First, we set forth a framework regarding what amounts should be recovered by the Universal Service Administrative Company (USAC or Administrator) and the Commission when funds have been disbursed in violation of specific statutory provisions and Commission rules. Second, we announce our policy regarding the timeframe in which USAC and the Commission will conduct audits or other investigations relating to use of E-rate funds. Third, we eliminate the current option to offset amounts disbursed in violation of the statute or a rule against other funding commitments. Fourth, we extend our red light rule previously adopted pursuant to the Debt Collection Improvement Act (DCIA) to bar beneficiaries or service providers from receiving additional benefits under the schools and libraries program if they have failed to satisfy any outstanding obligation to repay monies into the fund. Fifth, we adopt a strengthened document retention requirement to enhance our ability to conduct all necessary oversight and provide a stronger enforcement tool for detecting statutory and rule violations. Sixth, we modify our current requirements regarding the timing, content and approval of technology plans. Seventh, we amend our beneficiary certification requirements to enhance our oversight and enforcement activities. Eighth, we direct USAC to submit a plan for timely audit resolution, and we delegate authority to the Chief of the Wireline Competition Bureau to resolve audit findings. Finally, we direct USAC to submit on an annual basis a list of all USAC administrative procedures to the Wireline Competition Bureau (Bureau) for review and further action, if necessary, to ensure that such procedures effectively serve our objective of preventing waste, fraud and abuse.

2. Since the inception of the schools and libraries support mechanism, schools and libraries have been subject to audits to determine compliance with the program rules and requirements. Audits are a tool for the Commission and USAC, as directed by the Commission, to ensure program integrity and to detect and deter waste, fraud, and abuse. Because audits may provide information showing that a beneficiary or service provider failed to comply with the statute or Commission rules applicable during a particular funding year, audits can reveal instances in which universal service funds were improperly disbursed or used in a manner inconsistent with the statute or the Commission's rules. As explained below, we adopt measures relating to recovery of such funds and other measures to strengthen the integrity of the schools and libraries mechanism of the universal service program and enhance our ongoing oversight over this program.

3. We stress that the measures we adopt herein are not the final steps we plan to take for strengthening oversight of the universal service program and combating waste, fraud, and abuse. We remain committed to deterring inappropriate uses of universal service monies and to rapidly detecting and addressing potential misconduct (including waste, fraud, and abuse), and we recognize that achieving these goals is a continual process. We note that we previously sought comment on additional oversight mechanisms, including a requirement that beneficiaries obtain and pay for independent audits of their compliance with our rules. We are continuing to work on various proposals for improving our oversight of the universal service program, and we expect to issue an order adopting additional measures in the near future.

4. It is clear that funds disbursed in violation of the statute or a rule that implements the statute or a substantive program goal must be recovered. In this order we identify rules of this type and provide advance notice to all stakeholders that violation of these rules will result in recovery. In addition, we recognize that other rules may be necessary to protect against waste, fraud and abuse, and that violation of these types of rules will warrant recovery as well, as set forth in this order.

5. On the other hand, we agree with commenters that recovery may not be appropriate for violation of all rules regardless of the reason for their codification. For example, when the administrative costs of recovering funds disbursed in violation of a rule exceed the improperly disbursed amount, it may be reasonable not to seek recovery. Likewise recovery may not be appropriate for violation of procedural rules codified to enhance operation of the e-rate program. We seek to ensure that the determination is made and communicated to applicants in advance. Consistent with this policy, as described more fully below, we intend to evaluate whether there are USAC procedures that should be codified into the Commission's rules and whether violation of each should also be a basis for recovery. Applicants will be required to comply with procedural rules in applying for support—and applications that do not comply will be rejected. If, however, the procedural violation is inadvertently overlooked during the application phase and funds are disbursed, the Commission will not require that they be recovered, except to the extent that such rules are essential to the financial integrity of the program, as designated by the agency, or that circumstances suggest the possibility of waste, fraud, or abuse, which will be evaluated on a case-by-case basis.

6. Amounts disbursed in violation of the statute or a rule that implements the statute or a substantive program goal must be recovered in full. In situations where disbursement of funds is warranted under the statute and rules, but an erroneous amount has been disbursed, the amount of funds that should be recovered is the difference between what the beneficiary is legitimately allowed under our rules and the total amount of funds disbursed to the beneficiary or service provider. We set forth below a number of examples to illustrate the applications of this principle.

7. Competitive Bidding Requirements. We conclude that we should recover the full amount disbursed for any funding requests in which the beneficiary failed to comply with the Commission's competitive bidding requirements as set forth in § 54.504 and § 54.511 of our rules and amplified in related Commission orders. For instance, it is appropriate to recover the full amount of funds disbursed for a funding request when the beneficiary signs a contract before the end of the 28-day posting period. Likewise, it is appropriate to recover the full amount disbursed in a situation where the beneficiary failed to consider price as the primary factor when evaluating among competing bids. This conclusion is based on our position that the competitive bidding process is a key component of the schools and libraries program, ensuring that funds support services that satisfy the precise needs of an applicant and that services are provided at the lowest possible rates.

8. Necessary Resources Certification. We conclude that a lack of necessary resources to use the supported services warrants full recovery of funds disbursed for all relevant funding requests. The requirements that beneficiaries have sufficient computer equipment, software, staff training, internal connections, maintenance and electrical capacity to make use of the supported services are integral to ensuring that these monies are used for their intended purposes, without waste, fraud or abuse.

9. Service Substitution. Parties have the opportunity to make legitimate changes to requested services when events occur that make the original funding request impractical or even impossible to fulfill. Last December, we codified rules to address requests for service or equipment changes, concluding that allowing parties to make such substitutions is consistent with our goal of affording schools and libraries maximum flexibility to choose the offering that meets their needs more effectively and efficiently. We conclude that in situations where a service substitution would meet the criteria now established in our rules, the appropriate amount to recover is the difference between what was originally approved for disbursement and what would have been approved, had the entity requested and obtained authorization for a service substitution. In situations where the service substitution would not meet the criteria established in our rules, the appropriate amount to recover is the full amount associated with the service in question.

10. Failure To Pay Non-Discounted Share. We conclude that all funds disbursed should be recovered for any funding requests in which the beneficiary failed to pay its non-discounted share. While our rules do not set forth a specific timeframe for determining when a beneficiary has failed to pay its non-discounted share, we conclude that a reasonable timeframe is 90 days after delivery of service. Allowing schools and libraries to delay for an extended time their payment for services would subvert the intent of our rule that the beneficiary must pay, at a minimum, ten percent of the cost of supported services. We believe, based on USAC's experience to date as Administrator, that a relatively short period “ comparable to what occurs in commercial settings—should be established in which beneficiaries are expected to pay their non-discounted share after completion of delivery of service. In other contexts, companies refer payment matters to collection agencies if a customer fails to pay after several requests for payment. Accordingly, we clarify prospectively that a failure to pay more than 90 days after completion of service (which is roughly equivalent to three monthly billing cycles) presumptively violates our rule that the beneficiary must pay its share. For purposes of resolving any outstanding issues relating to audits conducted prior to the issuance of this clarification, we direct USAC to determine whether full payment had been made as of the time the audit report was finalized. If any amounts remained outstanding at the conclusion of the audit work, that constitutes a rule violation warranting recovery of all amounts disbursed. Information on payment of the non-discounted share shall be sought from the beneficiary.

11. Duplicative Services. As noted in the Schools and Libraries Second Order, 68 FR 36931, June 20, 2003, our rules prohibit the funding of duplicative services, defined as services that provide the same functionality to the same population in the same location during the same period of time. In such circumstances, we ordinarily will recover the amount associated with the more expensive of the duplicative services, except in situations where there are indications of fraud, where we may recover the full amount of the funding request.

12. Failure To Complete Service Within the Funding Year. We conclude that the failure to complete delivery of services by the relevant deadline for a particular funding year is a rule violation that warrants recovery of all funds disbursed for services installed or delivered after the close of the funding year. We note that parties are always free to seek an extension of time to install non-recurring services from USAC, consistent with the conditions set by the Commission for such an extension. Such extensions have been granted in situations where installation cannot be completed for reasons outside the control of the beneficiary. Generally, however, the Commission requires service to be completed within one Funding Year, in order to promote equity among applicants and to avoid waste.

13. Discount Calculation Violation. When applicants fail to calculate properly their appropriate discount rate, the amount disbursed in violation of this rule is the difference between the amount of support to which the beneficiary is legitimately allowed and the amount requested or provided. For instance, in a situation in which the beneficiary made a clerical error in calculating the level of participation in the school lunch program, or failed to use an approved methodology for calculating the level of school lunch participation, the beneficiary may legitimately receive support under a recalculated discount rate. In these circumstances, the amount to recover is the difference between the incorrectly calculated amount and the amount recalculated with the appropriate discount. We emphasize, however, that in the narrow circumstance where there is evidence that an applicant has manipulated its discount rate in a deliberate attempt to defraud the government, full recovery may be appropriate. Moreover, in situations where the applicant would not have qualified for any support for internal connections had it properly applied the discount, the recovery would be the entire amount disbursed.

14. Service Not Provided for Full Funding Year. Similarly, if an applicant requested and received funding for a full year, and the service provider billed for the full year, but provided services for less than the full year, we believe it would be appropriate to pro-rate support and recover the excess. Such adjustments are ordinarily made prior to disbursement when discovered by USAC through normal review processes.

15. Recovery Only for Waste, Fraud and Abuse. We reject the argument some commenters make that applicants should not be required to repay the fund unless waste, fraud or abuse is established. We believe that there may be instances in which rule violations undermine statutory requirements or substantive policy goals of the program, but may not rise to the level of waste, fraud or abuse. For example, a request for an ineligible service might not entail waste, fraud or abuse, but it is still a violation for which recovery is necessary. While we appreciate that it may impose some hardship to make repayment in some situations, a statutory or rule violation cannot be absolved merely because the nature of the violation does not implicate waste, fraud or abuse. Moreover, to limit recovery to situations involving waste, fraud or abuse would place us in the position of condoning violation of the program's rules Further, it would provide no incentives to applicants or service providers to take the necessary steps to familiarize themselves with our rules and put controls in place to ensure rule compliance. Nor do we believe it appropriate for a beneficiary to retain an overpayment if, for some reason, USAC has mistakenly disbursed an amount in excess of that which the entity is allowed under our rules. If there are unique reasons why a particular entity believes recovery for a rule violation is inappropriate, that party is always free to present such information in seeking review of USAC's decision to recover monies, pursuant to § 54.722. We note, however, that we are without authority to waive statutory violations.

16. While we have not, to date, enunciated a bright line standard for determining whether a particular funding request or activities related to it depart from this standard to a degree that constitutes waste, fraud or abuse, we emphasize that we, and USAC in the first instance, retain the discretion to make such determinations on a case-by-case basis in the course of examining specific factual circumstances. For example, section 254(h)(1)(B) of the Act requires that applicants make a bona fide request for services to be used for educational purposes. A funding request may not be bona fide in a situation in which a service provider has charged the beneficiary an inflated price. Thus, it would be appropriate to recover amounts disbursed in excess of what similarly situated customers are normally charged in the marketplace. Similarly, in a situation in which the beneficiary has requested a clearly excessive level of support “ which necessarily must be judged in the context of the specific circumstances of the school or library “ it would also be appropriate to recover the full amount of the funding request, because the beneficiary has not made a bona fide request based on its reasonable needs. In addition, in specific cases where there is evidence of fraudulent conduct, it would be appropriate to refer such matters to law enforcement officials.

17. In this section, we establish an administrative limitations period in which the Commission or USAC will determine that a violation has occurred. We believe that announcing a general policy in this area is in the public interest because it provides applicants and service providers with some certainty of the timing by which an audit or further review of e-rate funding may occur. We also conclude that a de minimis exception is in the public interest and direct USAC generally not to seek recovery when the administrative cost is greater than the recovery amount. Finally, we decline to implement a rule generally requiring full recovery when a pattern of violations is discovered, recognizing the punitive nature of such a rule. Rather, we direct USAC to conduct more rigorous scrutiny of applications in subsequent funding years when systematic noncompliance of FCC rules is suspected, and we direct USAC to refer such situations to the Bureau, as appropriate, for further consideration.

18. Administrative Limitations Period for Audits or Other Investigations by the Commission or USAC. We believe that some limitation on the timeframe for audits or other investigations is desirable in order to provide beneficiaries with certainty and closure in the E-rate applications and funding processes. For administrative efficiency, the time frame for such inquiry should match the record retention requirements and, similarly, should go into effect for Funding Year 2004. Accordingly, we announce our policy that we will initiate and complete any inquiries to determine whether or not statutory or rule violations exist within a five year period after final delivery of service for a specific funding year. We note that USAC and the Commission have several means of determining whether a violation has occurred, including reviewing the application, post application year auditing, invoice review and investigations. Under the policy we adopt today, USAC and the Commission shall carry out any audit or investigation that may lead to discovery of any violation of the statute or a rule within five years of the final delivery of service for a specific funding year.

19. In the E-rate context, disbursements often occur for a period up to two years beyond the funding year. Moreover, audit work typically is not performed until after the disbursement cycle has been completed. For consistency, our policy for audits and other investigations mirrors the time that beneficiaries are required to retain documents pursuant to the rule adopted in this order. We believe that conducting inquiries within five years strikes an appropriate balance between preserving the Commission's fiduciary duty to protect the fund against waste, fraud and abuse and the beneficiaries' need for certainty and closure in their E-rate application processes.

20. One commenter argues that fund recovery actions should be subject to a one year statute of limitations, comparable to the limitation for imposition of forfeitures, while others argue that a two year timeframe, beginning the date of the funding commitment decision letter, is appropriate. We emphasize that our policy regarding initiation of audits or other investigations does not affect the statutes of limitations applicable under the DCIA for collection of debts established by the Commission.

21. Recovery for De Minimis Amounts. We conclude that it does not serve the public interest to seek to recover funds associated with statutory or rule violations when the administrative costs of seeking recovery outweigh the dollars subject to recovery. Accordingly, we direct USAC not to seek recovery of such de minimis amounts. We direct USAC to provide the Wireline Competition Bureau and the Office of Managing Director sufficient information regarding the administrative costs of seeking recovery of improperly disbursed funds so that a de minimis amount can be determined.

22. Recovery for Pattern of Rule Violations. We decline at this time to adopt a rule requiring recovery of the full amount disbursed in situations in which there is a pattern of rule or statutory violations, but the specific individual violations collectively do not require recovery of all disbursed amounts. We believe it would be difficult to establish a workable bright line standard that USAC could apply in such cases, and therefore decline to adopt such a rule at this time. We direct the Wireline Competition Bureau to consider such situations on a case-by-case basis in the course of resolving audit findings. Moreover, we emphasize that USAC should subject any school or library that exhibits systematic noncompliance with governing FCC rules to more rigorous scrutiny in the subsequent funding years. We direct USAC to implement this practice and to refer such situations to the Bureau, as appropriate, for further consideration.

23. Elimination of the Offset Options. In the Commitment Adjustment Implementation Order, the Commission authorized USAC to offer service providers two offset methods for repayment of funds disbursed in violation of the statute or a rule. One offset method allowed a service provider to offset the debt by “reductions in the amounts owed to the service provider from other existing valid commitments involving the same applicant and service provider in the same funding year.” The other offset method permitted a service provider to offset commitments involving the same applicant and service provider in subsequent funding years.

24. Based on our experience with implementation of the Commitment Adjustment Implementation Order, we now conclude that it would better serve our interest in protecting universal service funds to eliminate the offset methods adopted in that order as options for recovery of funds in the schools and libraries universal service mechanism. We have observed that, when used, such offset methods can result in a lengthy process that imposes a significant administrative burden on USAC. We note that although a service provider may fully intend to repay the outstanding debt in a timely manner when choosing the offset options adopted in the Commitment Adjustment Implementation Order, events may occur during the current or subsequent funding year which may delay or prevent payment. For example, the offset option was made available when there were sufficient pending funding requests to pay for the outstanding debt during the subsequent funding year, but if actual disbursements requested during that funding year do not satisfy the outstanding debt, the debt may continue during later funding years, or indefinitely if there remains an unsatisfied commitment. Even within the current funding year, such an offset may prove to be an attenuated, lengthy process, given that the beneficiary may have more than a full year after the close of the funding year to complete installation of non-recurring services, and may obtain extensions beyond that in specified circumstances. The potential for carrying the outstanding debt over several funding years, or non-payment altogether, hinders the ability of USAC to fully collect funds as necessary. To avoid this, and to promote administrative efficiency, we eliminate the offset options adopted in the Commitment Adjustment Implementation Order from the fund recovery plan.

25. Booking of Recovery Amounts. The Commission is committed to meeting its obligations under federal laws by maintaining complete and accurate financial reporting. As we have noted in other orders, universal service monies are reflected on the Commission's financial statements. To ensure the Commission meets its goals with respect to accounting for universal service funds on its financial statements, the Commission previously has directed USAC as Administrator of the Universal Service Fund to prepare financial statements for the Universal Service Fund consistent with generally accepted principles for federal agencies. In accordance with the Commission's rules, recovery amounts should be recorded in the accounting records for the Universal Service Fund consistent with Federal Generally Accepted Accounting Principles (GAAP).

26. Some commenters stress that an opportunity to contest recovery should be afforded to applicants and service providers, and one commenter argues that applicants and service providers should receive a full administrative hearing before recovery of funds is sought. We decline to adopt a rule providing for an administrative hearing before the issuance of a letter demanding recovery of funds. Parties are already free today to challenge any action of USAC—including the issuance of a demand for recovery of funds—by filing a request for review with this Commission pursuant to § 54.722 of our rules. We believe that this opportunity sufficiently addresses beneficiaries' needs. We see no significant additional public benefit to justify the creation of another layer of administrative process and the associated administrative costs for all involved.

27. Earlier this year we amended our rules to implement the Debt Collection Improvement Act of 1996, which generally governs the collection of claims owed to the United States. Among other things, we adopted a rule, § 1.1910, providing that the Commission shall withhold action on any application or request for benefits made by an entity that is delinquent in its non-tax debts owed to the Commission, and shall dismiss such applications or requests if the delinquent debt is not resolved. This rule (which we refer to as the “red light rule”) applies to any application that is subject to the FCC Registration Number requirement set forth in part 1, subpart W, of our rules. The new DCIA rules specify that the term “Commission” includes the Universal Service Fund.

28. In response to the Schools and Libraries Second Further Notice, 69 FR 6181, February 10, 2004, several commenters suggested that we should bar or limit participation in the program when entities have some particular forms of outstanding claims. At present, applicants and some service providers under the schools and libraries mechanism are not required to obtain an FCC Registration Number, and as such, are not subject to the literal terms of § 1.1910 of our rules. We believe adopting analogous requirements for the schools and libraries program would be beneficial to the administration of the program in the prevention of waste, fraud and abuse, however, as it would strengthen incentives for beneficiaries and service providers to comply with the statute and our rules. We therefore amend our rules to bring all E-rate beneficiaries and service providers within the ambit of the red light rule. Accordingly, we amend our rules at 47 CFR 1.8002 and 1.8003 to require all entities that participate in the schools and libraries universal service support mechanism to obtain an FCC Registration Number. This rule change shall go into effect pursuant to the DCIA Order, 69 FR 27843, May 17, 2004, and shall apply to all applications and recovery actions pending at that time. Thereafter, USAC shall dismiss any outstanding requests for funding commitments if a school or library, or service provider, as applicable, has not paid the outstanding debt, or made otherwise satisfactory arrangements, within 30 days of the date of the notice provided for in our commitment adjustment procedures. In this regard, we expressly recognize that a school or library's ability to pay outstanding debts may be dependent on action by state or local officials on budgetary requests, and the timing of such budgetary action may be considered in determining satisfactory repayment options. We direct USAC to work with the Wireline Competition Bureau and Office of Managing Director to resolve any implementation issues associated with this rule.

29. Applications will not be dismissed pursuant to our red light rule if the applicant has timely filed a challenge through administrative appeal or a contested judicial proceeding to either the existence or amount of the debt owed to the Commission. Our recent DCIA Order expressly notes that appeals made to USAC shall be deemed administrative appeals. Our rules thus provide the opportunity to contest any finding that monies are owed to the fund, and thereby toll the potentially harsh consequences of the red light rule. This addresses the concerns raised by some parties that deferring action on pending requests when there is an outstanding commitment adjustment action would unfairly dissuade parties from pursuing their legitimate appeal rights.

30. Moreover, even if outstanding debts to the universal service fund have been repaid, we think it appropriate to subject subsequent applications from beneficiaries that have been found to have violated the statute or rules in the past to greater review. We believe it prudent to subject any pending applications to more rigorous scrutiny if USAC has determined, based on audit work or other means, that the applicant violated the statute or a Commission rule in the past. Such action is consistent with the framework previously enunciated in our Puerto Rico Department of Education Order for situations in which one or more entities is under investigation, or there is other evidence of potential program violations. Such heightened scrutiny could entail, for instance, requiring additional documentary evidence to demonstrate current compliance with all applicable requirements, or submission of a corrective plan of action to address past errors. It may also include site visits or other investigatory activities. Such heightened scrutiny could continue as long as necessary. We envision, however, that in most instances, such heightened scrutiny would no longer be necessary in subsequent years, after USAC determines that a pending application is compliant with the statute and Commission requirements.

31. Most commenters addressing this issue support the adoption of a five-year record retention rule, but suggest that the Commission should provide clear guidance on what information needs to be retained for possible audits and/or reviews. We agree. Therefore, in this Order, we amend § 54.516 of our rules to require both applicants and service providers to retain all records related to the application for, receipt and delivery of discounted services for a period of five years after the last day of service delivered for a particular Funding Year. This rule change shall go into effect when this order becomes effective and, as such, will apply to Funding Year 2004 and thereafter. We conclude that the adoption of a five-year record retention requirement will facilitate improved information collection during the auditing process and will enhance the ability of auditors to determine whether applicants and service providers have complied with program rules. Further, we believe that specific recordkeeping requirements not only prevent waste, fraud and abuse, but also protect applicants and/or service providers in the event of vendor disputes.

32. Although we agree with commenters that an explicit list of documents that must be retained in the recordkeeping requirement would be most useful for service providers and program beneficiaries, we do not believe that an exhaustive list of such documents is possible. We base this conclusion on our knowledge that due to the diversity that exists among service providers and program beneficiaries, the descriptive titles or names of relevant documents will vary from entity to entity. To address commenters' concerns, however, we provide for illustrative purposes the following description of documents that service providers and program beneficiaries must retain pursuant to this recordkeeping requirement, as applicable:

• Pre-bidding Process. Beneficiaries must retain the technology plan and technology plan approval letter. If consultants are involved, beneficiaries must retain signed copies of all written agreements with E-rate consultants.

• Bidding Process. All documents used during the competitive bidding process must be retained. Beneficiaries must retain documents such as: Request(s) for Proposal (RFP(s)) including evidence of the publication date; documents describing the bid evaluation criteria and weighting, as well as the bid evaluation worksheets; all written correspondence between the beneficiary and prospective bidders regarding the products and service sought; all bids submitted, winning and losing; and documents related to the selection of service provider(s). Service providers must retain any of the relevant documents described above; in particular, a copy of the winning bid submitted to the applicant and any correspondence with the applicant. Service providers participating in the bidding process that do not win the bid need not retain any documents.

• Contracts. Both beneficiaries and service providers must retain executed contracts, signed and dated by both parties. All amendments and addendums to the contracts must be retained, as well as other agreements relating to E-rate between the beneficiary and service provider, such as up-front payment arrangements.

• Application Process. The beneficiary must retain all documents relied upon to submit the Form 471, including National School Lunch Program eligibility documentation supporting the discount percentage sought; documents to support the necessary resources certification pursuant to § 54.505 of the Commission's rules, including budgets; and documents used to prepare the Item 21 description of services attachment.

• Purchase and Delivery of Services. Beneficiaries and service providers should retain all documents related to the purchase and delivery of E-rate eligible services and equipment. Beneficiaries must retain purchase requisitions, purchase orders, packing slips, delivery and installation records showing where equipment was delivered and installed or where services were provided. Service providers must retain all applicable documents listed above.

• Invoicing. Both service providers and beneficiaries must retain all invoices. Beneficiaries must retain records proving payment of the invoice, such as accounts payable records, service provider statement, beneficiary check, bank statement or ACH transaction record. Beneficiaries must also be able to show proof of service provider payment to the beneficiary of the BEAR, if applicable. Service providers must retain similar records showing invoice payment by beneficiary to the service provider, USAC payment to the service provider, payment of the BEAR to the beneficiary, through receipt or deposit records, bank statements, beneficiary check or automated clearing house (ACH) transaction record, as applicable.

• Inventory. Beneficiaries must retain asset and inventory records of equipment purchased and components of supported internal connections services sufficient to verify the location of such equipment. Beneficiaries must also retain detailed records documenting any transfer of equipment within three years after purchase and the reasons for such a transfer.

• Forms and Rule Compliance. All program forms, attachments and documents submitted to USAC must be retained. Beneficiaries and service providers must retain all official notification letters from USAC, as applicable. Beneficiaries must retain FCC Form 470 certification pages (if not certified electronically), FCC Form 471 and certification pages (if not certified electronically), FCC Form 471 Item 21 attachments, FCC Form 479, FCC Form 486, FCC Form 500, FCC Form 472. Beneficiaries must also retain any documents submitted to USAC during program integrity assurance (PIA) review, Selective Review and Invoicing Review, or for SPIN change or other requests. Service providers must retain FCC Form 473, FCC Form 474 and FCC Form 498, as well as service check documents. In addition, beneficiaries must retain documents to provide compliance with other program rules, such as records relevant to show compliance with CIPA.

33. We emphasize that the rule we adopt here requires that program participants retain all documents necessary to demonstrate compliance with the statute and Commission rules regarding the application for, receipt, and delivery of services receiving schools and libraries discounts. Thus, the descriptive list above is provided as a guideline but cannot be considered exhaustive. For example, service providers must provide beneficiaries' billing records, if requested, and will be held accountable for properly billing those applicants for discounted services and for complying with other rules specifically applicable to service providers. Service providers are responsible for maintaining records only with respect to the services they actually provide, not records for applicants on whose contracts they may have bid, but not won.

34. We make additional clarifications to our rules providing for audits of program beneficiaries and service providers participating in the program. In particular, we clarify that schools, libraries, and service providers remain subject to both random audits and to other audits (or investigations) to examine an entity's compliance with the statute and the Commission's rules initiated at the discretion of the Commission, USAC, or another authorized governmental oversight body. We also conclude that failing to comply with an authorized audit or other investigation conducted pursuant to § 54.516 of the Commission's rules ( e.g. , failing to retain records or failing to make available required documentation) is a rule violation that may warrant recovery of universal service support monies that were previously disbursed for the time period for which such information is being sought.

35. To ensure transparency and consistency in the application of our rules we now modify our requirements regarding technology plan timing and content. Our revised rules require applicants to have an approved technology plan in place before the start of services and to certify at the time that they apply for discounts that their receipt of e-rate support is contingent upon timely approval of the technology plan. Our revised rules also largely adopt the United States Department of Education guidelines for technology plan content, and, in cases where applicants do not fall under the ambit of the Department of Education technology planning requirement, we adopt requirements consistent with USAC's guidelines. Because we continue to believe that the focus of technology planning should be research and planning for technology needs, we decline at this time to adopt rules to require technology plans to include an analysis of the cost of leasing versus purchasing E-rate eligible products and services or a showing that the applicant has considered the most cost-effective way to meet its educational objectives. We see no need, at this time, to address the question of what specific qualifications technology plan approvers should have. We note that the technology plans of libraries and public schools are already reviewed by individual states, and that USAC certifies reviewers for non-public schools. As we describe below, the state is the certified technology plan approver for libraries and public schools, and we codify this practice in this order. We modify our rules so that non-public schools and entities that cannot or do not choose to secure approval of their technology plan from their states may obtain technology plan approval from USAC-certified entities.

36. Technology Plan Timing. We revise § 54.504(b)(2)(vii) so that applicants with technology plans that have not yet been approved when they file FCC Form 470 must certify that they understand their technology plans must be approved prior to the commencement of service. In making this change, we recognize that the timing of technology plan approval in particular states and localities may not coincide perfectly with the application cycle of the schools and libraries support mechanism. At the same time, we emphasize that applicants still are expected to develop a technology plan prior to requesting bids on services in FCC Form 470; all that we are deferring is the timing of the approval of such plan by the state or other approved certifying body. Second, we amend our rules to require that applicants formally certify, in FCC Form 486, that the technology plans on which they based their purchases were approved before they began to receive service. This revision conforms our rules to the current instructions for filing FCC Form 470 and is consistent with the views of commenters. The revision permits applicants to meet our technology plan requirements as long as their technology plans will be approved before they begin receiving service. It also ensures that applicants formally confirm that their technology plans were approved when service begins.

37. In light of the current inconsistency between our rules and the instructions to FCC Form 470, we conclude that it is appropriate to waive the rule for the limited purpose of extinguishing liability for recovery of funds in the narrow circumstance in which a beneficiary obtained approval of its technology plan after the filing of FCC Form 470, but before service commenced. We hereby grant a waiver of § 54.504(b)(2)(vii) of our rules to all applicants that failed to have a technology plan approved at the time they filed their FCC Form 470 or that had obtained approval of a technology plan that covered only part of the funding year, but that obtained approval of a plan that covered the entire funding year before the commencement of service in the relevant funding year. We conclude that in this situation, it would not serve the public interest to enforce the terms of § 54.504(b)(2)(vii) in light of the ambiguity created by the phrasing of the certification contained in the current FCC Form 470. We emphasize, however, that this limited waiver does not extend to instances where the applicant failed to obtain an approval of a technology plan at all. Such failure to obtain any approval is inconsistent with our rules and warrants recovery of all funds disbursed under the relevant funding requests.

38. Technology Plan Content. We conclude that technology plans should continue to focus on ensuring that technologies are used effectively to achieve educational goals rather than assuming a greater role in monitoring the procurement process. We reiterate our conclusion that the technology plan should focus on “research and planning for technology needs “ rather than act as preliminary RFPs. Thus, while we expect that applicants will compare purchase and leasing options and the cost-effectiveness of different technologies as part of their procurement processes, we decline, consistent with the views of most commenters, to add a requirement that these matters be addressed in technology plans.

39. We agree with the virtually unanimous view of commenters that the Commission's technology plan requirements should be harmonized with the technology planning goals and requirements of the U.S. Department of Education and the U.S. Institute for Museum and Library Services. In fact, USAC has already been treating technology plans approved under the Department of Education's Enhancing Education Through Technology (EETT) as acceptable technology plans subject to one qualification. Consistent with the Commission requirement that program applicants demonstrate that they have the necessary resources required to utilize e-rate discounts, USAC has required that the EETT technology plans be supplemented by an analysis that indicates that the applicant is aware of and will be able to secure the financial resources it will need to achieve its technology aims, including technology training, software, and other elements outside the coverage of the Commission's support program. We adopt this existing policy in recognition of the Department of Education's expertise and USAC's attention to our requirement that applicants show that they have done the necessary planning and are able to secure the required resources to effectively employ the services they desire to purchase. Accordingly, we adopt a rule that codifies this method of compliance with the technology plan requirement.

40. We also adopt a rule that applicants that do not have EETT technology plans, must demonstrate that their plans contain the following elements:

(1) Establish clear goals and a realistic strategy for using telecommunications and information technology to improve education or library services;

(2) Have a professional development strategy to ensure that the staff understands how to use these new technologies to improve education or library services;

(3) Include an assessment of the telecommunication services, hardware, software, and other services that will be needed to improve education or library services;

(4) Provide for a sufficient budget to acquire and support the non-discounted elements of the plan: the hardware, software, professional development, and other services that will be needed to implement the strategy; and

(5) Include an evaluation process that enables the school or library to monitor progress toward the specified goals and make mid-course corrections in response to new developments and opportunities as they arise.

41. Consistent with this rule, the ability of an entity whose technology plan complies with the criteria in the preceding paragraphs to order services is only limited by the scope of its technology plan's strategy for using telecommunications services and information technology to meet its educational goals. Commenters should not fear that strengthened technology plan requirements will lock them into specific services. In fact, applicants are free to switch from wireline to wireless technologies, from high to even higher speed transmission speeds, and to make other similar changes in the services they order as long as those services are designed to deliver the educational applications they have prepared to provide. Only if an applicant desires to order services beyond the scope of its existing technology plan does it need to prepare and seek timely approval of an appropriately revised technology plan.

42. We also decline at this time to take any of the other actions regarding technology plans suggested by commenters. We decline to adopt ALA's suggestion that we require separate filings of proposals to provide service and prices, since we find that it would be much more costly for USAC to process such filings separately, given the redundancy. We decline to require USAC to provide examples of acceptable technology plans given that applicants can already approach their states or other entities from which they must gain certification for such examples. Although we do not require technology plans from those seeking only “POTS” local and long distance telecommunications services, or cellular service, we decline to eliminate the requirement for those seeking internet access, because we believe that certified plans are important to ensuring that applicants have carefully considered how to employ the service. For administrative efficiency, we also decline to require all applicants to submit their technology plans as attachments to current forms, but note that USAC may request submission of a technology plan for any applicant as part of the application review process and that such plans are subject to the document retention rules adopted in this order. As such, a violation of the technology plan rules we adopt herein will be subject to recovery on a prospective basis.

43. Technology Plan Approval. We also modify our rules to address non-public schools that are not eligible to secure approval of their technology plan from their states. USAC has been handling this matter by permitting such schools to obtain approval of their plans from entities that USAC has certified as qualified to provide such evaluations and approval. We now amend our rules to codify this practice.

44. Form 470. Section 54.504 of the Commission's rules governs applicants' requests for services and provides specific requirements for completing the FCC Form 470. Pursuant to § 54.504(b)(2), there are several requirements to which applicants must certify compliance before submitting their FCC Form 470 applications. Most of these certification requirements are also listed in Block 5 of the FCC Form 470. However, as noted above, the language in the form does not mirror the precise language in the rule. In particular, § 54.504(b)(2)(v) of the Commission's rules states that applicants certify that “all of the necessary funding in the current funding year has been budgeted and approved to pay for the “non-discount” portion of requested connections and services, as well as any necessary hardware or software, and to undertake the necessary staff training required to use the services effectively.” The form states more generally, however, that applicants must certify that “support under the support mechanism is conditional upon the school(s) and library(ies) securing access to all of the resources, including computers, training, software, maintenance, and electrical connections necessary to use the services purchased effectively.”

45. As explained above, the certification language on the FCC Form 470 is consistent with the intent of the rule and more closely resembles the real-world experience. Therefore, we revise the current language of § 54.504(b)(2)(v) to require applicants to certify that support under the support mechanism is conditional. We replace the current language of § 54.504(b)(2)(v) with the following sentence: “Support under this support mechanism is conditional upon the school(s) and library(ies) securing access to all of the resources, including computers, training, software, maintenance, internal connections, and electrical connections necessary to use the services purchased effectively. “ In addition, we re-designate the current § 54.504(b)(2)(v) as new § 54.504(b)(2)(vi). We believe these revisions will facilitate the ability of applicants to determine what certifications are necessary for proper completion of the application and will facilitate our enforcement and oversight activities.

46. Furthermore, to emphasize that applicants must make cost effective service selections consistent with the Ysleta Order we will require applicants to certify on the Form 470 that the services for which bids are being sought are the most cost effective means for meeting their educational needs and technology plan goals. Therefore, we modify § 54.504(b)(2) to add a new certification, § 54.504(b)(2)(vii), which states the following: “All bids submitted will be carefully considered and the bid selected will be for the most cost-effective service or equipment offering, with price being the primary factor, and will be the most cost-effective means of meeting educational needs and technology plan goals.”

47. Form 471. Under § 54.504(c) of the Commission's rules, applicants are required to submit a completed FCC Form 471 after signing a contract for eligible services. Like the FCC Form 470, the FCC Form 471 lists several matters to which applicants must certify in order to have their applications considered. Currently, however, these requirements are not expressly addressed in part 54 of the Commission's rules. We therefore find it appropriate to amend § 54.504(c) of the Commission's rules by adding a new subsection (1) which will state that the FCC Form 471 shall be signed by the person authorized to order telecommunications and other supported services for the eligible school, library, or consortium and shall include that person's certification that the entity(ies) is/are eligible to receive support and has/have secured access to all of the resources necessary to make effective use of the service purchased; the entity(ies) is/are covered by technology plans that have been or will be approved by a state or other authorized body; the entity(ies) has/have complied with program rules as well as all state and local laws regarding procurement of services; the services will be used solely for educational purposes and will not be sold, resold, or transferred; the applicant understands that the discount level used for shared services is conditional; and the applicant recognizes that its application may be audited. We conclude that codifying these existing certification requirements in the Commission's rules will diminish confusion regarding the criteria to which applicants must certify when completing their FCC Forms 471 while enhancing our enforcement and oversight activities.

48. Consistent with the requirement imposed on the Form 470, we will require applicants to certify on the Form 471 that the selection of services and service providers is based on the most cost effective means of meeting educational needs and technology plan goals. Therefore, we modify § 54.504(c)(1) to add a new certification, § 54.504(c)(1)(xi), which states the following: “All bids submitted were carefully considered and the most cost-effective bid for services or equipment was selected, with price being the primary factor considered, and is the most cost-effective means of meeting educational needs and technology plan goals.”

49. Form 473. In the Schools and Libraries Second Further Notice, we sought comment on whether the Commission, as a condition of support, should require each service provider to make certifications that it has not sought to subvert the effectiveness of the E-rate program's competitive bidding process. Although the Commission recognized that many of those subversive actions are already prohibited by the federal antitrust laws, if not other state or federal statutes or rules, it observed that requiring such certifications would better enable the Commission or other government agencies to enforce the Commission's rules and to seek criminal sanctions where appropriate.

50. We now adopt three certification requirements modeled after the certificate of independent price determination required under federal acquisition regulations, as referenced in the Schools and Libraries Second Further Notice. These certifications will serve to emphasize to potential service providers that any practices that thwart the competitive bidding process will not be tolerated, and will facilitate the ability of government agencies to prosecute any misdeeds in this area. Service providers receiving funds through the E-rate program accordingly now must make the following certifications with respect to their participation in the competitive bidding process of the E-rate program in the Service Provider Annual Certification Form, FCC Form 473:

1. I certify that the prices in any offer that this service provider makes pursuant to the schools and libraries universal service support program have been arrived at independently, without, for the purpose of restricting competition, any consultation, communication, or agreement with any other offeror or competitor relating to (i) those prices, (ii) the intention to submit an offer, or (iii) the methods or factors used to calculate the prices offered;

2. I certify that the prices in any offer that this service provider makes pursuant to the schools and libraries universal service support program will not be knowingly disclosed by this service provider, directly or indirectly, to any other offeror or competitor before bid opening (in the case of a sealed bid solicitation) or contract award (in the case of a negotiated solicitation) unless otherwise required by law; and

3. I certify that no attempt will be made by this service provider to induce any other concern to submit or not to submit an offer for the purpose of restricting competition.

51. In this order, we set forth how audit findings related to the schools and libraries support mechanism shall be resolved. This discussion applies to audits conducted by USAC's own internal audit division, as well as audits conducted by independent public accounting firms under contract to USAC.

52. As modified above, USAC shall continue to recover funds whenever it discovers a statutory or rule violation, as described above. The standard for determining such a violation is the same standard that we use in our enforcement actions: specifically, whether a party has willfully or repeatedly failed to comply with any provision of the Act or any rule, regulation, or order issued by the Commission, based on a preponderance of the evidence. To the extent audit findings raise matters outside the scope of our orders or existing rules, we expect USAC to clearly identify such findings to the agency.

53. We conclude that a standardized, uniform process for resolving audit findings is necessary, and we direct USAC to submit, no later than 45 days from the publication in the Federal Register , a proposed plan for resolving audit findings. USAC's audit resolution plan should detail USAC's proposed procedures for resolving all findings arising from audits conducted by USAC's internal audit department, independent public accounting firms under contract with USAC, or government audit organizations. In addition, USAC's audit resolution plan should specify deadlines to ensure audit findings are resolved in a timely manner.

54. We have set forth in the accompanying Fifth Report and Order a general framework for what amounts should be recovered in specific situations, and we expect future audits to be resolved consistent with that framework. To the extent audits in the future raise issues not addressed herein, we provide a limited delegation to the Wireline Competition Bureau to address such matters. In particular, we direct the Chief of the Wireline Competition Bureau to address audit findings and to act on requests for waiver of rules warranting recovery of funds. We hereby amend §§ 0.91 and 0.291 to reflect such delegation of authority in this limited instance. We emphasize the limited nature of this delegation which we adopt because of the importance of providing rapid responses to audit findings and requests for waiver of rules warranting recovery of funds. We also emphasize that any party aggrieved by any action by the Bureau is, of course, free to seek review by this Commission, pursuant to § 1.115 and commit that we will address any such appeal within six months. Moreover, any action by USAC implementing direction from the Bureau is subject to full Commission review pursuant to § 54.723(b).

55. The Managing Director is the agency” designated follow-up official. Pursuant to the Commission's Audit Follow-up Directive, that office ensures that systems for audit follow-up and resolution are documented and in place, that timely responses are made to all audit reports, and that corrective actions are taken. We clarify that the Office of Managing Director remains the agency's audit follow-up official, and that all actions taken by the Wireline Competition Bureau relating to E-rate fund audits shall be consistent with the agency's general framework for audit resolution and follow-up.

56. USAC shall maintain records of the status of all audit reports and any recommendations made therein, and make such records available to the Commission upon request. USAC also shall submit a report to the Commission on a semi-annual basis summarizing the status of all outstanding audit findings. To the extent findings cannot be resolved within six months, USAC shall describe the status of its efforts, and provide a projected timeframe for completion. We also note that USAC's determination concerning the resolution of audit findings does not limit the Enforcement Bureau's ability to take enforcement action for any statutory or rule violation pursuant to section 503 of the Act.

57. We recognize that, to date, a number of audit reports have contained findings that indicate noncompliance with USAC administrative procedures. Consistent with its obligation to administer this support mechanism without waste, fraud and abuse, we expect USAC to identify for Commission consideration on at least an annual basis all findings raising management concerns that are not addressed by the Commission's existing rules and precedent, and, as appropriate, identify any USAC administrative procedures that should be codified in our rules to facilitate program oversight.

58. Recently, issues have been raised regarding recovery of funds disbursed in instances when applicants failed to follow certain USAC administrative procedures. As discussed above, a number of these procedures, such as guidelines for the content of technology plans and specific guidance on document retention, are being incorporated into the Commission's rules, and their violation may warrant recovery of universal service monies on a prospective basis. We believe that it will be particularly useful to continue to evaluate, on an ongoing basis, whether other procedures adopted by USAC should also be incorporated into the rules and whether their violation should also warrant recovery of previously disbursed monies.

59. We believe that USAC's experience in processing tens of thousands of these applications provides it with insightful information regarding ways in which waste, fraud and abuse may occur in that process. Based on that information, we believe that USAC's development of procedures to serve our objective to prevent waste, fraud and abuse is invaluable. We direct USAC to submit to the Commission within 45 days from publication in the Federal Register , and annually thereafter, a list summarizing all current USAC administrative procedures identifying, where appropriate, the specific rules or statutory requirements that such procedures further, and those procedures that serve to protect against waste, fraud and abuse. We shall review those procedures to determine whether action is needed to ensure appropriate recovery, and shall determine whether such procedures should be adopted as binding rules. Thereafter, USAC and the Commission will generally seek recovery of funds disbursed in violation of the statute or a rule that implements the statute or substantive program goal or that serves to protect against waste, fraud and abuse. USAC and the Commission will not seek recovery of funds disbursed in violation of other rules, except to the extent that such rules are important to ensuring the financial integrity of the program, as designated by the agency.

60. This document contains modified information collection requirements subject to the Paperwork Reduction Act of 1995 (PRA), Public Law 104-13. It will be submitted to the Office of Management and Budget (OMB) for review under § 3507(d) of the PRA. OMB, the general public, and other Federal agencies are invited to comment on the new or modified information collection requirements contained in this proceeding. In addition, we note that pursuant to the Small Business Paperwork Relief Act of 2002, Public Law 107-198, see 44 U.S.C. 3506(c)(4), we previously sought specific comment on how the Commission might “further reduce the information collection burden for small business concerns with fewer than 25 employees.”

61. In this present document, we have assessed the effects of the measures adopted to protect against waste, fraud and abuse in the administration of the schools and libraries universal service support mechanism, and find that the added certification requirements in various FCC Forms will not be unduly burdensome on small businesses.

62. As required by the Regulatory Flexibility Act of 1980, as amended (RFA), an Initial Regulatory Flexibility Analysis (IRFA) was incorporated in the Schools and Libraries Second Further Notice. The Commission sought written public comment on the proposals in the Schools and Libraries Second Further Notice, including comment on the IRFA. This present Final Regulatory Flexibility Analysis (FRFA) conforms to the RFA.

63. In this Fifth Report and Order, we adopt measures to protect against waste, fraud and abuse in the administration of the schools and libraries universal service support mechanism, particularly with regard to audit requirements and how to respond to audit findings. We set forth a framework for how much USAC should seek recovery when violations are found and set a five year administrative limitations period for such recovery actions as well as a corresponding five year document retention rule. We also eliminate the option of allowing parties to offset current debts to USAC against expected future payments, and we bar those with outstanding debts to the fund from receiving additional amounts. We also conform our rules concerning the content of and timing of certifications regarding technology plans to current practices. These rules will advance the goals of the schools and libraries program by deterring waste, fraud and abuse, leaving more support available applicants.

64. There were no comments filed specifically in response to the IRFA. Nevertheless, the agency has considered the potential impact of the rules proposed in the IRFA on small entities. Based on analysis of the relevant data, the Commission concludes the new rules limit the burdens on small entities and result in a de minimis recordkeeping requirement. The Commission also concludes that the new rules will positively impact schools and libraries, including small ones, seeking universal service support.

65. The RFA directs agencies to provide a description of and, where feasible, an estimate of the number of small entities that may be affected by the proposed rules, if adopted. The RFA generally defines the term “small entity” as having the same meaning as the terms “small business,” “small organization,” and “small governmental jurisdiction.” In addition, the term “small business” has the same meaning as the term “small business concern” under the Small Business Act. A small business concern is one which: (1) Is independently owned and operated; (2) is not dominant in its field of operation; and (3) satisfies any additional criteria established by the SBA. A small organization is generally “any not-for-profit enterprise which is independently owned and operated and is not dominant in its field.” Nationwide, as of 1992, there were approximately 275,801 small organizations. The term “small governmental jurisdiction” is defined as “governments of cities, towns, townships, villages, school districts, or special districts, with a population of less than fifty thousand.” As of 1997, there were about 87,453 governmental jurisdictions in the United States. This number includes 39,044 county governments, municipalities, and townships, of which 37,546 (approximately 96.2%) have populations of fewer than 50,000, and of which 1,498 have populations of 50,000 or more. Thus we estimate the number of small governmental jurisdictions overall to be 84,098 or fewer.

66. The Commission has determined that the group of small entities directly affected by the rules herein includes eligible schools and libraries and the eligible service providers offering them discounted services, including telecommunications service providers, Internet Service Providers (ISPs) and vendors of internal connections. Further descriptions of these entities are provided below. In addition, the Universal Service Administrative Company is a small organization (non-profit) under the RFA, and we believe that circumstances triggering the new reporting requirement will be limited and does not constitute a significant economic impact on that entity.

67. As noted, “small entity” includes non-profit and small government entities. Under the schools and libraries universal service support mechanism, which provides support for elementary and secondary schools and libraries, an elementary school is generally “a non-profit institutional day or residential school that provides elementary education, as determined under state law.” A secondary school is generally defined as “a non-profit institutional day or residential school that provides secondary education, as determined under state law,” and not offering education beyond grade 12. For-profit schools and libraries, and schools and libraries with endowments in excess of $50,000,000, are not eligible to receive discounts under the program, nor are libraries whose budgets are not completely separate from any schools. Certain other statutory definitions apply as well. The SBA has defined for-profit, elementary and secondary schools and libraries having $6 million or less in annual receipts as small entities. In Funding Year 2 (July 1, 1999 to June 20, 2000) approximately 83,700 schools and 9,000 libraries received funding under the schools and libraries universal service mechanism. Although we are unable to estimate with precision the number of these entities that would qualify as small entities under SBA's size standard, we estimate that fewer than 83,700 schools and 9,000 libraries might be affected annually by our action, under current operation of the program.

68. We have included small incumbent local exchange carriers in this RFA analysis. A “small business” under the RFA is one that, inter alia , meets the pertinent small business size standard ( e.g. , a telephone communications business having 1,500 or fewer employees), and “is not dominant in its field of operation.” The SBA's Office of Advocacy contends that, for RFA purposes, small incumbent local exchange carriers are not dominant in their field of operation because any such dominance is not “national” in scope. We have therefore included small incumbent carriers in this RFA analysis, although we emphasize that this RFA action has no effect on the Commission's analyses and determinations in other, non-RFA contexts.

69. Incumbent Local Exchange Carriers (LECs). Neither the Commission nor the SBA has developed a size standard for small incumbent local exchange services. The closest size standard under SBA rules is for Wired Telecommunications Carriers. Under that size standard, such a business is small if it has 1,500 or fewer employees. According to Commission data, 1,337 incumbent carriers reported that they were engaged in the provision of local exchange services. Of these 1,337 carriers, an estimated 1,032 have 1,500 or fewer employees and 305 have more than 1,500 employees. Consequently, the Commission estimates that most providers of incumbent local exchange service are small businesses that may be affected by the rules and policies adopted herein.

70. Competitive Local Exchange Carriers (CLECs), Competitive Access Providers (CAPs) and “Other Local Exchange Carriers.” Neither the Commission nor the SBA has developed a size standard for small businesses specifically applicable to providers of competitive exchange services or to competitive access providers or to “Other Local Exchange Carriers.” The closest applicable size standard under SBA rules is for Wired Telecommunications Carriers. Under that size standard, such a business is small if it has 1,500 or fewer employees. According to Commission data, 609 companies reported that they were engaged in the provision of either competitive access provider services or competitive local exchange carrier services. Of these 609 companies, an estimated 458 have 1,500 or fewer employees and 151 have more than 1,500 employees. In addition, 35 carriers reported that they were “Other Local Exchange Carriers.” Of the 35 “Other Local Exchange Carriers,” an estimated 34 have 1,500 or fewer employees and one has more than 1,500 employees. Consequently, the Commission estimates that most providers of competitive local exchange service, competitive access providers, and “Other Local Exchange Carriers” are small entities that may be affected by the rules and policies adopted herein.

71. Interexchange Carriers (IXCs). Neither the Commission nor the SBA has developed a size standard for small businesses specifically applicable to interexchange services. The closest applicable size standard under SBA rules is for Wired Telecommunications Carriers. Under that size standard, such a business is small if it has 1,500 or fewer employees. According to the Commission's most recent data, 261 companies reported that their primary telecommunications service activity was the provision of payphone services. Of these 261 companies, an estimated 223 have 1,500 or fewer employees and 48 have more than 1,500 employees. Consequently, the Commission estimates that the majority of payphone service providers are small entities that may be affected by the rules and policies adopted herein.

72. Wireless Service Providers. The SBA has developed a small business size standard for wireless small businesses within the two separate categories of Paging and Cellular and Other Wireless Telecommunications. Under both SBA categories, a wireless business is small if it has 1,500 or fewer employees. According to the Commission's most recent data, 1,761 companies reported that they were engaged in the provision of wireless service. Of these 1,761 companies, an estimated 1,175 have 1,500 or fewer employees and 586 have more than 1,500 employees. Consequently, the Commission estimates that most wireless service providers are small entities that may be affected by the rules and policies adopted herein.

73. Private and Common Carrier Paging. In the Paging Third Report and Order , 62 FR 16004, April 3, 1997, we developed a small business size standard for “small businesses” and “very small businesses” for purposes of determining their eligibility for special provisions such as bidding credits and installment payments. A “small business” is an entity that, together with its affiliates and controlling principals, has average gross revenues not exceeding $15 million for the preceding three years. Additionally, a “very small business” is an entity that, together with its affiliates and controlling principals, has average gross revenues that are not more than $3 million for the preceding three years. An auction of Metropolitan Economic Area licenses commenced on February 24, 2000, and closed on March 2, 2000. Of the 985 licenses auctioned, 440 were sold. Fifty-seven companies claiming small business status won. At present, there are approximately 24,000 Private-Paging site-specific licenses and 74,000 Common Carrier Paging licenses. According to Commission data, 474 carriers reported that they were engaged in the provision of either paging and messaging services or other mobile services. Of those, the Commission estimates that 457 are small, under the SBA approved small business size standard.

74. Internet Service Providers. The SBA has developed a small business size standard for “On-Line Information Services,” NAICS code 514191. This category comprises establishments “primarily engaged in providing direct access through telecommunications networks to computer-held information compiled or published by others.” Under this small business size standard, a small business is one having annual receipts of $18 million or less. Based on firm size data provided by the Bureau of the Census, 3,123 firms are small under SBA's $18 million size standard for this category code. Although some of these Internet Service Providers (ISPs) might not be independently owned and operated, we are unable at this time to estimate with greater precision the number of ISPs that would qualify as small business concerns under SBA's small business size standard. Consequently, we estimate that there are 3,123 or fewer small entity ISPs that may be affected by this analysis.

75. The Commission has not developed a small business size standard specifically directed toward manufacturers of internal network connections. The closest applicable definitions of a small entity are the size standards under the SBA rules applicable to manufacturers of “Radio and Television Broadcasting and Communications Equipment” (RTB) and “Other Communications Equipment.” According to the SBA's regulations, manufacturers of RTB or other communications equipment must have 750 or fewer employees in order to qualify as a small business. The most recent available Census Bureau data indicates that there are 1,187 establishments with fewer than 1,000 employees in the United States that manufacture radio and television broadcasting and communications equipment, and 271 companies with less than 1,000 employees that manufacture other communications equipment. Some of these manufacturers might not be independently owned and operated. Consequently, we estimate that the majority of the 1,458 internal connections manufacturers are small.

76. Wireless Communications Equipment Manufacturers. The SBA has established a small business size standard for radio and television broadcasting and wireless communications equipment manufacturing. Under this standard, firms are considered small if they have 750 or fewer employees. Census Bureau data for 1997 indicate that, for that year, there were a total of 1,215 establishments in this category. Of those, there were 1,150 that had employment under 500, and an additional 37 that had employment of 500 to 999. The percentage of wireless equipment manufacturers in this category is approximately 61.35%, so the Commission estimates that the number of wireless equipment manufacturers with employment under 500 was actually closer to 706, with and additional 23 establishments having employment of between 500 and 999. Given the above, the Commission estimates that the majority of wireless communications equipment manufacturers are small businesses.

77. In this Fifth Report and Order , we eliminate the option that entities formerly had with respect to funds they had received from the program in error. Instead of requiring them to immediately repay such funds, the program rules allowed them to offset the amounts they owed against future payments that they were due. Unfortunately, as discussed above, the administrative costs of tracking such debts appears to outweigh the benefits of the option and so it has been eliminated.

78. In our continuing effort to crack down on waste, fraud, and abuse by those who owe funds to the program, we also modify our rules to bring all E-rate program beneficiaries and service providers within the ambit of the program's “red light” rule: denying future funding to any party with outstanding debts to the program. To achieve this, we amend §§ 1.8002 and 1.8003 of the Commission's rules to require all entities that participate in the schools and libraries universal service support program to obtain an FCC Registration Number. The agency has already certified that this process imposes only a de minimis burden.

79. While we adopt a 5-year document retention rule, this rule should actually reduce, not increase, the burden on small businesses. After all, § 54.516 of the Commission rules previously required relevant documents to be retained by parties indefinitely. Those parties are no longer required to do so. Meanwhile, as discussed above, these record retention rules are required to ensure that program auditors can make full audits where and when they see fit, thereby maximizing the amount of program funds available for legitimate uses. In particular such funds can help finance funding requests that are now approved but left unfunded due to a lack of funds.

80. Although the Commission has formalized its rules concerning the substance and timing of technology plans, the modified rules do not impose any additional, non-trivial burdens; they merely provide further guidance on the requirements of the current technology plan. Schools and libraries must now certify on FCC Form 486 that their technology plans had been approved before they started to receive any E-rate supported services based on them, but schools and libraries have always been required to prepare a technology plan on which to base their E-rate program product and service requests and to get that plan approved. The action of signing an additional time on a form that they already have to file to certify that they have complied with existing rules represents no more than a trivial burden.

81. The framework adopted today, setting forth what amounts should be recovered by USAC when specific statutory and Commission rule requirements are violated, does not involve additional reporting, recordkeeping, or compliance requirements for small entities. Similarly, the rule adopted in this Fifth Report and Order , adopting a five year administrative limitations period for initiation of fund recovery actions, does not involve additional reporting, recordkeeping, or compliance requirements for small entities. Rather, it reduces their recordkeeping requirements. The rules adopted, barring entities from receiving additional benefits under the schools and libraries program if they have failed to repay an outstanding debt to the fund, do not impose additional reporting, recordkeeping, or compliance requirements for small entities. Finally, other rules we adopt regarding the certification requirements made on FCC Forms do not require additional reporting or recordkeeping for small entities, as they merely conform our rules to current practices.

82. The RFA requires an agency to describe any significant alternatives that it has considered in developing its approach, which may include the following four alternatives (among others): “(1) establishment of differing compliance or reporting requirements or timetables that take into account the resources available to small entities; (2) the clarification, consolidation, or simplification of compliance and reporting requirements under the rule for such small entities; (3) the use of performance rather than design standards; and (4) an exemption from coverage of the rule, or any part thereof, for such small entities.”

83. Although we received no IRFA comments, we considered alternatives to the proposed recordkeeping requirements for small entities. Although we eliminated the options that schools and libraries had to offset amounts they owed to the fund due to rule violations against expected future payments, we did so only after giving the options a reasonable trial. We only eliminated them after concluding that they can involve a lengthy process resulting in a significant administrative burden on USAC, as discussed in more detail above.

84. Although the Commission adopts the standards currently used by SLD, the rules clearly enable schools and libraries to minimize any duplicative administrative actions by permitting the technology plans that schools must prepare in response to the recent “No Child Left Behind” initiative to serve double duty to the extent that that is appropriate. Thus, schools whose plans have already been approved through the Department of Education's EETT need only meet the single additional standard of showing that they have sufficient resources to finance their portion of the cost of the entire implementation of using telecommunications to advance educational goals. Furthermore, we formally authorize USAC to certify entities that are qualified to approve the technology plans of non-public schools, among others.

85. The new requirement that schools and libraries certify—on FCC Form 486—that their technology plans were already approved before they began receiving any E-rate supported services also relaxes the former rule that required applicants to certify that their plans had been approved before they filed their FCC Form 470.

86. A copy of the Order and FRFA (or summaries thereof) will also be published in the Federal Register . In addition, the Commission will send a copy of this order in a report to be sent to Congress and the General Accounting Office pursuant to the Congressional Review Act pursuant to 5 U.S.C. 801(a)(1)(A).

87. Pursuant to the authority contained in sections 1, 4(i), 4(j), 201-205, 214, 254, and 403 of the Communications Act of 1934, as amended, this Fifth Report and Order is adopted.

88. The Commission's rules, 47 CFR parts 0, 1 and 54 are amended as set forth, effective October 13, 2004 except for §§ 1.8003, 54.504(b)(2), 54.504(c)(1), 54.504(f), 54.508, and 54.516 which contain information collection requirements that are not effective until approved by the Office of Management and Budget. The FCC will publish a document in the Federal Register announcing the effective date for those sections.

89. The Commission will send a copy of this Fifth Report and Order , including the FRFA, in a report to be sent to Congress and the General Accounting Office pursuant to the Congressional Review Act, see 5 U.S.C. 801(a)(1)(A). In addition, the Commission will send a copy of the Order, including the FRFA, to the Chief Counsel for Advocacy of the Small Business Administration.

This is a summary of the Commission's Order in WC Docket No. 04-313 and CC Docket No. 01-338, adopted July 21, 2004, and released August 20, 2004 (Order). The complete text of this Order is available for inspection and copying during normal business hours in the FCC Reference Information Center, Portals II, 445 12th Street, SW., Room CY-A257, Washington, DC 20554. This document may also be purchased from the Commission's duplicating contractor, Best Copy and Printing, Inc., Portals II, 445 12th Street, SW., Room CY-B402, Washington, DC 20554, telephone 1-800-378-3160. It is also available on the Commission's Web site at http://www.fcc.gov.

1. Interim Requirements. The pressing need for market certainty as the Commission works to issue final unbundling rules warrants the implementation of a plan to ensure stability in the interim. This Order therefore requires incumbent LECs to continue providing unbundled access to switching, enterprise market loops, and dedicated transport under the same rates, terms and conditions that applied under their interconnection agreements as of June 15, 2004. These rates, terms, and conditions shall remain in place until the earlier of the effective date of final unbundling rules promulgated by the Commission or six months after Federal Register publication of the Order, except to the extent that they are or have been superseded by (1) voluntarily negotiated agreements, (2) an intervening Commission order affecting specific unbundling obligations ( e.g. , an order addressing a pending petition for reconsideration), or (3) (with respect to rates only) a State public utility commission order raising the rates for network elements.

2. Transition Plan. As mentioned above, the document also sets forth a transition plan to govern the six months following the initial period described above, in the absence of a Commission ruling that switching, enterprise market loops and/or dedicated transport must be made available pursuant to section 251(c)(3) in any particular case. First, in the absence of a Commission ruling that switching is subject to unbundling, an incumbent LEC shall only be required to lease the switching element to a requesting carrier in combination with shared transport and loops ( i.e. , as a component of the “UNE platform”) at a rate equal to the higher of (1) the rate at which the requesting carrier leased that combination of elements on June 15, 2004, plus one dollar, or (2) the rate the State public utility commission establishes, if any, between June 16, 2004, and six months after Federal Register publication of this Order, for this combination of elements, plus one dollar. Second, in the absence of a Commission ruling that enterprise market loops and/or dedicated transport are subject to section 251(c)(3) unbundling in any particular case, an incumbent LEC shall only be required to lease the element at issue to a requesting carrier at a rate equal to the higher of (1) 115% of the rate the requesting carrier paid for that element on June 15, 2004, or (2) 115% of the rate the State public utility commission establishes, if any, between June 16, 2004, and six months after Federal Register publication of this Order, for that element. With respect to all elements at issue here, this transition period shall apply only to the embedded customer base, and does not permit competitive LECs to add new customers at these rates. As during the interim period, carriers shall remain free to negotiate alternative arrangements (including rates) superseding our requirements (and State public utility commission rates) during the transition period. Subject to the comments requested in response to the Notice of Proposed Rulemaking, released simultaneously but summarized separately, we intend to incorporate this second phase of the plan into our final rules.

3. The Commission will not send a copy of this Order pursuant to the Congressional Review Act, see 5 U.S.C. 801(a)(1)(A). This Order does not promulgate new rules, but rather extends for an interim period the effectiveness of existing contracts between carriers, which are based on vacated Commission rules, until the Commission develops final rules. This Order does not contain a major rule. See 5 U.S.C. 804(2).

4. This Order does not contain new or modified information collection(s) subject to the Paperwork Reduction Act of 1995 (PRA), Public Law 104-13. In addition, therefore, it does not contain any new or modified “information collection burden for small business concerns with fewer than 25 employees,” pursuant to the Small Business Paperwork Relief Act of 2002, Public Law 107-198, see 44 U.S.C. 3506(c)(4).

5. Accordingly, it is ordered that the interim requirements set forth in the Order in WC Docket No. 04-313 and CC Docket No. 01-338 shall be effective immediately upon publication in the Federal Register .

This is a summary of the Commission's Report and Order, MM Docket No. 02-23, adopted August 25, 2004, and released August 27, 2004. The full text of this Commission decision is available for inspection and copying during regular business hours in the FCC's Reference Information Center, Portals II, 445 12th Street, SW., Room CY-A257, Washington, DC, 20554. The complete text of this decision may also be purchased from the Commission's duplicating contractor, Best Copy and Printing, Inc., 445 12th Street, SW., Room CY-B402, Washington, DC, 20054, telephone 1-800-378-3160 or http://www.BCPIWEB.com. The Commission will send a copy of this Report and Order in a report to be sent to Congress and the General Accounting Office pursuant to the Congressional Review Act, see 5 U.S.C. 801(a)(1)(A).

I. Background

On January 26, 2004, the Research and Special Programs Administration (RSPA, we) published a final rule under Docket HM-230 (69 FR 3632) amending requirements in the HMR pertaining to the transportation of radioactive materials based on changes contained in the IAEA publication entitled “IAEA Safety Standards Series: Regulations for the Safe Transport of Radioactive Material,” 1996 Edition, No. TS-R-1. Specifically, the final rule:

• Adopted the nuclide-specific exemption activity concentrations and the nuclide-specific exemption consignment activities listed in TS-R-1 to assure continued consistency between domestic and international regulations for the basic definition of radioactive material;

• Provided an exception in the HMR that certain naturally occurring radioactive materials would not be subject to the requirements of the HMR so long as their specific activities do not exceed 10 times the activity concentration exemption values;

• Incorporated the TS-R-1 changes in the A 1 and A 2 values into the HMR;

• Adopted the new proper shipping names and UN identification numbers, except for those referring to Type C packages, for fissile LSA material and for fissile SCOs;

• Required, if customary units are used, that the appropriate quantity and customary units be placed within parentheses positioned after the original quantity expressed in the International System of Units (SI units);

• Adopted the use of the Criticality Safety Index (CSI) to refer to what was formerly the criticality control transport index, and to restrict the use of the concept of transport index (TI) to a number derived purely from the maximum radiation level at one meter from the package;

• Required that the new fissile label be placed on each fissile material package, and that the CSI for that package be noted on the fissile label;

• Adopted the requirement that excepted packages must be marked with the UN identification number, that industrial packagings be marked with the package type, and that Type IP-2 and IP-3 industrial packages and Type A packages be marked with the international vehicle registration code of the country of origin of packaging design;

• Removed former requirements which became redundant upon adoption of the new proper shipping names, such as the requirement that the shipping description contain the words “Radioactive Material” unless those words are included in the proper shipping name;

• Removed plutonium-238 from the definition of fissile material. Removed the reference to Pu-238 in the list of fissile radionuclides for which the weight in grams or kilograms may be listed instead of or in addition to the activity, in the shipping paper or radioactive label description of the radioactive contents of a package;

• Adopted a definition of contamination, and included an authority to transport unpackaged LSA material and SCO, and an authority to use qualified tank containers, freight containers and metal intermediate bulk containers as industrial packagings, types 2 and 3 (IP-2 and IP-3);

• Adopted a new class of LSA-I material, consisting of radioactive material in which the activity is distributed throughout and the estimated average specific activity does not exceed 30 times the activity concentration exemption level, and removed the present category referring to mill tailings, contaminated earth, concrete, rubble, other debris, and activated material that is essentially uniformly distributed, with specific activity not exceeding 10 − 6 A 2 /g.

• Incorporated the TS-R-1 changes for packagings containing more than 0.1 kg of uranium hexafluoride (UF 6 );

• Required UF 6 packagings to meet the pressure, drop and thermal test requirements, prohibited the use of pressure relief devices, and require that packagings be certified in accordance with TS-R-1 requirements;

• Removed the definition of “fissile material controlled shipment;” revised § 173.453 to reflect the NRC “fissile material exemption provisions,” and revised §§ 173.457 and 173.459 to remove the references to “fissile material, controlled shipment” and to base requirements for non-exclusive use and exclusive use shipments of fissile material packages on TS-R-1 package and conveyance CSI limits;

• Accepted the IAEA transitional requirements and begin the phase-out of packages satisfying the 1967 IAEA requirements, including DOT specification packages;

• Prohibited the manufacture of all Type B specification packages conforming to Safety Series No. 6 (1967) as of the effective date of this rule; the use of these packages would be allowed for four years after the effective date of this rule; and

• Added a requirement that the active material in an instrument or article intended to be transported in an excepted package be completely enclosed by the non-active components.

This document corrects editorial and technical errors which have come to our attention following publication of the rule.

In paragraph (a)(3), in the “Table of material incorporated by reference,” we are correcting the table heading to read “49 CFR reference.”

In the January 26, 2004 final rule, the shipping paper requirements for highway route controlled quantities of radioactive material were moved from § 172.203(d)(4) to § 172.203(d)(10); however, the reference in § 171.11(d)(6)(i) was not changed. Therefore, we are correcting § 171.11(d)(6)(i) by replacing the reference to § 172.203(d)(4)” with “§ 172.203(d)(10).” Additionally, we are correcting § 171.11(d)(6)(iv) to remove the reference to § 173.428, because this was not intended nor proposed in the notice of proposed rulemaking (NPRM).

The HMT is corrected as follows:

In paragraphs (d)(1) and (d)(5), a typographical error is corrected.

An incorrect section reference is corrected in paragraph (g)(1) and paragraph (h)(4) is corrected to indicate that the category of Class 7 label for an overpack is to be determined from the table in § 172.403(c) using the transport index (TI) derived according to § 172.403(h)(3).

In § 173.403, in the definitions for “ Low Specific Activity (LSA) material ” and “ Radiation level ,” several typographical errors are corrected.

Section 173.411 is corrected to add language authorizing the use of certain tank containers, freight containers, and metal intermediate bulk containers as IP-2 or IP-3 containers. Although proposed in the NPRM, this language was inadvertently omitted in the final rule.

Paragraph (d) is corrected to clarify that any foreign-manufactured Type A package meeting the standards in the “IAEA Regulations for the Safe Transport of Radioactive Material No. TS-R-1,” and bearing the marking “Type A,” may be used for domestic and export shipments of Class 7 (radioactive) materials provided the offeror obtains and maintains the applicable test, documentation and engineering evaluations.

In paragraph (a)(2), typographical errors are corrected in “Table 2—Allowable Content of Uranium Hexafluoride (UF 6 “Heels” in a Specification 7A Cylinder).”

Paragraph (a)(2)(ii) is corrected by inserting the word “or” immediately after the semi-colon.

Section 173.427 is corrected as follows:

In paragraph (d)(6), the left side of the equation is corrected to read “Exempt activity concentration limit for mixture.”

In the “Table of A 1 and A 2 values for radionuclides”, several typographical errors are corrected. In addition, in the January 26, 2004 final rule, the Curie values in the A 1 /A 2 table were rounded to two significant figures. As a result, the Curie values, when converted back to Terabequerels, are sometimes higher and sometimes lower than the original values, by as much as 3.6%. Since, some individuals are inputting the Curie values into their computer programs, and this would result in some A 1 and A 2 values being higher than the authorized amounts a footnote “b” is added to the A 1 /A 2 table to clarify that the Curie values are for information only and the Terabecquerel values are the regulatory standard. The Curie values in the A 1 /A 2 table will be corrected in a future rulemaking.

In paragraph (a), we are correcting an incorrect reference to “Table 11” to read “Table 9”.

This final rule is not a significant action under section 3(f) of Executive Order 12866 and was not reviewed by the Office of Management and Budget. This final rule is not a significant action under the Regulatory Policies and Procedures of the Department of Transportation. The revisions adopted in this final rule do not alter the cost-benefit analysis and conclusions contained in the Regulatory Evaluation prepared for the January 26, 2004 final rule. The regulatory Evaluation is available for review in the public docket for this rulemaking.

This final rule has been analyzed in accordance with the principles and criteria contained in Executive Order 13132 (“Federalism”). This final rule preempts State, local and Indian tribe requirements, but does not propose any regulation that has direct effects on the States, the relationship between the national government and the States, or the distribution of power and responsibilities among the various levels of government. Therefore, the consultation and funding requirements of Executive Order 13132 do not apply.

The Federal hazardous material transportation law, 49 U.S.C. 5101-5127, contains an express preemption provision (49 U.S.C. 5125(b)) that preempts State, local, and Indian tribe requirements on certain covered subjects. Covered subjects are:

(1) The designation, description, and classification of hazardous material;

(2) The packing, repacking, handling, labeling, marking, and placarding of hazardous material;

(3) The preparation, execution, and use of shipping documents related to hazardous material and requirements related to the number, contents, and placement of those documents;

(4) The written notification, recording, and reporting of the unintentional release in transportation of hazardous material; or

(5) The design, manufacturing, fabricating, marking, maintenance, reconditioning, repairing, or testing of a packaging or container represented, marked, certified, or sold as qualified for use in transporting hazardous material.

This final rule addresses the classification, packaging, marking, labeling, and handling of hazardous material, among other covered subjects and preempts any State, local, or Indian tribe requirements not meeting the “substantively the same” standard. This rule is necessary to incorporate changes already adopted in international standards. If the amendments adopted in this final rule were not made, U.S. companies, including numerous small entities competing in foreign markets, will be at an economic disadvantage. These companies would be forced to comply with a dual system of regulation. The amendments are intended to avoid this result.

Federal hazardous materials transportation law provides at 49 U.S.C. 5125(b)(2) that, if the Secretary of Transportation issues a regulation concerning any of the covered subjects, the Secretary must determine and publish in the Federal Register the effective date of Federal preemption. The effective date may not be earlier than the 90th day following the date of issuance of the final rule and not later than two years after the date of issuance. The effective date of our January 26, 2004 final rule, including the effective date of Federal preemption is October 1, 2004. Because this final rule makes editorial corrections, the effective date of Federal preemption of this final rule is also October 1, 2004.

This final rule has been analyzed in accordance with the principles and criteria contained in Executive Order 13175 (“Consultation and Coordination with Indian Tribal Governments”). Because this final rule does not have tribal implications, does not impose substantial direct compliance costs on Indian tribal governments, and does not preempt tribal law, the funding and consultation requirements of Executive Order 13175 do not apply and a tribal summary impact statement is not required.

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 a rule is not expected to have a significant economic impact on a substantial number of small entities. The corrections contained in this final rule will have little or no effect on the regulated industry. Based on the assessment in the regulatory evaluation, to the January 26, 2004 final rule, I hereby certify that, while this rule applies to a substantial number of small entities, there will not be a significant economic impact on those small entities. A detailed Regulatory Flexibility analysis is available for review in the docket.

This final rule has been developed in accordance with Executive Order 13272 (“Proper Consideration of Small Entities in Agency Rulemaking”) and DOT's procedures and policies to promote compliance with the Regulatory Flexibility Act to ensure that potential impacts of draft rules on small entities are properly considered.

This final rule imposes no new information collection requirements.

A regulation identifier number (RIN) is assigned to each regulatory action listed in the Unified Agenda of Federal Regulations. The Regulatory Information Service Center publishes the Unified Agenda in April and October of each year. The RIN number contained in the heading of this document can be used to cross-reference this action with the Unified Agenda.

This final rule does not impose unfunded mandates under the Unfunded Mandates Reform Act of 1995. It does not result in costs of $120.7 million or more to either State, local, or tribal governments, in the aggregate, or to the private sector, and is the least burdensome alternative that achieves the objectives of the rule.

The National Environmental Policy Act of 1969 (NEPA), as amended (42 U.S.C. 4321-4347), requires Federal agencies to consider the consequences of major Federal actions and prepare a detailed statement on actions significantly affecting the quality of the human environment. The Nuclear Regulatory Commission (NRC) prepared an environmental assessment (EA) of Major Revision to Packaging and Transportation of Radioactive Material Regulations”, Final Report, March 2002, on its proposed rule which addresses issues also raised in this rulemaking. On the basis of this EA, we find that there are no significant environmental impacts associated with this final rule. A copy of the environmental assessment prepared by the NRC is available for review in the docket.

Anyone is able to search the electronic form of all comments received into any of our dockets by the name of the individual submitting the comment (or signing the comment, if submitted on behalf of an association, business, labor union, etc.). You may review DOT's complete Privacy Act Statement in the Federal Register published on April 11, 2000 (Volume 65, Number 70; Pages 19477-78) or you may visit http://dms.dot.gov.