Executive Order 13162, dated July 6, 2000, authorized the establishment of the Federal Career Intern Program (FCIP) to assist agencies in recruiting and attracting exceptional individuals with a variety of experiences, academic disciplines, and competencies necessary for the effective analysis and execution of public programs. On December 14, 2000, the Office of Personnel Management (OPM) published an interim rule at 65 FR 78078, now codified at 5 CFR 213.3202(o), to implement the Executive order. The interim rule is adopted as a final rule with the following changes based on agency comments.

OPM received written comments from eight agencies. We also received a number of oral comments and questions from agencies asking for additional information and/or clarification. The majority of the comments were favorable.

Section 213.3202(o)(1) authorizes excepted service appointments under the FCIP. A number of agencies requested clarification on the duration of the internship. In general, career interns are appointed to a 2-year internship, consistent with the time served by individuals appointed under the Presidential Management Fellows (PMF) Program and those appointed under the Veterans' Recruitment Act (VRA) Program. Career intern appointments are made without the not-to-exceed (NTE) dates used with other temporary or time-limited appointments.

The internship portion of the FCIP is generally made for 2 years, but because the appointment permits the noncompetitive conversion to a permanent job, the appointment is not treated as temporary or time-limited. In December, 2000, OPM's Office of Workforce Information provided agencies with the following information on documenting personnel actions under the FCIP:

Appointment Type: Exc Appt; Conv to Exc Apt.

Nature of Action: 170; 570.

Legal Authority: Sch B. 213.3202(o).

Legal Authority Code: YCM.

Agencies should document career intern appointments by including a remark on the Standard Form 50 indicating the nature of the appointment. Such a remark is used when appointing individuals under the PMF and VRA programs. The remark could read as follows:

For employees afforded reemployment rights under § 213.3202(o)(6)(ii), you may end the remark with:

One agency asked if it needed OPM approval for making appointments to trainee positions at grades other than GS-5/7/9. As stated in Executive Order 13162, agencies may make appointments to positions at grades GS-5, 7, and 9 (or equivalent) or other trainee levels (including at one-grade rather than two-grade intervals), appropriate for the FCIP. Agencies do not need OPM approval to fill career intern positions traditionally considered at the trainee level. However, agencies must request OPM approval to fill higher graded positions.

A few agencies asked for more information on the types of positions appropriate for the program. Positions most suited for this program are entry-level positions that require training and development to equip the employee with the competencies needed to successfully perform the job. Examples of such positions include: Accounting and auditing, engineering, human resources management, information technology, law enforcement, and scientific research.

Executive Order 13162 authorizes OPM to extend career intern appointments up to 1 additional year. One agency suggested that OPM delegate to agencies the authority to extend career intern appointments up to 1 additional year. We did not adopt this suggestion. However, we chose to delegate to agencies the authority to extend an appointment up to 120 days for unforeseen or unusual circumstances. We decided to reserve to OPM the authority to grant extensions beyond 120 days, up to 1 year.

Two agencies asked us to clarify the relationship between the qualification requirements of Part 302, Employment in the Excepted Service, and the qualification requirements of Schedule B appointments under this Part. In general, Part 302 authorizes agencies to establish qualification requirements for positions in the excepted service, but that depends on the nature of the excepted appointments. Appointments (other than appointments to student trainee positions) made under Schedule B of Part 213 are subject to OPM's qualification standards or OPM-approved qualification standards. Therefore, career interns are subject to the OPM qualification requirements outlined in section 213.3202(o)(3) just as any other applicant for a Schedule B position would be.

Section 213.3202(o)(6)(i) grants civil service status to career interns who successfully complete their internships and who meet all other applicable requirements ( i.e. , qualifications, performance, and suitability). Several agencies asked for clarification concerning the appropriate coding for these conversions. We have not revised the regulations in response to this comment, but we updated Chapter 9 of OPM's Guide to Processing Personnel Actions, Table 9-G, and established the following set of codes for career intern conversions under rules 61-64:

Appointment Type: Career; Career Conditional.

Nature of Action: 100, 500; 101, 501.

Legal Authority: Reg. 315.712.

Legal Authority Code: LYP.

Section 213.3202(o)(6)(ii) grants mandatory placement rights to employees who accept a Career Intern appointment in the same agency and who fail to complete the Program for reasons unrelated to misconduct or suitability. Executive Order 13162 requires that the employee shall be placed in a career or career-conditional position in the current agency at no lower grade or pay than the one the employee left to accept the position under the FCIP.

One agency asked if the position to which the employee is to be returned had to have the same promotion potential as the position the employee left. Mandatory placement rights were included in the Executive order to ensure that Federal employees could participate in this new program without having to fear losing their jobs if they could not successfully complete the internship. The Executive order ensures that agencies place those employees who did not complete the internship back into a position that does not cause the employees to lose their grades or pay. The Executive order, however, does not require the new job to have the same promotion potential as the job the employee left to accept a position under the FCIP.

In a related matter, one agency suggested that the mandatory placement rights be discretionary. We did not adopt this suggestion because the Executive order makes this provision mandatory and not left to the discretion of agencies.

One agency asked if pay retention was discretionary or mandatory for career or career-conditional employees appointed to the FCIP at a lower grade. Pay retention is mandatory. Section 536.104—coverage and applicability of pay retention—of this chapter applies to any employee whose rate of basic pay would otherwise be reduced, among other reasons, “as a result of the placement of the employee in a formal employee developmental program generally utilized Governmentwide.” The FCIP is listed as one of these programs.

Several agencies asked for clarification on employees moving between career intern positions. As a result, we are including regulatory language on the movement between career intern positions at section 213.3202(o)(8). A career intern may move between career intern positions without a break in service. Service under a career intern appointment counts toward the completion of a subsequent career intern appointment. Although the career intern is not required to begin a new 2-year internship, the career intern is subject to other terms and conditions of the new appointment, including an agency's request for an extension. However, the total time spent under a career intern appointment may not exceed 3 years.

Several agencies asked that OPM clarify what was required in an agency's plan for using the FCIP. Section 213.3202(o)(10) establishes the requirement for agencies to develop FCIP plans within their agencies. An agency must decide what type of program it will develop and the specifics of that program must be in writing, including the covered positions and the procedures used to fill these positions in the excepted service. We have included language in that section to clarify agency responsibilities.

One agency commented that the FCIP does not provide sufficient flexibility because it requires agencies which use it to follow the provisions of part 302. OPM disagrees noting that by law, the application of veterans' preference is a requirement when filling positions in the excepted service. OPM promulgated part 302 for the sole purpose of ensuring that eligible veterans receive their preference when being considered for appointments in the excepted service. In addition to this assurance to our nation's veterans, FCIP contains several flexibilities such as: It does not require public notice, competitive service placement assistance programs do not apply ( e.g. , the Interagency Career Transition Assistance Plan), and individuals appointed as Career Interns are not subject to time-in-grade restrictions while in the Program.

I certify that these regulations will not have a significant impact on a substantial number of small entities (including small businesses, small organizational units and small governmental jurisdictions) because the regulations apply only to appointment procedures for certain employees in Federal agencies.

Karnal bunt is a fungal disease of wheat ( Triticum aestivum ), durum wheat ( Triticum durum ), and triticale ( Triticum aestivum X Secale cereale ), a hybrid of wheat and rye. Karnal bunt is caused by the fungus Tilletia indica (Mitra) Mundkur and is spread primarily through the planting of infected seed. Some countries in the international wheat market regulate Karnal bunt as a fungal disease requiring quarantine; therefore, without measures taken by the Animal and Plant Health Inspection Service (APHIS), United States Department of Agriculture, to prevent its spread, the presence of Karnal bunt in the United States could have significant consequences with regard to the export of wheat to international markets. The regulations regarding Karnal bunt are set forth in 7 CFR 301.89-1 through 301.89-16 (referred to below as the regulations).

In an interim rule effective and published in the Federal Register on March 28, 2005 (70 FR 15553-15557, Docket No. 04-118-1), we amended the regulations by adding certain areas in La Paz, Maricopa, and Pinal Counties, AZ, and Riverside County, CA, to the list of regulated areas either because they were found during surveys to contain a bunted wheat kernel, or because they are within the 3-mile-wide buffer zone around fields or areas affected with Karnal bunt. In the same interim rule, we also amended the regulations by removing certain areas or fields in Maricopa and Pinal Counties, AZ, and Imperial County, CA, from the list of regulated areas based on our determination that those fields or areas had met our criteria for release from regulation.

Comments on the interim rule were required to be received on or before May 27, 2005. We did not receive any comments. Therefore, for the reasons given in the interim rule, we are adopting the interim rule as a final rule.

This action also affirms the information contained in the interim rule concerning Executive Order 12866 and the Regulatory Flexibility Act, Executive Orders 12372 and 12988, and the Paperwork Reduction Act.

Further, for this action, the Office of Management and Budget has waived its review under Executive Order 12866.

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

A Cost-Benefit Analysis has been completed and is available to interested persons at the Kansas City address listed above. In summary, the analysis finds that the guidelines contained in the regulation are administrative in nature and in most cases, dictated by statutory requirement. They are intended to facilitate the submission and review of policy terms and conditions, endorsements, actuarial documents, underwriting rules, administrative procedures, and rates of premium of new insurance products submitted to FCIC under section 508(h) of the Federal Crop Insurance Act (Act) for approval or disapproval by the FCIC Board of Directors (Board), as well as reimbursement of research and development costs, maintenance costs, and setting of user fees. This regulation also requires approved insurance providers, reinsured by FCIC, who develop and market non-reinsured supplemental (NRS) policies to submit them to FCIC for review to be in compliance with the Standard Reinsurance Agreement (SRA). These provisions provide uniform guidance for FCIC's review and approval of NRS policies to assure the orderly business transaction and vitality of the crop insurance market place.

Pursuant to the Paperwork Reduction Act of 1995 (44 U.S.C. chapter 35), the collections of information in this rule have been approved by the Office of Management and Budget (OMB) under control number 0563-0064 through August 31, 2007.

In its efforts to comply with GPEA, FCIC requires all approved insurance providers delivering the crop insurance program to make all insurance documents available electronically and to permit producers to transact business electronically. Further, to the maximum extent practicable, FCIC transacts its business with approved insurance providers electronically.

Title II of the Unfunded Mandates Reform Act of 1995 (UMRA) establishes requirements for Federal agencies to assess the effects of their regulatory actions on State, local, and tribal governments and the private sector. This rule contains no Federal mandates (under the regulatory provisions of title II of the UMRA) for State, local, and tribal governments or the private sector. Therefore, this rule is not subject to the requirements of sections 202 and 205 of UMRA.

It has been determined under section 1(a) of Executive Order 13132, Federalism, that this rule does not have sufficient implications to warrant consultation with the States. The provisions contained in this rule will not have a substantial direct effect on States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government.

FCIC certifies that this regulation will not have a significant economic impact on a substantial number of small entities. This action does not increase the burden on any entity because it merely clarifies the process to submit policies, plans of insurance or rates of premium to the FCIC Board of Directors for approval for reinsurance and subsidy and the process to obtain reimbursement of research and development costs and maintenance costs. The effect on small and large entities would be the same because all entities must provide the same information. A Regulatory Flexibility Analysis has not been prepared since this regulation does not have an impact on small entities, and, therefore, this regulation is exempt from the provisions of the Regulatory Flexibility Act (5 U.S.C. 605).

This program is listed in the Catalog of Federal Domestic Assistance under No. 10.450.

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

This rule has been reviewed in accordance with Executive Order 12988 on civil justice reform. The provisions of this rule will not have a retroactive effect. The provisions of this rule will preempt State and local laws to the extent such State and local laws are inconsistent herewith. With respect to any direct action taken by FCIC or to require the approved insurance provider to take specific action under the terms of the crop insurance policy, the administrative appeal provisions published at 7 CFR part 11 and 7 CFR part 400, subpart J for the informal administrative review process of good farming practices, as applicable, must be exhausted before any action against FCIC for judicial review may be brought.

This action is not expected to have a significant economic impact on the quality of the human environment, health, and safety. Therefore, neither an Environmental Assessment nor an Environmental Impact Statement is needed.

On Monday, July 16, 2001, FCIC published a proposed rule in the Federal Register at 66 FR 36951-36960 to revise 7 CFR part 400, subpart V, General Administrative Regulations; Submission of Policies, Provisions of Policies, and Rates of Premium. On July 24, 2001, Congress enacted section 2103 of the Supplemental Appropriations Act, 2001, which exempted the implementation of section 522(b) of the Act, involving the reimbursement for products submitted under section 508(h) of the Act, from the rulemaking process. In response, on Monday, September 17, 2001, FCIC published an interim rule in the Federal Register at 66 FR 47949-47959 to revise 7 CFR part 400, subpart V, General Administrative Regulations; Submission of Policies, Provisions of Policies, and Rates of Premium. The interim rule was effective on September 17, 2001.

Following publication of the proposed rule, the public was afforded 30 days to submit written comments and opinions. Following publication of the interim rule, the public was afforded 60 days to submit written comments and opinions. A total of 79 comments were received from a university, legal counsels, insurance companies, an agricultural association, and an insurance service organization for both rules. The comments received and FCIC's responses are as follows:

Comment: A legal counsel stated the definition of “actuarially appropriate” should be amended to reflect the fact that 508(h) proposals often cover new and innovative concepts, or previously uncovered crops or risks for which underlying actuarial data might be scarce. The commenter stated Congress chose the lesser standard of “actuarially appropriate” for submissions submitted under section 508(h) of the Act as opposed to the requirement that rates for established crop insurance policies be “actuarially sound.” The commenter also stated the following clause should be added, “recognizing the potential relative scarcity of data for new or innovative coverages.”

Response: While “actuarially appropriate” may not be as strict a requirement as “actuarially sound,” there must still be at least a reasonable certainty that the premiums charged will cover the anticipated losses. FCIC has clarified the definition of “actuarially appropriate” and added provisions regarding the possible scarcity of data for new products.

Comment: An insurance service organization asked if there were any guidelines for determining a “reasonable reserve” in the definitions of “actuarially appropriate” and “rate of premium” such as from an actuarial society.

Response: It would be impossible to list any specific amount for a “reasonable reserve” for any submission submitted under this rule. The reasonable reserve is intended to cover unanticipated losses. The reliability of the data used to determine the expected losses is a factor that must be considered when setting the reserve. The less reliable the data, the higher the reasonable reserve must be. Since it is impossible to determine the type or reliability of data applicants will use, it is impossible to set one amount that would be appropriate to all submissions.

Comment: An insurance service organization stated “maintenance” refers to the support and improvement of the policy or plan of insurance, including terms and conditions, rates, expansion, and other measures necessary to assure financial viability and actuarial soundness or to respond to statutory or regulatory changes. The commenter stated that by comparing other defined terms, this appears to include underwriting and loss adjustment procedures (the definition of “policy” includes “related materials,” which in turn includes the actuarial documents, special provisions, and any underwriting or loss adjustment manuals, handbooks, forms or other materials), and this could be better clarified and the use of these terms be more consistent. The commenter stated the definitions for “policy” and “related materials” include references to “actuarial documents” and as a result, the “policy” definition is redundant in referring to the actuarial documents for the insured commodity, and related materials. The inclusion of underwriting and loss adjustment materials is not clear or consistent in all of the references to the “policy.”

Response: FCIC agrees with the commenter and has revised the definitions of “actuarial documents,” “policy,” and “related materials” to ensure consistency among those provisions. FCIC has also revised the definitions of “development,” “maintenance,” “research,” and “research and development costs” to eliminate the conflicts between those provisions and better reflect the activities associated with these processes.

Comment: An insurance company stated the definition of “maintenance period” states the period begins on the date the Board approves the submission and ends on the date that is not later than four reinsurance years after the date of Board approval. They suggested the regulation should address what will happen to the product and maintenance thereof if the submitting company that received approval of a product is no longer in business or is otherwise not able to fulfill the maintenance responsibilities before the expiration of the maintenance period.

Response: The maintenance period begins the date the Board approves the submission for maintenance, not approval of the submission for reinsurance. Section 400.712(m) has been added to specify that once the applicant no longer performs the maintenance responsibilities as determined by FCIC, or gives FCIC notice they no longer wish to maintain the submission, maintenance of the approved submission may be assumed by FCIC or reinsurance by FCIC may be withdrawn.

Comment: An insurance company stated any reference to a competitor's product, including the Board meeting notices that announce the name of the submission, indicates key characteristics of the product and violates the principle of confidentiality and this regulation should prohibit the disclosure of such information.

Response: FCIC agrees the name of a plan of insurance may indicate key characteristics of the product and may give competitors an idea of the product being considered by the Board. In the past, FCIC asked submitters if they wanted the name of their product used. A new paragraph (d) has been added to § 400.702 to specify that the submission must state whether the name of the submission may be used. If the submission does not state the name may be used, it must remain confidential.

Comment: An insurance company stated the requirement for the submission to be received a minimum of 180 days prior to the earliest proposed sales closing date translates to a March 30 deadline for winter crops and a September 15 deadline for spring crops. The commenter stated that while this may appear reasonable for a new complex plan of insurance, it appears arbitrarily lengthy for submissions categorized as non-significant.

Response: In accordance with section 508(h)(4)(D) of the Act, the Board has 90 days to determine whether it will approve or disapprove a submission from the time it is accepted by the Board as a complete submission, unless additional time is negotiated with the applicant. While a single submission may be simple in design, the Board and Risk Management Agency (RMA) are frequently reviewing several submissions simultaneously. Given the workload issues, the Board may require all 90 days to make its decision. If intent to disapprove is provided, the applicant can submit modifications, which must be reviewed by the Board within 30 days. In addition, there must be time to make any revisions to the policy or plan of insurance after its approval and prior to its release, train agents, and offer the product for sale. Based on these timelines, FCIC has determined that even 180 days does not provide sufficient time to review, approve and sell the product. Section 400.703(c) has been revised to specify that a submission must be received at least 240 days prior to the earliest proposed sales closing date to be considered for sale in the requested crop year to allow the outside reviewers and FCIC a reasonable time to review and implement the submission. A new section (d) has been added to specify the Board, or RMA if authorized by the Board will determine when sales can begin for a submission approved by the Board.

Comment: An insurance company stated the requirement to furnish FCIC with seven identical copies of a submission should be eliminated because submissions that are major new plans of insurance or significant changes to an existing program, require a large amount of documentation, not all of the internal RMA reviewers will have need for a complete version of the submission, and shipping costs dramatically outweigh the costs of RMA preparing its own working copies. The commenter also stated limiting the number of copies required will reduce development costs for new submissions and will also reduce the reimbursement for research and development costs, therefore, a larger amount of money will remain in the fund to reimburse other submissions that are approved.

Response: FCIC agrees there is a cost for persons to supply RMA with seven identical copies of a submission. However, the seven copies are necessary. Five of the copies go to the five external reviewers, one copy goes to the RMA Deputy Administrator, in Kansas City, Missouri, and one copy goes to the FCIC Administrator in Washington DC. All of these people must receive the full copy of the submission. RMA makes working copies for RMA internal reviewers, Board members, and legal counsel. Receiving seven copies expedites the review of submissions, assures necessary and appropriate personnel of RMA and the Board receive all of the applicable materials. However, §§ 400.703(a), 400.705, and 400.713 have been revised to allow submissions to be sent in an electronic format in accordance with the Freedom to E-File Act (Pub. L. 106-222). They must contain all the information required of hard copy documents and be in the same order. However, this should substantially reduce the costs of transmitting such submissions.

Comment: An insurance company stated the word “or” in § 400.705(a)(3)(iii), redesignated as § 400.705(b)(3)(ii), of the proposed rule should be deleted because it indicates an applicant must select either reimbursement for research and development or reimbursement for maintenance, but not both, and this is inconsistent with the Act and other relevant sections of the proposed rule.

Response: Since requests for reinsurance, reimbursement for research and development, and reimbursement for maintenance is at the discretion of the applicant, the use of the term “and” would not be appropriate. Therefore, the word “or” is correct. However, nothing precludes the applicant from requesting reimbursement for both research and development and maintenance in the first year, just as nothing precludes the applicant from requesting reinsurance and reimbursement for research and development. The term “or” implies the term “and” unless its usage indicates otherwise, which is not the case with these provisions.

Comment: An insurance company stated § 400.705(a)(8), redesignated as § 400.705(b)(8), should be clarified to indicate any required marketing plan be limited solely to the intentions of the applicant, if the applicant is an approved insurance provider or an entity representing or affiliated with an approved insurance provider. The commenter also stated there does not appear to be a requirement in the Act for an applicant to demonstrate any capacity to market the new insurance product.

Response: To be approved for reinsurance, there is no need for the applicant to demonstrate the policy or plan of insurance is marketable. However, in accordance with section 522(b)(3) of the Act, if the applicant wants to be reimbursed for research and development or maintenance costs, the applicant must demonstrate the policy or plan of insurance is marketable. The applicant is responsible for developing the marketing plan. If the applicant is not an approved insurance provider, the applicant must show that it has a commitment from an approved insurance provider to deliver the policy or plan of insurance. The definitions of “marketable” and “marketing plan” and redesignated § 400.705(e) have been revised to add to and clarify the information to be included in the marketing plan and the standards used in evaluating whether a product or plan of insurance is marketable.

Comment: An insurance service organization stated § 400.705(a)(10)(i), redesignated as § 400.705(b)(10)(i), requires contact information for those who can answer questions regarding the policy, underwriting rules and procedures, rate and price methodologies, data processing and record keeping requirements, and any other questions. The commenter states that if the underwriting rules and procedures are listed separately from the policy, it seems loss adjustment procedures should be listed as well.

Response: FCIC agrees and has added the phrase “loss adjustment” before the word “procedures” in redesignated § 400.705(b)(10)(i).

Comment: An insurance company stated language in § 400.705(b)(2), redesignated as § 400.705(c)(2) should specify in detail what constitutes “verifiable evidence of demand” because costs for market research will increase submission costs considerably if more than simple requests from producers, producer groups, or agents are mandated. The commenter also stated credentialed marketing studies should be discouraged, as their increased costs will inevitably lead to higher reimbursement appropriations.

Response: When developing a product that will be accepted and bought by producers, market research must be completed to determine what is needed or what is desired. If the producers do not see a benefit, they will not purchase the policy. Provisions have been added to the definition of “marketing plan” and redesignated § 400.705(e) to specify that focus group results, market research studies, qualitative market estimates, correspondence from producers expressing the need for such policy or plan of insurance, responses from a reasonable representative cross-section of producers to be affected by the product or plan of insurance and commitments from approved insurance providers to sell and support the policy or plan of insurance must be included in the submission. While market research studies may increase the costs and reimbursements, at a time when resources are scarce and the systems are straining to handle the existing product load, the information obtained will be invaluable to ensuring that only marketable products are offered.

Comment: An insurance service organization stated §§ 400.705(c)(1)(i) and (ii), redesignated as §§ 400.705(d)(1)(i) and (ii), indicates what needs to be provided as part of the “policy” but makes no mention of the underwriting and loss adjustment procedures that are considered part of the policy according to the “policy” definition. Section 400.705(e), redesignated as § 400.705(f), mentions “underwriting” information but only touches briefly on loss adjustment examples in § 400.705(e)(5), redesignated as § 400.705(f)(5). The commenters state that this raises concerns relating to past problems with new products that are issued before their loss adjustment procedures are developed and issued. To be more consistent with the “policy” definition, the commenter suggests it might help to clarify that paragraph (c) deals only with the policy provisions and endorsements, and that paragraph (e) addresses both underwriting and loss adjustment information.

Response: FCIC agrees and has revised the provisions to clarify that paragraph (c) involves the policy provisions related to the terms of insurance and paragraph (e) involves the underwriting and loss adjustment information.

Comment: An insurance company stated language in § 400.705(c)(2), redesignated as § 400.705(d)(2), should be clarified by defining “impact” of changes to cut down on procedural delay since assumptions made by the applicant may not be sufficient for RMA reviewers.

Response: It is impossible to define the impact of the change because it will be dependent on the type of change. However, the applicant must consider all possible impacts, including on the policy, participants and the crop insurance program. If all impacts are considered and addressed, there should not be any procedural delays. However, if reviewers question some important aspect of the change that has not been identified, the applicant will be required to respond or take the chance of the submission being disapproved. Therefore, no change has been made.

Comment: An insurance company stated language in § 400.705(d)(3), redesignated as § 400.705(e)(3), should be amended to include regions or other geographic areas that may apply to a particular plan of insurance.

Response: Since the premiums are generally calculated on a county basis, FCIC usually requires the expected liability and premium for each county and state be listed rather than by large areas such as multi-state regions or geographic areas. If the information is desired by region or geographical area it would be simple to derive from county and state data. Therefore, no change has been made.

Comment: An insurance company stated language in § 400.705(d)(5), redesignated as § 400.705(e)(5) of the proposed rule is redundant with paragraphs (e) and (f), redesignated as paragraphs (f) and (g) respectively, and should be eliminated.

Response: The language in the proposed rule was changed in the interim rule so the request was not redundant. Redesignated paragraph (e) contains information related to the marketing of the policy or plan of insurance, redesignated paragraph (f) contains information related to underwriting and loss adjustment, and redesignated paragraph (g) contains information related to prices and rates of premium. To clarify the information required, FCIC removed § 400.705(d)(5) of the interim rule and added paragraph (g)(6) to the final rule, which will require a simulation of expected losses capturing both a probable loss and a total loss.

Comment: An insurance company stated language in § 400.705(e)(1) in the interim rule is unnecessary for the purpose of reviewing the submission and impractical for the applicant because it would necessitate additional cost on the part of the applicant to produce marketing materials that may become obsolete before the submission is approved. Providing a sample of each document that will be used raises the prospect that FCIC must approve all marketing materials. The commenter also asked what the implications are of developing and using additional marketing materials after approval of the submission.

Response: FCIC agrees advertising material and brochures do not need to be included in the submission. Therefore, § 400.705(e)(1) of the interim rule has been removed.

Comment: An insurance company stated language in § 400.705(e)(5) in the interim rule is overreaching as it is impossible to anticipate every unique situation. It would be much more reasonable to require an acceptable and reasonable number of examples to most probable situations.

An insurance service organization also asked how many unique situations occur and if FCIC considers all possible unique situations now.

Response: FCIC agrees with the comment. The applicant should determine all the probable situations there may be. The language in § 400.705(e)(5) of the interim rule, redesignated as (f)(4) in the final rule has been revised accordingly.

Comment: An insurance company stated language in § 400.705(f)(4), redesignated as 400.705(g)(4), is impractical for applicant response because anticipating the questions of internal RMA and external contract reviewers is unlikely and will be unnecessarily burdensome. The commenter stated most applicants are expected to have a high degree of faith in the reliability of the data used.

Response: Redesignated section 400.705(g)(4) does not require the applicant to anticipate questions of the reviewers. As stated above, there will be situations where the data will be scarce or related data will be used. This section requires the applicant to objectively evaluate the quality, quantity and applicability of the data relied upon in the submission to assess its reliability and provide that assessment in its submission. Since the amounts and types of data can differ widely between submissions, the submitter is in the best position to make this assessment. Further, this provides the applicant an opportunity to explain why they have a high degree of faith in the reliability of the data used. The provision has been revised to clarify that an objective assessment of the data is required.

Comment: An insurance company stated language in § 400.705(f)(5)(i), redesignated as § 400.705(g)(5)(i), raises questions regarding whether coverage of the same crop constitutes “similar or comparable” insurance plans and what would be the necessity in conducting calculations comparing a new submission with every product available for a crop. The commenter stated the review process is meant to ensure the interests of producers are protected, the interests of the public are protected, the submission is compliant with the Act, is actuarially appropriate and complies with industry standards and practices. Comparison outside this realm of review may be inappropriate or unnecessary.

Response: Redesignated § 400.705(g)(5)(i) requests a recalculation of total premium and losses compared to a similar or comparable insurance plan offered under the authority of the Act. It does not ask for a comparison with every product available for a crop. Further, the applicant is not required to conduct this analysis. Redesignated § 400.705(g)(5) only requires that one or more of the three analyses be performed. If the analysis in redesignated § 400.705(g)(5)(i) is chosen, the applicant must determine which insurance plan offered under the Act is the most similar or comparable to the applicant's submission so an analysis can be made on the proposed premium rates and commodity prices, as applicable. Such analysis is necessary for FCIC in its evaluation of whether the interests of producers are protected, the interests of the public are protected, the submission is compliant with the Act, is actuarially appropriate, and does not introduce any program vulnerabilities. Therefore, no change has been made.

Comment: An insurance company and an insurance service organization suggested FCIC require detailed loss adjustment procedures/forms be included with the initial submission and subject to the same approval scrutiny as the policy provisions, rates, etc. The commenter stated major problems have been incurred in the past because claims-handling procedures were not finalized until after a product had been sold.

Response: FCIC agrees loss adjustment procedure should be included with the initial submission. FCIC has revised redesignated § 400.705(f) accordingly and has also added a new § 400.705(l) so approved insurance providers will have the information available to immediately train personnel, including loss adjusters, on loss adjustment procedures.

Comment: An insurance company stated language in § 400.705(i)(4), redesignated as § 400.705(j)(4), which requires the applicant's legal counsel to certify compliance with the Act, applicable regulations, and the SRA, is not necessary because the Board relies solely on the Office of General Counsel (OGC) for legal recommendations and it is difficult to see any value to the applicant, FCIC, or the public. The commenter also asked what the implications are of a conflict between the certification and the opinions of OGC.

Response: The goal is for the submission to be as accurate, comprehensible, and complete as possible. Requiring the applicant's legal counsel to review the submission allows the applicant to revise the submission if necessary before it is submitted to FCIC. This requirement should improve the quality of the product and expedite the review process by identifying and resolving issues prior to submitting the product. OGC provides advice to the Board; it does not make decisions for the Board. Regardless of whether there is a conflict between the opinions of counsel, OGC will continue to provide its advice and the Board will make its decision based on all the information it receives. Therefore, no change has been made.

Comment: An insurance company and an insurance service organization stated it is imperative that the submission fit into the existing Data Acceptance System, so accurate programming may be accomplished by other approved insurance providers with minimal time and expense.

Response: Redesignated § 400.705(k) requires the submission to comply in all respects with the standards established for processing and acceptance of data as specified in the FCIC Data Acceptance System Handbook (Appendix III), unless otherwise authorized by FCIC. New provisions have also been added to require applicants to provide the system or software necessary to allow FCIC to implement the product as part of the research and development of such product. If the applicant has the ability to deliver the policy or plan of insurance and has developed a new system for processing and data acceptance that is functional with FCIC, FCIC cannot limit the availability of innovative products that may be advantageous to producers solely on the basis of the time required for other approved insurance providers to program data automation systems in order to sell and service the product. However, the key is that any new system is functional and this will be taken into consideration by FCIC and the Board when determining reasonable timeframes for program implementation. Therefore, no change has been made.

Comment: An insurance company stated this regulation does nothing to minimize the burden of preparing a submission on the part of the applicant, it will lengthen the time required to develop a submission which will drive up costs significantly, the complexity required will prove a hindrance to anyone desiring to casually submit a plan of insurance and it will limit the opportunity to respond to last minute market indications with any degree of flexibility.

Response: This regulation was designed to specify the information necessary to properly evaluate a submission to ensure the interests of producers are protected, the interests of the public are protected, the submission is compliant with the Act, is actuarially appropriate, and does not introduce any program vulnerabilities. While this may appear burdensome and complex, the information requested should already have been developed and considered by the applicant in the development of the policy or plan of insurance. The costs associated with providing such information are much less than the costs the program could incur if a flawed policy or plan of insurance were offered to the marketplace. Therefore, no change has been made.

Comment: An insurance company stated it is not appropriate for the requirement in § 400.706(a)(2) to be implemented without a deadline for action by RMA. The commenter suggested the requirement be within 10 business days of receipt. The commenter stated the questions of quality of documentation may be subjective and asked what standard of measure is to be applied and under whose responsibility will it fall. The commenter stated the quality of documentation is best addressed during the review process (not before) and includes the prospect that a submission review be delayed or that it be disapproved. The commenter also stated § 400.706(a)(3) and (a)(4) should be amended to reflect comments and revisions to paragraph (a)(2).

Response: The time frames for providing submissions are limited and any number of submissions may be submitted each time frame. Further, the submissions have varying levels of complexities from changes to existing policies to introducing new and innovative plans of insurance. Therefore, it is not possible for FCIC to set a time frame to review the quality of the submissions. RMA agrees that the review of the quality of the submission may be subjective but such a review is necessary to ensure that the resources of the agency and expert reviewers are not wasted on products that have not been sufficiently developed. Such review is only intended to determine if there is sufficient information to allow a meaningful review. This initial review process is the responsibility of the Deputy Administrator of RMA's Office of Research and Development. Without the initial review process and a determination by the Board the submission is complete, approval by the Board could be delayed for months or longer if the submission goes to the experts and receives poor reviews or reviews that state it is impossible to determine whether the standards for approval have been met because there is insufficient information. An initial determination of quality could preclude the need for multiple expert reviews. A definition of “complete submission” has been added for clarity. Further, § 400.706(b) has been revised to clarify that the Board will determine if a submission is complete.

Comment: An insurance company questioned if the language in § 400.706(c)(3) of the interim rule requiring the Board to render a decision to approve or give notice of an intent to disapprove within 90 days after acceptance of the submission and requiring the applicant to be notified in writing at least 30 days prior to the Board taking such action would require written notification of intent to disapprove within 60 days of acceptance.

Response: Section 508(h)(4)(D) of the Act allows the Board 120 days after a complete submission is received to make a determination whether to approve or disapprove the submission. Section 508(h)(4)(C)(i) of the Act directs the Board to give notification of its intent to disapprove a submission not later than 30 days prior to making the disapproval. This means the Board must initially act not later than 90 days after determining the submission is complete, as reflected in § 400.706(c)(3) of the interim rule. Due to other revisions made to § 400.706, the 90 day notice of intent to disapprove is now contained in § 400.706(g) and the 30 day time frame for the applicant to be notified if the Board intends to disapprove the submission is now contained in § 400.706(i) of this regulation.

Comment: A legal counsel stated § 400.706(f)(3) which states, “The submission does not conform to sound insurance and underwriting principles;” should be deleted because many coverages explicitly mandated by Congress extend beyond traditional insurance concepts and do not conform to sound insurance and underwriting principles. For instance, crop insurance production risks for drought, price risks under Crop Revenue Coverage (CRC), Group Risk Protection (GRP) allowing a producer to collect an indemnity even though the producer did not sustain a loss, Catastrophic Risk Protection (CAT) coverage allowing a producer to obtain a coverage guarantee possibly worth millions of dollars for no premium and a token administrative fee, and the Agricultural Risk Protection Act (ARPA) mandating the use of futures and options contracts designed to provide reasonable protection from the financial risks of price for income fluctuations inherent in the production and marketing of livestock, transcend traditional insurance and underwriting principles. Federal Crop Insurance is not simply a business-based insurance system but a Federally subsidized program with a social policy element and a mandate to address the full range of agricultural risk management, not simply traditional insurance. Trying to apply traditional insurance models as a legal standard for new products under ARPA 2000 inevitably will result in selective enforcement and arbitrary judgments. FCIC has the responsibility to assure itself that any proposed new tool is technically sound and protects the interests of both the taxpayers and farmers.

Response: Section 400.706(f)(5) has been redesignated as § 400.706(h)(6). FCIC agrees ARPA encourages the development of products that may be non-traditional and innovative in design. FCIC agrees that not all traditional principles of insurance apply to these types of products. However, there is express statutory authority to offer the coverage referred to by the commenter. Absent express authority to the contrary, the sound principles of insurance and underwriting continue to apply since they are one of the underpinnings of a determination of actuarial soundness. In addition to the requirements of the Act, FCIC must protect taxpayer dollars. This means that insurance cannot provide coverage in excess of the value of the commodity and no known program vulnerabilities can be introduced as a result of the implementation of the submission. Therefore, FCIC will review the submission to determine whether it is in accordance with sound insurance and underwriting principles and if it is not, FCIC will determine whether the Act authorizes an exception. Redesignated section 400.706(h) has been revised for clarity.

Comment: An insurance company stated language in § 400.706(f)(5) should include a limitation that would prevent use of this provision to deny approval of a submission when the time constraint was created due to the action or inaction of RMA or the Board, and not the applicant.

Response: Congress has set very tight time limits on the approval process. In some quarters there may be many products submitted. This provision was specifically intended to permit denial of a submission if, even after due diligence, there is insufficient time to properly evaluate the submission. For example, expert reviewers may not be available because they are working on other projects or the submission is so complex or requires such significant changes that it is impossible to determine what changes are necessary in the available time frame. To the extent that the applicant believes that RMA or the Board is stalling on acting on a submission in order to utilize this provision, the applicant always has recourse to challenge such actions are arbitrary and capricious. Therefore, no change has been made.

Comment: An insurance company suggested language be added to § 400.708 to give SRA holders the option to not offer specific products that the Board has approved. This decision by the SRA holder may be based on the approved insurance provider's assessment of the product, the reinsurance terms for the product, or any other reason.

Another insurance company and an insurance service organization asked if all approved insurance providers reinsured by FCIC will be required to offer every product that is approved or will a separate SRA addendum be optional for each such product. The commenter also asked if an insurance company reinsured by FCIC could opt out of a program if the company deems the user fees to be excessive.

Response: Section II.A.2. of the 2005 Standard Reinsurance Agreement, states in part “* * * The Company is not required to offer such plans of insurance as may be approved by FCIC under the authority of section 508(h) of the Act. However, if the Company chooses to offer any such plan, it must offer the plan in all approved states in which it writes an eligible crop insurance contract and it must comply with all provisions of this paragraph as to such plan.” This means that approved insurance providers can opt not to offer any policy or plan of insurance approved under section 508(h) of the Act. However, if the approved insurance provider opts to offer the policy or plan of insurance, it must offer it everywhere. Separate SRAs or addendums to the existing SRA will be used as appropriate. Therefore, no change has been made.

Comment: An insurance company and an insurance service organization stated § 400.708(a)(1) needs to be clarified because it seems to require a post approval disposition of property rights from the payment for said property rights manifested in the reimbursement for research and development costs articulated in § 400.712(a) and it appears the applicant ultimately gives up the property rights.

Response: The applicant continues to have property rights to the submission until responsibility for maintenance is relinquished to FCIC, as determined by the applicant. However, if research and development or maintenance costs have been paid by RMA, section 522(b)(5) of the Act makes it very clear that if the applicant elects not to continue to maintain the product, the research and development or maintenance costs paid by RMA are payment in full for the product and RMA has the property rights to the product. Section 400.708(a)(1) simply incorporates this provision. Section 400.708(a)(1) has been revised to clarify when property rights are transferred.

Comment: An insurance company stated § 400.709(a)(1)(ii) requires the applicant to annually update and provide maintenance changes to the insurance product and they suggested the regulation should address what happens if the applicant is no longer able or willing to continue to maintain or offer the product prior to the end of the maintenance period.

Response: As previously stated, § 400.712(m) has been added to specify the maintenance period ends for an approved submission once the applicant no longer performs the maintenance responsibilities, as determined by FCIC, or the applicant gives FCIC notice they no longer wish to maintain the submission. Maintenance of the approved submission may be assumed by FCIC or the Board may withdraw reinsurance, risk subsidy and A&O subsidy.

Comment: An insurance service organization stated § 400.709(a)(2) requires any changes be submitted to FCIC no later than 180 days prior to the earliest sales closing date and asked how this compares to the current requirement.

Response: Before this regulation was effective, specific deadlines for changes were contained in a Memorandum of Understanding (MOU) between the applicant and FCIC. For example, currently the CRC and RA MOU's allow 153 days for changes to spring crop provisions and 122 days for changes to fall crop provisions; except, in the event of unforeseen circumstances, changes may be made if they are submitted 30 days prior to the contract change date. Given that RMA will be reviewing new submissions, revising existing submissions, and maintaining its own products, the 180 day deadline is necessary to allow adequate time for the review process and Board approval and treat all products consistently. However, since some submissions may allow producers to obtain insurance coverage at various times during the year, the references to sales closing dates have been changed to contract change dates in §§ 400.709(a)(1)(ii) and (2).

Comment: An insurance company and an insurance service organization stated § 400.709(b)(1)(ii) indicates approved insurance providers should contact FCIC to obtain and execute a copy of the reinsurance agreement for approved products and they suggested this language be modified to require FCIC/RMA to contact approved providers and make them aware of products that have been approved because the responsibility for advising providers should fall to FCIC/RMA, as FCIC/RMA holds the approval authority over the products.

Response: Section 400.709(b)(1)(ii) of the interim rule has been redesignated as § 400.709(b)(1)(iii). The fact that FCIC holds the approval authority does not mean it is required to provide notice to the approved insurance providers that products have been approved. The approved insurance providers have notice throughout the process. When products are considered by the Board, they are placed on the Board meeting agenda, which is made public. Any approval of the product is made in an open Board session and all resolutions are published on RMA's public Web site at http://www.rma.usda.gov/ as soon as new products are approved. Further, FCIC notifies all approved insurance providers via a Manager's Bulletin when the product is released. Since participation is voluntary, once RMA makes the information available, it is the approved insurance providers who are appropriately responsible for requesting and executing a copy of the reinsurance agreement for the approved product. The specified section has been redesignated as § 400.709(b)(1)(iii) for clarity, however, no other change has been made.

Comment: An insurance company and an insurance service organization suggested the language in § 400.709(b)(1)(iii) which states, “Conducting the best review of the submission possible in the time allowed” should be revised to state, “Conducting a thorough review of the submission.” Since FCIC/RMA has approval authority, and exercise of that authority does have consequences, the language should reflect the full responsibility that accompanies the authority. The commenter asked if the best review possible in the brief time allowed will always be adequate.

Response: Section 400.709(b)(1)(iii) of the interim rule has been redesignated as § 400.709(b)(1)(i). RMA has a limited time frame to conduct its review and must conduct as thorough a review as possible within that time frame. RMA acknowledges that its review may not catch all the mistakes, errors, or flaws. However, since RMA is not the developer of the product, the responsibility for such mistakes, errors, or flaws correctly lies with the applicant. This provides applicants with the incentive to thoroughly review and test their product prior to submitting it to the Board. Since applicants will be reimbursed for costs associated with such research and development, there is no financial impediment to conducting a thorough review and test of the product. Except for redesignation of the provision, no change has been made.

Comment: A legal counsel, a university, an insurance service organization, and insurance companies stated FCIC should be liable for mistakes, errors, or flaws in a submitted product and its related materials. The Board now conducts a substantial review process prior to approving 508(h) submissions, including analyses by five outside independent reviewers, OGC, and RMA's staff. It is unrealistic and inconsistent with FCIC's past practice for FCIC to not be liable. FCIC's formal approval of a product signifies that the Board has reviewed it, and that the Board has determined its reviews to be positive. The public and the applicant should be able to rely on this public action by the Board. When the Board approved Crop Revenue Coverage in the late 1990s, the memorandum of understanding between FCIC and the sponsoring company assigned liability for such policy errors to FCIC, and every legal challenge involving the policy since that time has presumed FCIC responsibility. By sharing in the liability for errors or flaws, FCIC retains an incentive for maintaining a high level of quality control over new products. The Act intended to provide a process and mechanism under which organizations can evaluate and design programs that are needed in the marketplace and have them available to producers under the FCIC/RMA umbrella. If FCIC/RMA approves a submission, then FCIC/RMA must be the regulator, manager, maintainer and administrator of that program. Section 400.709(a)(1)(iii) requires the applicant to respond to procedural issues, questions, problems, etc., in regard to a policy or plan of insurance and they suggested this is a role for FCIC/RMA as regulator of the program, not the applicant that developed the product. Section 400.705(a)(10) requires the submission to include the names of those responsible for addressing the policy and procedural issues and questions that arise in administering the approved program. Once FCIC/RMA grants approval of the product, responsibility for the product and its delivery, including responding to questions about procedural issues, policy language, etc., for the product should belong to FCIC/RMA. The program becomes an FCIC/RMA program the same as MPCI or GRP or any other RMA/FCIC approved or designed insurance program. Any other conclusion is inconsistent with the SRA, which holds SRA holders responsible for complying with FCIC policies, procedures, etc., not those of other parties. This issue again reinforces that once FCIC/RMA grants product approval, it becomes responsible for the product. Section 400.709(a)(2) indicates only the applicant may make changes to the policy, plan of insurance, or rates of premium approved by the Board. The commenter stated FCIC/RMA has the responsibility to make such changes after FCIC has approved the submission. It was also stated that § 400.709(b)(2) should be modified by removing the word “not” as FCIC assumes liability for submissions once they are approved.

Response: Section 400.709(b)(2) has been redesignated as § 400.709(b)(3). Applicants are liable for the insurance products they submit under 508(h) of the Act because they own the product. FCIC does not gain ownership or control over the product until such time as the applicant agrees to relinquish the product to RMA. Further, while the product is owned by the applicant, FCIC does not have the authority to modify it. All it can do is disapprove a submission or withdraw reinsurance if errors are discovered and the applicant is not willing to correct the error. Also, it is the applicant that chooses the method to use to correct the identified mistake. Therefore, FCIC cannot assume the liability of a product over which it has so little control. In addition, if FCIC were to assume the liability for mistakes, it would delay the approval process considerably. All submissions would have to be disapproved until FCIC had thoroughly completed its review and tested the product. For its own products, this process can take years. However, the Act only provides 90 days to review the submission. This is not a sufficient time to conduct a thorough review and test of the product. When CRC was approved, the 90-day review requirement did not exist and RMA could take such time as necessary to review the product. Therefore, FCIC should not be responsible for the errors in a product that Congress has given it insufficient time to thoroughly review and test. It is the applicant that has unlimited time to develop, evaluate and test the product and has the authority to make such changes as are necessary. Therefore, the liability correctly lies with the applicant.

Comment: An insurance service organization stated the Web site is a useful tool for making information available, but approved insurance providers should be notified in writing when policies, plans of insurance, or rates of premium are timely withdrawn because they are deemed canceled and applications for insurance are not accepted as of the date that FCIC publishes the notice of withdrawal on its Web site. Section 400.709(a)(5) would require approved insurance providers to check the Web site each time an application is processed in case a cancellation notice was posted after the last check.

Response: Section 400.709(a)(5) applies to both producers and approved insurance providers and simply provides the consequences if reinsurance is withdrawn from a policy, plan of insurance, or rates of premium. The reference to the Web site simply provides the date by which cancellation is effective. FCIC agrees that if reinsurance is withdrawn or denied from a policy, plan of insurance or rate of premium, the approved insurance provider should be notified in writing and has revised the provision accordingly.

Comment: An insurance company and an agricultural association stated §§ 400.712(b) and (c) of the interim rule do not address procedures for submissions sent to RMA and not yet approved by the Board prior to publication of the interim rule and such circumstances prevent compliance with paragraph (b), which states a request for reimbursement be included with the original application.

Response: Revisions were made to § 400.712 when the interim rule was completed to accommodate this situation. However, this information has been removed in the final rule since such information is now obsolete.

Comment: An insurance company stated § 400.712(d) is more appropriate to the decision to approve or disapprove an application and if an application is approved, the question of qualification for reimbursement should be moot. The commenter also asked whose marketing plan would be utilized to help render this decision.

A legal counsel stated the proposed rule requires that to be eligible for reimbursement, a product must be marketable based on a reasonable marketing plan. Marketability so defined, is a judgement that the Board can make in advance when the product is approved, and it addresses a statutory requirement. However, the proposed rule defines marketability as a measure of the acceptability of a policy as reflected by the percent of market penetration of the identified target market which is an after-the-fact judgement. It is unclear how or whether the after-the-fact judgement applies as it is not referenced in § 400.712. The commenter opposes use of the after-the-fact test as being unnecessary to legislative requirements, creating excessive uncertainty, and conflicting with the regulatory scheme. Once the Board has approved a reimbursement request at the time it approves the new product (a full marketing plan will be included in the submission), the applicant should be able to rely on the Board's decision.

Response: Section 400.712(d) has been redesignated as section 400.712(c). The definition of “marketability” in the proposed rule was deleted and a definition of “marketable” was added in the interim rule. The definition of “marketable” has been revised in the final rule to make it clear that the determination of marketable will be based on the marketing plan and the documentation provided to support it. FCIC has also determined that marketability should also be considered when determining whether the policy or plan of insurance protects the interest of producers because unmarketable products waste valuable resources that could be better used to provide products that producers want to purchase. Therefore, it has also included the requirement in redesignated § 400.706(h).

Comment: A legal counsel stated it should be explicitly stated the Board will approve a proposed research and development reimbursement request, conditioned only on subsequent proration as specified in § 400.712(f)(2) of the interim rule, at the same time the applicant's proposed new product is approved.

Response: FCIC cannot determine when it approves a submission that it will pay the research and development costs. Some of those costs may not have yet been incurred and certain costs may be reduced or excluded in accordance with § 400.712(h). FCIC has revised the provisions to clarify that a submission is eligible for reimbursement if the Board determines the submission is marketable.

Comment: A legal counsel suggested § 400.712(e) be modified by adding “except as provided in paragraph (c) of this section” after the phrase “August 1” because they stated that it could be read to require that such requests be received by FCIC not later than August 1 to be considered for reimbursement in the current fiscal year.

Response: The information referencing a submission approved by the Board or submitted to the Board prior to the interim rule being published on September 17, 2001, is now obsolete and has been removed in the final rule.

Comment: An insurance company asked if since limited funds exist each fiscal year for reimbursement of research and development costs, and maintenance costs, if the limit is met in any year, whether the applicant can resubmit the “shortfall” for possible reimbursements in a subsequent year.

A legal counsel stated that under the proposed rule in § 400.712(f)(2) if the sum of all applicants requests for reimbursement in a given year exceeds available funding, each amount is adjusted downward by a uniform factor and portions of the reimbursement that remains unpaid as a result of this reduction appear simply to expire. This could be unfair based on arbitrary timing factors if applicants adversely select against annual pools to the disadvantage of others. A fairer approach would be to permit each company to receive its full reimbursement as calculated under the rule and if the sum of all applicants claims exceed available funding in a given fiscal year and a uniform downward adjustment is applied, the unpaid portions should be rolled over and paid in the following fiscal year when funds are available.

Response: Applicants will not be allowed to receive additional funds in a subsequent year for the “short fall” between the amount of reimbursement they requested and the amount of reimbursement they receive. The Act only authorizes one payment for research and development costs. Therefore, these costs cannot be broken into two separate payments in separate fiscal years. Further, the payment for maintenance costs comes from a single year's appropriations that can only be used to reimburse costs expended for that fiscal year. Therefore, costs incurred in one fiscal year cannot be rolled over to be paid in a subsequent fiscal year. Therefore, no change has been made.

Comment: An agricultural association stated they do not know of any legislative history which indicates that Congress intended for a complicated rating system to be developed as is in § 400.712(g) of the interim rule for determining the level of reimbursement.

Response: Section 400.712(g) of the interim rule has been redesignated as section 400.712(f). Section 522(b)(6) of the Act states, “The Corporation shall determine the amount of the payment under this paragraph for an approved policy based on the complexity of the policy and the size of the area in which the policy or material is expected to be sold.” Therefore, Congress expressly directed FCIC to develop a rating structure to determine the complexity of the product and how much it will be reimbursed.

Comment: An insurance company stated § 400.712(g)(1) of the interim rule indicates a high degree of subjective judgement as to what degree a policy, plan of insurance, or various components thereof, may be based on, or similar to, existing policies. The commenter stated that given the requirement for adherence to industry standards and practices it is likely that a complex, original plan may score highly but be less likely to be approved, while proposals utilizing well-known concepts might not score well but stand a better chance for approval.

Response: The scoring methodology in redesignated § 400.712(f) is not used for approving new insurance products. It is used for computing an equitable amount of reimbursement for research and development costs. The research and development expenses associated with using well known concepts should be less because the development and testing of such concepts has already been done by someone else. The research and development expenses associated with complex, innovative concepts would likely be higher because of their originality. The scoring system assures that applicants with complex, innovative designs have a better likelihood of having their research and development expenses approved. Except for redesignation, no other change has been made.

Comment: A university and an insurance company suggested emphasis should be placed on accuracy, not necessarily on novelty. The commenters also stated innovation is essential, but consistency and accuracy may need more emphasis. Just being new or different does not guarantee accuracy, program success, or fair and equitable programs for policyholders or taxpayers. Section 400.712(g)(2) of the interim rule states new methodologies will be eligible for higher reimbursement than existing price methodologies.

Response: Section 400.712(g)(2) has been redesignated as § 400.712(f)(2). The applicant should always place emphasis on accuracy since the applicant is solely liable for any mistakes, errors, or flaws in the submitted policy, plan of insurance, related material, or the rates of premium that have been approved by the Board. It is also in the best interests of the applicant to present to the Board the most accurate information in order to be considered for approval since such information and methodologies will be reviewed by expert reviewers and any inaccuracies will result in delays in approval of the product. An agreement to pay the research and development expenses associated with complex products provides a greater incentive to applicants to ensure that there are no errors, mistakes or flaws in the product. Except for the redesignation, no other change has been made.

Comment: An insurance company stated § 400.712(g)(5)(i) of the interim rule should have descriptions of or definitions for what degree of originality or modification qualifies a submission for each scoring point.

Response: Section 400.712(g)(5)(i) has been redesignated as § 400.712(f)(5)(i). It would be impractical to list definitions or degree of originality that would be appropriate for every unique situation that future innovative submissions may present. It is more appropriate to use the broader based language that can be applied to the numerous potential different innovative submissions. No other change has been made.

Comment: Legal counsels and an agricultural association questioned the rules and expectations of the reimbursement procedure for submissions pending at the time of publication of the proposed rule. The commenters asked if a pending product is approved by the Board shortly after the regulation is a final rule would the applicant be given the same 60-day grace period to submit its reimbursement application as that provided for products approved prior to the rule's publication or would the applicant be required to amend its pending submission to include reimbursement material prior to final Board action. The commenter asked if it could wait until August 1 of the following year, the deadline for applications under § 400.712(e), and if the Board acts on the submission after August 1 (the deadline for 2001 fiscal year applications) but prior to October 1, 2002, would it qualify for funding in fiscal 2002. It was suggested FCIC give applicants of products that have been pending before the FCIC Board, prior to the publication of the proposed rule, a choice to either amend their submissions to include a reimbursement request in accordance with § 400.705(k) so that the Board can consider it at the time it votes on the product itself or to submit an application for reimbursement within 60 days of the rule's publication, which would be the same grace period applicable to products approved prior to the proposed rule. The regulation is unclear as to whether an applicant must request a projected or estimated level of maintenance costs in advance, when the product is approved, at the beginning of each fiscal year, or alternately whether an applicant may wait until the end of each fiscal year and account for the actual costs accrued, and then request reimbursement for such actual costs.

Response: Revisions were made to § 400.712 when the interim rule was completed to accommodate this situation. Submissions submitted to the Board prior to publication of the interim rule followed the same procedure as submissions approved by the Board prior to publication of the interim rule. This obsolete information has been removed in the final rule.

Comment: A legal counsel questioned why costs will be examined for reasonableness and may be adjusted at the sole discretion of the Board because this appears to undermine the very objectivity achieved by the detailed criteria specified. If the Board, at its sole discretion, can replace the application of objective standards by its own subjective view of reasonableness, then the process becomes highly judgmental, inevitably inviting questions of favoritism, bias, or unequal treatment. The commenter stated, at a minimum Board judgments must be available for review and the standard of reasonableness must be spelled out with objective benchmarks.

Response: The detailed criteria in § 400.712 will be followed. However, there may be situations where costs for similar work among the submissions may be substantially different. The Board must determine what costs are reasonable. Further, since the Board is using appropriated funds, it must take such actions as necessary to ensure the funds are properly spent. Reimbursing exorbitant costs would be a violation of this fiduciary duty. In addition, the knowledge that only reasonable costs will be reimbursed may place limitations on applicants so they do not incur excessive charges based on the knowledge that such costs will eventually be borne by the Government. Additional criteria has been added to redesignated §§ 400.712(g)(1)(iii) and (iv) for clarification.

Comment: An insurance company stated § 400.712(i)(1) of the interim rule should include costs associated with building rents or space allocation paid for personnel directly involved in research and development.

Response: There are no special building requirements for the development of insurance policies. Therefore, the applicant can either use the space in which normal business activities are currently accommodated to do the research and development for a new product or pay for additional space out of normal business funds. FCIC cannot allow the costs of business expansion to be borne by the Government. It is a normal business judgment of the applicant whether such costs will be incurred. Section 400.712(g)(2)(xiv) has been added to specifically state, costs associated with building rents or space allocation will not be eligible for reimbursement.

Comment: An insurance company stated § 400.712(k) does not specify the consequences if an applicant does not notify FCIC, no later than six months prior to the end of the last reinsurance year in which a maintenance reimbursement will be paid, whether they will continue to maintain the policy or plan of insurance and charge approved insurance providers a user fee to cover the maintenance expenses or transfer responsibility for maintenance to FCIC.

Response: FCIC agrees and has added a new § 400.712(j)(8) to specify that if the applicant fails to provide timely notice to FCIC, the policy or plan of insurance will transfer to FCIC.

Comment: An insurance company stated they have concerns regarding the availability of future reimbursement funding for research and development costs, and maintenance costs if a significant increase in the number of approvals should develop.

Response: The amount of funds available for reimbursement of research and development costs has increased from $10,000,000 for each of fiscal years 2001 and 2002 and not more than $15,000,000 for each of the 2003 and subsequent fiscal years. However, these funding limits cannot be exceeded so if the requested amounts exceed the available funding, the reimbursements will have to be prorated.

Comment: An agricultural association stated since anyone can now submit a new product under section 508(h) of the Act there are new challenges faced by these applicants that are not addressed in the proposed rule. New policies involve traditional underwriting risk and market risk. Proper actuarial analysis, sound program rules, and reinsurance can address underwriting risk. The approved insurance provider must invest heavily in sales information, agent training, outreach, education, and management systems to address business risk. It may be argued that existing approved insurance providers should bear the market risk of offering new policies in the pilot stage. However, a new company will need a high potential rate of return in order to attract investment capital. The existing SRA and section 508(k) of the Federal Crop Insurance Act requires that approved insurance providers bear a sufficient share of a potential loss so as to ensure that they operate in a sound and prudent manner. The commenter stated the principle should not apply to the same extent to a 508(h) policy because Congress explicitly exempted 508(h) policies from such “limitations in the Act” in recognition of the innovative nature of these products. The commenter stated if FCIC chooses not to provide 100 percent reinsurance, FCIC should offer a choice of either including pilot insurance policies in the approved insurance provider's regular SRA risk pool because the administrative cost to them of establishing separate reinsurance systems under a separate SRA may outweigh potential gains or creating a new reinsurance fund, which would combine elements of both the current Commercial and Assigned Risk Funds ( i.e. , “Pilot Insurance Fund”). Approved insurance providers participating in this new “Pilot Insurance Fund” would retain the same percentages of ultimate net loss as are provided under the Assigned Risk Fund, which would assure confidence in the new product, make up for the lack of private reinsurance, but still require approved insurance providers to retain some minimum amount of risk to assure proper program performance. The reinsurance should be provided without regard to the limitations in the SRA on the amount of an approved insurance provider's portfolio that it can place in the Assigned Risk Fund. Participating approved insurance providers should retain the percentages of underwriting gain provided under the Commercial Fund. The current SRA provides that, under the Assigned Risk Fund, the approved insurance provider will retain 15 percent or less of underwriting gain, a reasonable approach for a mature program but not sufficient protection for a novel pilot program. The combination of risk protection and gain potential under a new fund, plus the choice of using current SRA pools for approved insurance providers so desiring, will build a strong foundation for wide participation by private insurance companies.

Response: FCIC recognizes there may be additional risks associated with submissions approved under section 508(h) of the Act. To address these risks, unlike other plans of insurance which must be offered by all approved insurance providers in all states they write business, approved insurance providers have the choice whether to offer a policy or plan of insurance reinsured under section 508(h). Therefore, approved insurance providers can evaluate the product and determine whether they want to assume the risk. Because it is optional, approved insurance providers who sell and service the new submission will have a reinsurance agreement, which may simply be an amendment to the current SRA. It would not be consistent with sound insurance principles or FCIC's fiduciary duty to the taxpayer to allow approved insurance providers to assume none or minimal risk and receive an even greater share of the gains. Part of the process of offering these new products is an evaluation of whether they are actuarially sound and do not introduce program vulnerabilities. The approved insurance provider's assessment of the risk is an integral part of this process and that assessment could be skewed if the approved insurance provider did not bear any meaningful risk. Further, it should be the market that determines whether new policies or plans of insurance are sold and approved insurance providers are part of that market. Therefore, no change has been made.

Comment: A legal counsel stated FCIC does not have authority to make § 400.713 effective without complying fully with the notice and comment provisions of the Administrative Procedures Act (APA). The preamble mistakenly refers to section 2108 of the 2001 Supplemental Appropriations Act when the reference should be to section 2103(a). The commenter stated the APA recognizes only one basis, good cause, for making a substantive regulation effective upon publication. The commenter stated this regulation does not have a “good cause” certification and that such certification would be inappropriate anyway, since the current SRA deals with a portion of the subject matter of § 400.713 in section V.F. of the SRA, and there are no problems with respect to compliance with or abuse of that provision in the SRA. The commenter stated that § 400.713 exceeds the contractual grounds in the SRA by adding two new grounds for denial of subsidy and reinsurance which are “any rights of the insured with respect to the underlying reinsured policy or plan of insurance” or if that policy causes “disruption in the marketplace for products reinsured by FCIC.” The commenter also stated it was misleading to describe this section as guidelines since compliance with it is mandatory and failure to comply will result in financial penalties. The commenter stated that section 2103(a) explicitly concerns expediting effectiveness of regulations implementing § 522(b) of the Act, 7 U.S.C. 1522(b), which only deals with reimbursement of research and development costs and maintenance costs with respect to 508(h) products. Section 400.713 purports to cover all non-reinsured named peril coverage, except for hail coverage, for all commodities which an approved insurance provider may insure. This assertion of regulatory authority includes products even if they have been approved by the relevant state insurance departments. The definition of “non-reinsured supplemental policy” (NRS) may apply even if there is no federally approved reinsurance product available for the commodity in one or more of the counties where the non-reinsured policy is offered. If FCIC has approved any product for reinsurance for any commodity, a NRS product covering the same commodity is subject to its jurisdiction. It fails to take into account the fact that availability of reinsured products is determined on a county-by-county basis for any commodity with respect to which FCIC has approved reinsurance. This means that there may be counties in which an approved insurance provider wishes to offer a NRS product for a commodity grown in that county although FCIC has not approved a reinsurance product for sale in that same county for the commodity in question. This ambiguity in the definition establishes that § 400.713 is unduly broad because it seeks to extend review and approval jurisdiction of the FCIC to non-reinsured policies even when they are issued in counties where no underlying reinsured coverage for the same commodity is available. The commenter states there is no statutory or contractual authority permitting issuance of § 400.713 of the Interim Rule. It does not identify any laws, rules, regulations, or contracts that are inconsistent and the preamble does not provide any rationale for preempting state regulations of non-reinsured policies. This section would allow FCIC to review and approve all insurance products providing any form of coverage for any commodity even though FCIC is not providing subsidy or reinsurance for that coverage. There is no relationship between §§ 400.702-400.712 and § 400.713. The commenter also stated a contractual provision cannot be utilized as authority for a federal regulation.

Response: FCIC agrees section 2108 of the 2001 Supplemental Appropriations Act as presented in the Summary of the interim rule was not correct. However, the correct section designation was in the Background section of the interim rule published on September 17, 2001. Further, FCIC acknowledges that section 2103 only applied to the implementation of section 522(b) of the Act and that § 400.713 exceeded the scope of that section. Therefore, the provisions of § 400.713 are not effective until the effective date of this final rule. However, with respect to the denial of reinsurance if the NRS shifts or increases the risk to the underlying FCIC reinsured policy, that requirement is contained in section V.F of the 2004 and previous SRAs and section IV.E of the 2005 SRA. Therefore, notwithstanding the effective date of § 400.713, FCIC can deny reinsurance under the SRA if the conditions in the SRA have been met.

The definition of a “NRS” specifically states that it includes products that offer coverage, except for hail, for commodities in addition to the coverage available under a policy or plan of insurance reinsured by FCIC. This means that if there is no FCIC reinsured policy for the commodity, the product is not considered a NRS. This would also apply if there is no FCIC reinsured policy for the commodity in the county. As the name implies, FCIC is seeking to examine those products that are supplemental to FCIC reinsured policies. Therefore, the provision is not overbroad. FCIC agrees that products with new coverage must be submitted even if FCIC reinsured policies do not offer the coverage. This is to ensure that the new coverage does not shift risk to the underlying FCIC reinsured policy. However, if there is not an underlying FCIC reinsured policy, § 400.713 is not applicable. FCIC has revised the definition of NRS for clarification.

Comment: An insurance company suggested § 400.713 have a 60-day time frame requiring FCIC to respond to the approved insurance provider regarding the Non-Reinsured Supplemental policy submission.

Response: FCIC agrees that a time frame should be incorporated into the regulation. FCIC is requesting that the NRS policy be submitted at least 120 days prior to the first sales closing date. FCIC will respond to the submitter not less than 60 days before the earliest sales closing date or provide notice why it is unable to respond within the time frame allotted.

Comment: A legal counsel asked if related materials submitted for a NRS policy will be reviewed under the same standards as those employed to review proposed 508(h) products or policies developed by FCIC product development contractors. The commenter stated FCIC provides no subsidy or reinsurance for a NRS policy, like it does for 508(h) products and other policies approved for reinsurance so different standards should apply.

Response: FCIC agrees different standards should apply, and do apply. The purpose for FCIC's review of a NRS policy is to determine if the NRS policy materially increases or shifts risk to the underlying policy or plan of insurance reinsured by FCIC, reduces or limits the rights of the insured with respect to the underlying reinsured policy or plan of insurance, or causes disruption in the marketplace for products reinsured by FCIC. FCIC will not be reviewing whether the NRS policy is actuarially sound or protects the interest of producers. Section 400.713 has been revised to define the basis of FCIC approval of an NRS policy and for clarification.

Comment: A legal counsel stated § 400.713 establishes no meaningful criteria or standards for the reviews or determinations to be made. It would penalize the issuer of a non-reinsured policy if it affects “any rights of the insured with respect to the underlying reinsured policy or plan of insurance.” It does not deal with the issues such as whether the effect on rights is adverse or beneficial or whether or not the effect is material or immaterial. The regulation purports to define the “marketplace disruption” test for denying subsidy and reinsurance, however they are not adequate. For instance, the commenter asked how FCIC will evaluate and then implement (1) a standard based on a test of “adversely affecting sales” of reinsured products; or (2) evaluate and then implement a test on “undermining producers” confidence” in Federal crop insurance, relying on decreased “willingness or ability to use Federally reinsured risk management products” or based on harm to “public perception of the Federal crop insurance program?”

Response: NRS policies generally attach to or are written with an underlying FCIC reinsured policy. However, NRS policies are not reinsured by FCIC. NRS policies are not standardized so each could have a unique impact on the underlying FCIC reinsured policy. It is imperative provisions of the NRS be compatible and consistent with the underlying policy in terms of coverage references, policy dates, and generally accepted policy rules of administration to avoid coverage ambiguities. The policyholder's perception of the underlying FCIC reinsured policy and the NRS are indivisible parts of the entire risk management package. The package must perform as expected to maintain consumer confidence in Federal risk management programs. With respect to whether the policy affects the rights of producers, FCIC will focus on whether the NRS policy prevents the producer from receiving coverage or changes such coverage so the producer does not receive the full benefit under the underlying FCIC reinsured policy. FCIC will also examine whether the NRS policy will result in over-insurance. With respect to marketplace disruption, FCIC will generally consider producer perceptions, comments, and market conduct. For example, if producers then state they will not purchase FCIC reinsured policies because of their performance in conjunction with the NRS policy or the volume of sales of the FCIC reinsured policy decreases suddenly after the release of a NRS policy.

Comment: A reinsurance company stated § 400.702 addresses the confidentiality of submissions submitted under section 508(h) of the Act. The commenter suggested § 400.713 should also address the confidentiality of nonreinsured supplemental policies.

Response: Submissions under section 508(h) of the Act are confidential because there is a specific requirement in section 508(h)(4)(A) of the Act. This confidentiality provision does not extend to NRS policies. However, the release of information provided with the NRS policy would be subject to the Freedom of Information Act, which offers protection against the release of certain information. Therefore, no change has been made.

In addition to the changes described above and minor editorial changes, FCIC has made the following changes:

1. Removed the definition of “revenue insurance” because it is not needed to clarify the provisions and the defined term is not used in the provisions;

2. Amended § 400.705 to designate it as paragraph (a) and redesignate paragraphs (a) through (m) as paragraphs (b) through (n), and amend redesignated (a) to specify that the submission must have a table of contents and page numbers, and that when the electronic format of the submission is printed it will be an exact duplicate of the information that would have been found in the 3-ring binder, with the exception of section dividers. This will ensure that the information is the same and in the same order.

3. Amended redesignated § 400.705(b)(6) to specify if a sales closing date is not applicable, the applicant must give the earliest date the applicant expects to release the product to the public to cover those situations where the policy or plan of insurance does not have a sales closing date but allows for continuous sales.

4. Amended redesignated § 400.705(h) to specify the evaluation and certification from an accredited associate or fellow of the Casualty Actuarial Society or other similarly qualified professional must be a disinterested third party to avoid any potential conflicts of interest. A definition of “disinterested party” has also been added.

5. Amended redesignated § 400.705(j)(1) to specify the applicant will submit a statement specifying sales will not commence for any new or revised submission until at least 60 days after all policy provisions and related material are released to the public by RMA, unless otherwise specified by RMA. This provision is necessary to protect the program by allowing other approved insurance providers the time needed to release materials to their agents and adequately train agents and loss adjusters so that producers are properly informed of the attributes and benefits of the new policy or plan of insurance and losses are adjusted correctly.

6. Amended redesignated § 400.705(k) to specify that submissions must not only be in compliance with Appendix III, it must contain any system(s) and software necessary to implement the submission and such systems or software must be compatible with RMA's systems.

7. Amended §§ 400.706(a) and (b) to better clarify the roles of RMA and the Board and to better structure the provisions to better reflect the current practices of the Board.

8. Amended redesignated § 400.706(h) to specify the Board may disapprove a submission if it determines coverage would be similar to another policy or plan of insurance and the producer would not further benefit from the submission. It does not protect the interests of producers if the new policy or plan of insurance offers the same or similar coverage to existing policies or plans of insurance. It leads to confusion in the marketplace and increases litigative risk.

9. Amended § 400.706(j) to specify the Board will send the applicant a letter stating the submission has been disapproved if the applicant does not respond within the 30 day time period after the Board provides written notice of intent to disapprove a submission, and to specify the Board will send the applicant a letter stating the submission has been disapproved if the applicant does not present a modification of the submission to the Board on the date the applicant anticipated presenting the modification or does not request an additional time delay.

10. Amended § 400.709 by adding a new paragraph (b)(2) to allow the Board to limit the availability of coverage for a submission based on the risks as authorized in sections 508(b)(8) and (c)(9) of the Act.

11. Amended redesignated § 400.712(g)(1)(i) to allow for compensation amounts to be compared to other substantiated wage information, as deemed appropriate by the Board, in addition to the Occupational Employment Statistics Survey, when computing reimbursement for research and development costs, and maintenance costs.

12. Amended redesignated § 400.712 by adding a paragraph (i) to allow the product to be withdrawn at the discretion of the Board if the applicant does not reasonably demonstrate that the submission meets the marketing plan or does not comply with the requirements in this rule and no further maintenance reimbursement will be paid.

13. Added a new § 400.712(n) to specify that applicants requesting reimbursement for research and development costs, maintenance costs or user fees may present their request in person to the Board prior to consideration for approval.

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

USDA is issuing this rule in conformance with Executive Order 12866.

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

The Act provides that administrative proceedings must be exhausted before parties may file suit in court. Under section 608c(15)(A) of the Act, any handler subject to an order may file with USDA a petition stating that the order, any provision of the order, or any obligation imposed in connection with the order is not in accordance with law and request a modification of the order or to be exempted therefrom. A handler is afforded the opportunity for a hearing on the petition. After the hearing, USDA would rule on the petition. The Act provides that the district court of the United States in any district in which the handler is an inhabitant, or has his or her principal place of business, has jurisdiction to review USDA's ruling on the petition, provided an action is filed not later than 20 days after the date of the entry of the ruling.

Under the orders, grade, size, maturity, pack and container requirements are established for fresh shipments of California nectarines and peaches. Such requirements are in effect on a continuing basis. The Nectarine Administrative Committee (NAC) and the Peach Commodity Committee (PCC), which are responsible for local administration of the orders, met on December 7, 2004, and unanimously recommended that these handling requirements be revised for the 2005 season, which began about the first week of April. The changes will: (1) revise varietal maturity, quality, and size requirements to better reflect current industry practices; (2) authorize continued shipments of “CA Utility” quality fruit during the 2005 season; and (3) adjust weight-count standards for fruit packed in volume-filled containers.

The committees meet prior to and during each season to review the rules and regulations effective on a continuing basis for California nectarines and peaches under the orders. Committee meetings are open to the public and interested persons are encouraged to express their views at these meetings. The committees held such meetings on December 7, 2004. USDA reviews committee recommendations and information, as well as information from other sources, and determines whether modification, suspension, or termination of the rules and regulations would tend to effectuate the declared policy of the Act.

No official crop estimate was available at the time of the committees' December 7, 2004, meetings because the nectarine and peach trees were dormant. The committees subsequently made crop estimates at their meetings on April 24, 2005. The 2005 nectarine crop was estimated to be approximately 20,682,000 containers, and the 2005 peach crop was estimated to be approximately 21,180,000 containers. These crop estimates are slightly larger than the 2004 crops, which totaled 19,860,000 containers of nectarines and 20,585,000 containers of peaches.

Sections 916.52 and 917.41 of the orders authorize the establishment of grade and quality requirements for nectarines and peaches, respectively. Prior to the 1996 season, § 916.356 required nectarines to meet a modified U.S. No. 1 grade. Specifically, nectarines were required to meet U.S. No. 1 grade requirements, except for a slightly tighter requirement for scarring and a more liberal allowance for misshapen fruit. Prior to the 1996 season, § 917.459 required peaches to meet the requirements of a U.S. No. 1 grade, except for a more liberal allowance for open sutures that were not “serious damage.”

This rule continues in effect the revisions of §§ 916.350, 916.356, 917.442, and 917.459 to permit shipments of nectarines and peaches meeting “CA Utility” quality requirements during the 2005 season. (“CA Utility” fruit is lower in quality than that meeting the modified U.S. No. 1 grade requirements.) Shipments of nectarines and peaches meeting “CA Utility” quality requirements have been permitted each season since 1996.

Studies conducted by the NAC and PCC in 1996 indicated that some consumers, retailers, and foreign importers found the lower-quality fruit acceptable in some markets. When shipments of “CA Utility” nectarines were first permitted in 1996, they represented 1.1 percent of all nectarine shipments, or approximately 210,000 containers. Shipments of “CA Utility” nectarines reached a high of 6 percent (1,408,362 containers) during the 2003 season.

Shipments of “CA Utility” peaches totaled 1.9 percent of all peach shipments, or approximately 366,000 containers, during the 1996 season. Shipments of “CA Utility” peaches reached a high of 5.6 percent of all peach shipments (1,231,000 containers) during the 2002 season.

Handlers have commented that the availability of the “CA Utility” quality option lends flexibility to their packing operations. They have noted that they now have the opportunity to remove marginal nectarines and peaches from their U.S. No. 1 containers and place this fruit in containers of “CA Utility.” This flexibility, the handlers note, results in better quality U.S. No. 1 packs without sacrificing fruit.

The Tree Fruit Quality Subcommittee met on November 30, 2004, and recommended unanimously to the NAC and PCC to continue shipments of “CA Utility” quality nectarines and peaches. Subsequently, the NAC and PCC voted unanimously at their December 7, 2004, meetings to authorize continued shipments of “CA Utility” quality fruit during the 2005 season.

Accordingly, based upon the recommendations, the revisions to paragraph (d) of §§ 916.350 and 917.442, and paragraph (a)(1) of §§ 916.356 and 917.459 continue in effect to permit shipments of nectarines and peaches meeting “CA Utility” quality requirements during the 2005 season, on the same basis as shipments since the 2000 season.

In §§ 916.52 and 917.41, authority is provided to establish maturity requirements for nectarines and peaches, respectively. The minimum maturity level currently specified for nectarines and peaches is “mature” as defined in the standards. For most varieties, “well-matured” determinations for nectarines and peaches are made using maturity guides ( e.g. , color chips, along with other maturity tests as applied by the inspection service). These maturity guides are reviewed each year by the Shipping Point Inspection Service (SPI) to determine whether they need to be changed, based upon the most-recent information available on the individual characteristics of each nectarine and peach variety.

These maturity guides established under the handling regulations of the California tree fruit marketing orders have been codified in the Code of Federal Regulations as Table 1 in §§ 916.356 and 917.459, for nectarines and peaches, respectively.

The requirements in the 2005 handling regulations are the same as those that appeared in the 2004 handling regulations with a few exceptions. Those exceptions are explained in this rule and continue in effect.

Nectarines: Requirements for “well-matured” nectarines are specified in § 916.356 of the order's rules and regulations. This rule continues in effect the revision of Table 1 of paragraph (a)(1)(iv) of § 916.356 to add maturity guides for eleven varieties of nectarines. Specifically, SPI recommended adding maturity guides for the Crimson Baby variety to be regulated at the G maturity guide; for the Alta Red, Grand Candy, Kay Glo, Kay Sweet, Red Roy and Shay Sweet varieties at the J maturity guide; and for the August Fire, Candy Gold, Prince Jim I and Sugar Queen varieties to be regulated at the L maturity guide.

The NAC recommended these maturity guide requirements based on SPI's continuing review of individual maturity characteristics and identification of the appropriate maturity guide corresponding to the “well-matured” level of maturity for nectarine varieties in production.

Peaches: Requirements for “well-matured” peaches are specified in § 917.459 of the order's rules and regulations. This rule continues in effect revisions to Table 1 of paragraph (a)(1)(iv) of § 917.459 to add maturity guides for six peach varieties. Specifically, SPI recommended adding maturity guides for the Island Princess variety to be regulated at the H maturity guide; the Bev's Red variety to be regulated at the I maturity guide; and the Prima Peach IV, Spring Gem, Sweet Amber, and Zee Diamond varieties to be regulated at the J maturity guide.

The PCC also recommended adding the Burpeachtwo (Henry II®) variety to the table for regulation at the J maturity guide, but that variety had already been added to the table for regulation at the J maturity guide in 2004 (7 July 2004, 69 FR 41120). Thus, the revision of Table 1 of paragraph (a)(1)(iv) of § 917.459 continues in effect to reflect the recommended addition of only six varieties.

The NAC and PCC recommended these maturity guide requirements based on SPI's continuing review of individual maturity characteristics and identification of the appropriate maturity guide corresponding to the “well-matured” level of maturity for nectarine and peach varieties in production.

Both orders provide authority (in §§ 916.52 and 917.41) to establish size requirements. Size regulations encourage producers to leave fruit on the tree longer, which improves both size and maturity of the fruit. Acceptable fruit size provides greater consumer satisfaction and promotes repeat purchases, and, therefore, increases returns to producers and handlers. In addition, increased fruit size results in increased numbers of packed containers of nectarines and peaches per acre, also a benefit to producers and handlers.

Varieties recommended for specific size regulations have been reviewed and such recommendations are based on the specific characteristics of each variety. The NAC and PCC conduct studies each season on the range of sizes attained by the regulated varieties and those varieties with the potential to become regulated, and determine whether revisions to the size requirements are appropriate.

Nectarines: Section 916.356 of the order's rules and regulations specifies minimum size requirements for fresh nectarines in paragraphs (a)(2) through (a)(9). This rule continues in effect the revision of § 916.356 to establish variety-specific minimum size requirements for nine varieties of nectarines that were produced in commercially significant quantities of more than 10,000 containers for the first time during the 2004 season. This rule also continues in effect the removal of the variety-specific minimum size requirements for fifteen varieties of nectarines whose shipments fell below 5,000 containers during the 2004 season.

For example, one of the varieties recommended for addition to the variety-specific minimum size requirements is the La Pinta variety of nectarines, recommended for regulation at a minimum size 80. Studies of the size ranges attained by the La Pinta variety revealed that 100 percent of the containers met the minimum size of 80 during the 2001, 2002, and 2003 seasons. Sizes ranged from size 30 to size 80, with 4.9 percent of the fruit in the 30 sizes, 34.3 percent of the packages in the 40 sizes, 41.1 percent in the 50 sizes, 19.5 percent in the 60 sizes, 0.2 percent in the 70 sizes and 0 percent in the size 80, for the 2003 season. However, the fruit sized down to the 80 sizes during the two previous seasons, and setting the minimum size at size 70 would not be appropriate at this time.

A review of other varieties with the same harvesting period indicated that the La Pinta variety was also comparable to those varieties in its size ranges for that time period. Discussions with handlers known to handle the variety confirm this information regarding minimum size and harvesting period, as well. Thus, the recommendation to place the La Pinta variety in the variety-specific minimum size regulation at a minimum size 80 is appropriate. This recommendation results from size studies conducted over a three-year period.

Historical data such as this provides the NAC with the information necessary to recommend the appropriate sizes at which to regulate various nectarine varieties. In addition, producers and handlers of the varieties affected are personally invited to comment when such size recommendations are deliberated. Producer and handler comments are also considered at both NAC and subcommittee meetings when the staff receives such comments, either in writing or verbally.

For reasons similar to those discussed in the preceding paragraph, the revision to the introductory text of paragraph(a)(3) of § 916.356 continues in effect to include the Red Jewel and Zee Fire varieties; the revision of the introductory text of paragraph (a)(4) of § 916.356 continues in effect to include the Diamond Pearl and Kay Fire varieties; and the revision to the introductory text of paragraph (a)(6) of § 916.356 continues in effect to include the Burnectfour (Summer Flare® 35), Burnectseven (Summer Flare® 28), Honey Dew, La Pinta and Mike's Red nectarine varieties.

This rule also continues in effect the revision of the introductory text of paragraphs (a)(3), (a)(4), (a)(5) and (a)(6) of § 916.356 to remove fifteen varieties from the variety-specific minimum size requirements specified in these paragraphs because less than 5,000 containers of each of these varieties were produced during the 2004 season. Specifically, the revision of the introductory text of paragraph (a)(3) of § 916.356 continues in effect to remove the May Kist nectarine variety; the revision of the introductory text of paragraph (a)(4) of § 916.356 continues in effect to remove the Sparkling May and White Sun nectarine varieties; the revision of the introductory text of paragraph (a)(5) continues in effect to remove the Red May nectarine variety; and the revision of the introductory text of paragraph (a)(6) of § 916.356 continues in effect to remove the Candy Sweet, Flame Glo, Grand Diamond, June Lion, King Jim, Ruby Bright, Scarlet Red, Summer Jewel, Sunny Red, Sweet White and White September nectarine varieties.

Nectarine varieties removed from the nectarine variety-specific minimum size requirements become subject to the non-listed variety size requirements specified in paragraphs (a)(7), (a)(8), and (a)(9) of § 916.356.

Peaches: Section 917.459 of the order's rules and regulations specifies minimum size requirements for fresh peaches in paragraphs (a)(2) through (a)(6), and paragraphs (b) and (c). This rule continues in effect the revision of § 917.459 to establish variety-specific minimum size requirements for thirteen peach varieties that were produced in commercially significant quantities of more than 10,000 containers for the first time during the 2004 season. This rule also continues in effect the removal of the variety-specific minimum size requirements for ten varieties of peaches whose shipments fell below 5,000 containers during the 2004 season.

For example, one of the varieties recommended for addition to the variety-specific minimum size requirements is the Ivory Queen variety of peaches, which was recommended for regulation at a minimum size 80. Studies of the size ranges attained by the Ivory Queen variety revealed that 100 percent of the containers met the minimum size of 80 during the 2002 and 2003 seasons. The sizes ranged from size 30 to size 80, with 0.3 percent of the containers meeting the size 30, 36.1 percent meeting the size 40, 47.7 percent meeting the size 50, 13.1 percent meeting the size 60, 2.2 percent meeting the size 70 and 0.5 percent meeting the size 80 in the 2003 season.

A review of other varieties with the same harvesting period indicated that the Ivory Queen variety was also comparable to those varieties in its size ranges for that time period. Discussions with handlers known to pack the variety confirm this information regarding minimum size and the harvesting period, as well. Thus, the recommendation to place the Ivory Queen variety in the variety-specific minimum size regulation at a minimum size 80 is appropriate. Although most other size recommendations for peaches result from size studies conducted over a three-year period, data on the Ivory Queen variety for earlier years is not available because the plantings of this variety did not bear fruit before 2002. Unusually large plantings of the Ivory Queen variety led to the rapid production of over 10,000 containers in just two years, and indicated inclusion in the variety-specific minimum size requirements.

Historical data such as this provides the PCC with the information necessary to recommend the appropriate sizes at which to regulate various peach varieties. In addition, producers and handlers of the varieties affected are personally invited to comment when such size recommendations are deliberated. Producer and handler comments are also considered at both PCC and subcommittee meetings when the staff receives such comments, either in writing or verbally.

For reasons similar to those discussed in the preceding paragraph, the revision of the introductory text of paragraph (a)(2) of § 917.459 continues in effect to include the April Snow and Sugar Snow peach varieties; the revision of the introductory text of § (a)(5) of § 917.459 continues in effect to include the Ivory Queen peach variety; and the revision of the introductory text of paragraph (a)(6) of § 917.459 continues in effect to include the Autumn Rich, Cherry Red, Crimson Queen, Early O'Henry, Henry III, Henry IV, Last Tango, Ruby Queen, Sierra Rich and 244LE379 peach varieties.

This rule also continues in effect the revision of the introductory text of paragraph (a)(5) of § 917.459 to remove the Redtop, Sugar May and 172LE White Peach (Crimson Snow/Sunny Snow) peach varieties; and continues in effect the revision of the introductory paragraph (a)(6) of § 917.459 to remove the Autumn Fire, Fairtime, June Pride, Late September Snow, Queen Lady, Ruby Gold and Sugar Red peach varieties from the variety-specific minimum size requirements specified in the section because less than 5,000 containers of each of these varieties was produced during the 2004 season.

Peach varieties removed from the peach variety-specific minimum size requirements become subject to the non-listed variety size requirements specified in paragraphs (b) and (c) of § 917.459.

The NAC and PCC recommended these changes in the minimum size requirements based on a continuing review of the sizing and maturity relationships for these nectarine and peach varieties, and the consumer acceptance levels for various fruit sizes. This rule continues in effect the establishment of minimum size requirements for fresh nectarines and peaches consistent with expected crop and market conditions.

Under the provisions of §§ 916.52 and 917.41 of the orders, the NAC and PCC, respectively, are also authorized to establish weight-count standards for packed containers of fruit. These standards define a maximum number of peaches in a 16-pound sample when such fruit, which may be packed in tray-packed containers, is converted to volume-filled containers. In §§ 916.350 and 917.442 of the orders' rules and regulations, weight-count standards are established for all varieties of nectarines and peaches (except the Peento type peaches), in Tables 1 and 2 of paragraph (a)(5)(iv).

Weight-count standards differ for fruit packed early in the season and that packed later. Earlier fruit tends to be less dense than later fruit. While the earlier fruit sizes are adequate to fill the tray cavities in tray-packed containers, more pieces of fruit are required to meet the 16-pound sample standard for volume-filled fruit. The NAC and PCC routinely conduct tests to determine the optimum weight-count standards for early, mid-season and late-season fruit. Occasionally, adjustments are made to the weight-count standards to ensure equivalence between the pack styles and permit handlers to more easily convert tray-packed fruit to volume-filled containers.

Weight-count standards have also differed between nectarine and peaches historically because of the difference in shape between the two commodities. However, continued breeding of the two fruits has resulted in more uniformity of shape and size between the two. In response to consumer needs, handlers have sought a more generic sizing system to apply to both nectarines and peaches.

Finally, the industry has recently adopted a new packing container with dimensions different from those previously used. Conforming changes to the trays used to pack the fruit into the new containers resulted in reductions in cavity sizes in some cases to accommodate the same fruit counts as in the old containers. This led to a wider discrepancy between the sizes of fruit packed in both pack styles throughout the season.

In an effort to provide a more generic sizing of the two commodities, to smooth the transition from early-season to mid-season and late-season fruit sizes, and to standardize the conversion from tray-packing to volume-filling fruit, the committees' staff conducted weight-count surveys during the 2004 packing season. With the data collected, they were able to determine the most optimum weight-counts for containers of volume-filled nectarines and peaches of various fruit sizes throughout the season, given the new containers and trays. The committees' staff prepared new weight-count tables, which were reviewed by the Size Nomenclature Review Group at their meetings on September 3 and September 21, 2004, and by the Tree Fruit Quality Subcommittee at their meetings on September 13, November 9, and November 30, 2004. At their meetings on December 7, 2004, both the NAC and PCC unanimously recommended revision of the weight-count standards tables in the orders' rules and regulations to reflect the staff's findings.

Nectarines: This rule continues in effect the revision of Tables 1 and 2 of paragraph (a)(5)(iv) of § 916.350. Such revisions require continuation of the conforming modifications to the text of § 916.356, paragraphs (a)(4)(ii), (a)(6)(ii), (a)(8)(ii), and (a)(9)(ii) that increase the maximum number of nectarines in a 16-pound sample for the sizes regulated in those paragraphs.

Peaches: Similarly, this rule continues in effect the revision of Tables 1 and 2 of paragraph (a)(5)(iv) of § 917.442 to reflect the staff's study findings. Additionally, two new weight-count standards for peaches continue to be added to the tables. These two new standards are for large sizes previously without weight-count assignments, and were determined from the data collected.

Such revisions require continuation of the conforming modifications to the text of § 917.459, paragraph (a)(5)(iii) that increase the maximum number of peaches in a 16-pound sample for the size regulated in that paragraph.

This rule reflects the committees' and USDA's appraisal of the need to revise the handling requirements for California nectarines and peaches, as specified. USDA believes that continuing this rule in effect will have a beneficial impact on producers, handlers, and consumers of fresh California nectarines and peaches.

This rule continues in effect the establishment of handling requirements for fresh California nectarines and peaches consistent with expected crop and market conditions, and will help ensure that all shipments of these fruits made each season will meet acceptable handling requirements established under each of these orders. This rule will also help the California nectarine and peach industries to provide fruit desired by consumers. This rule continues in effect the establishment and maintenance of orderly marketing conditions for these fruits in the interests of producers, handlers, and consumers.

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

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

There are approximately 207 California nectarine and peach handlers subject to regulation under the orders covering nectarines and peaches grown in California, and about 1,500 producers of these fruits in California. Small agricultural service firms, which include handlers, are defined by the Small Business Administration [13 CFR 121.201] as those whose annual receipts are less than $5,000,000. Small agricultural producers are defined by the Small Business Administration as those having annual receipts of less than $750,000. A majority of these handlers and producers may be classified as small entities.

The committees' staff has estimated that there are fewer than 26 handlers in the industry who could be defined as other than small entities. For the 2004 season, the committees' staff estimated that the average handler price received was $8.00 per container or container equivalent of nectarines or peaches. A handler would have to ship at least 625,000 containers to have annual receipts of $5,000,000. Given data on shipments maintained by the committees' staff and the average handler price received during the 2004 season, the committees' staff estimates that small handlers represent approximately 87 percent of all the handlers within the industry.

The committees' staff has also estimated that fewer than 20 percent of the producers in the industry could be defined as other than small entities. For the 2004 season, the committees' staff estimated the average producer price received was $5.00 per container or container equivalent for nectarines and peaches. A producer would have to produce at least 150,000 containers of nectarines and peaches to have annual receipts of $750,000. Given data maintained by the committees' staff and the average producer price received during the 2004 season, the committees' staff estimates that small producers represent more than 80 percent of the producers within the industry.

With an average producer price of $5.00 per container or container equivalent, and a combined packout of nectarines and peaches of approximately 40,422,900 containers, the value of the 2004 packout is estimated to be $202,114,500. Dividing this total estimated grower revenue figure by the estimated number of producers (1,500) yields an estimate of average revenue per producer of about $134,743 from the sales of peaches and nectarines.

Under §§ 916.52 and 917.41 of the orders, grade, size, maturity, container and pack requirements are established for fresh shipments of California nectarines and peaches, respectively. Such requirements are in effect on a continuing basis. The NAC and PCC met on December 7, 2004, and unanimously recommended that these handling requirements be revised for the 2005 season. These recommendations had been presented to the committees by various subcommittees, each charged with review and discussion of the changes. The changes: (1) authorize shipments of “CA Utility” quality fruit to continue during the 2005 season; (2) adjust weight-count standards for fruit in volume filled containers; and (3) revise varietal maturity, quality, and size requirements to reflect changes in production and marketing practices.

In 1996, §§ 916.350 and 917.442 were revised to permit shipments of “CA Utility” quality nectarines and peaches as an experiment during the 1996 season only. Such shipments have subsequently been permitted each season. Since 1996, shipments of “CA Utility” have ranged from 1 to 5 percent of total nectarine and peach shipments. This rule continues in effect the authority to continue shipments of “CA Utility” quality nectarines and peaches during the 2005 season.

The Tree Fruit Quality Subcommittee met on November 30, 2004, and unanimously agreed that the “CA Utility” quality requirements that are currently in place should be continued. Also, not authorizing such shipments would be an abrupt departure from their current practices. The NAC and PCC also unanimously recommended such continuation at their meetings on December 7, 2004, and have done so continuously since such shipments were first authorized in 1996.

Sections 916.356 and 917.459 establish minimum maturity levels. This rule continues in effect the annual adjustments to the maturity requirements for several varieties of nectarines and peaches. Maturity requirements are based on maturity measurements generally using maturity guides ( e.g. , color chips), as recommended by Shipping Point Inspection. Such maturity guides are reviewed annually by SPI to determine the appropriate guide for each nectarine and peach variety. These annual adjustments reflect refinements in measurements of the maturity characteristics of nectarines and peaches as experienced over previous seasons' inspections. Adjustments in the guides utilized ensure that fruit has met an acceptable level of maturity, ensuring consumer satisfaction while benefiting nectarine and peach producers and handlers.

Currently, in § 916.356 of the nectarine order's rules and regulations, and in § 917.459 of the peach order's rules and regulations, minimum sizes for various varieties of nectarines and peaches, respectively, are established. This rule continues in effect the adjustments to the minimum sizes authorized for various varieties of nectarines and peaches for the 2005 season. Minimum size regulations are put in place to encourage producers to leave fruit on the trees for a longer period of time. This increased growing time not only improves maturity, but also increases fruit size. Increased fruit size increases the number of packed containers per acre, and coupled with heightened maturity levels, also provides greater consumer satisfaction, fostering repeat purchases. Such improved consumer satisfaction and repeat purchases benefit both producers and handlers alike.

Annual adjustments to minimum sizes of nectarines and peaches, such as these, are recommended by the NAC and PCC based upon historical data, producer and handler information regarding sizes attained by different varieties, and trends in consumer purchases.

An alternative to such action would include not establishing minimum size regulations for these new varieties. Such an action would ultimately increase the amount of less acceptable fruit being marketed to consumers, and would be contrary to the long-term interests of producers, handlers, and consumers. For these reasons, this alternative was not recommended.

Sections 916.350 and 917.442 also establish weight-count standards for fruit packed in volume-filled containers. These standards define a maximum number of peaches in a 16-pound sample when such fruit, which may be packed in tray-packed containers, is converted to volume-filled containers.

Industry-wide adoption of a new container led to the reconfiguration of the trays commonly used in packing tray-packed containers. Some of the tray cavity sizes were modified to conform to the dimensions of the new container. These modifications resulted in slightly smaller fruit being packed into some sizes, which led to an unacceptable discrepancy between the sizes of fruit packed in volume-filled containers and that in tray-packed containers.

Additionally, the difference in density between early-season and mid-season to late-season fruit causes an abrupt change in sizes during the seasonal transition. Handlers have reported that marketing through that period is difficult because of the discrepancy between sizes of earlier fruit and later fruit, and have sought a modified sizing method that would smooth that transition.

Finally, continuous breeding has led to an increasing similarity of fruit shapes between nectarines and peaches. The committees desire to develop a more uniform sizing system.

The Size Nomenclature Review Group met several times during 2003 and 2004 to discuss revision of the weight-count standards. Although the group considered the transition to a per pound sizing system similar to that used by the plum industry, they felt that the nectarine and peach industries would be better served by adjusting the weight-count standards already in place. The Size Nomenclature Review Group also believed that they could recommend modifications to the standards that would smooth the marketing transition between varieties packed in the early season and those packed in the mid-season to late-season.

The committee staff was directed to collect data during the 2004 season from which revision recommendations could be made. Extensive sampling of both nectarines and peaches of various sizes provided the information needed for the committee to make recommendations regarding revisions to the weight-count standards. The Tree Fruit Quality Subcommittee voted unanimously to recommend the adjustments to the NAC and PCC at their meeting on November 9, 2004. The NAC and PCC unanimously recommended the changes to the regulations at their meeting on December 7, 2004.

The committees discussed various alternatives to this action, including leaving the weight-count standards unchanged or adopting a per-pound fruit sizing system similar to that used in the plum industry. However, the committees believe that failure to make changes would not take into account differences between the various pack styles. Also, the data collected did not support adoption of a per-pound fruit sizing system at this time. The committees believe that the recommended changes to the weight-count standards will provide for better uniformity of sizes between fruit packed in volume-filled containers and fruit packed in tray-packed containers, will smooth the transition from early-season to mid-season and late-season fruit for marketers, and will more closely align fruit sizes between nectarines and peaches.

The committees make recommendations regarding the revisions in handling requirements after considering all available information, including recommendations by various subcommittees, comments of persons at subcommittee meetings, and comments received by committee staff. Such subcommittees include the Tree Fruit Quality Subcommittee, the Size Nomenclature Review Group, the Marketing Order Amendment Task Force, and the Executive Committee.

At the meetings, the impact of and alternatives to these recommendations are deliberated. These subcommittees, like the committees themselves, frequently consist of individual producers and handlers with many years of experience in the industry who are familiar with industry practices and trends. Like all committee meetings, subcommittee meetings are open to the public and comments are widely solicited. In the case of the Tree Fruit Quality Subcommittee, many growers and handlers who are affected by the issues discussed by the subcommittee attend and actively participate in the public deliberations, or call and/or write in their concerns and comments to the staff for presentation at the meetings. In addition, minutes of all subcommittee meetings are distributed to committee members and others who have requested them, and are also available on the committees' website, thereby increasing the availability of information within the industry.

An interim final rule concerning this action was published in the Federal Register on March 31, 2005. Copies of the rule were posted on the committees' Web site and were also made available through the Internet by USDA and the Office of the Federal Register. That rule provided a 60-day comment period, which ended on May 31, 2005. One comment was submitted on the rule.

First, the commenter noted that the Spring Ray nectarine variety name should be changed to include the patented name, “Burnectone.” This rule removes the name “Spring Ray” from Table 1 of paragraph (a)(1)(iv) in § 916.356 and from the introductory text of paragraph (a)(4) of § 916.356, and replaces it with “Burnectone (Spring Ray).”

The commenter also noted that the 012-094 peach variety name should be changed to include the patented name, “Supeacheight.” This rule removes the name “012-094” in paragraph (a)(5) of § 917.459, and replaces it with “Supeacheight (012-094).”

Each of the recommended handling requirement changes for the 2005 season is expected to benefit producers and handlers through increased fruit sales, compared to the situation that would exist if the changes were not adopted. Both large and small entities are expected to benefit from the changes, and the costs of compliance are not expected to be substantially different between large and small entities.

This rule does not impose any additional reporting and recordkeeping requirements on either small or large handlers. As with all Federal marketing order programs, reports and forms are periodically reviewed to reduce information requirements and duplication by industry and public sector agencies.

USDA has not identified any relevant Federal rules that duplicate, overlap, or conflict with this rule. However, as previously stated, nectarines and peaches under the orders have to meet certain requirements set forth in the standards issued under the Agricultural Marketing Act of 1946 (7 CFR 1621 et seq. ). Standards issued under the Agricultural Marketing Act of 1946 are otherwise voluntary.

In addition, the committees' meetings are widely publicized throughout the nectarine and peach industry and all interested parties are encouraged to attend and participate in committee deliberations on all issues. These meetings are held annually in the fall, winter and spring. Like all committee meetings, the December 7, 2004, meetings were public meetings, and all entities, large and small, were encouraged to express views on these issues. These regulations were also reviewed and thoroughly discussed at subcommittee meetings held on August 26, September 13, November 9 and November 30, 2004. Finally, interested persons were invited to submit information on the regulatory and informational impacts of this action on small businesses.

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

After consideration of all relevant matters presented, the information and recommendations submitted by the committees, the comment received, and other information, it is found that finalizing the interim final rule, with changes, as published in the Federal Register , (70 FR 16383, March 31, 2005) will tend to effectuate the declared policy of the Act.

Prior documents in this proceeding include: Notice of Hearing issued on October 6, 2003, and published in the October 10, 2003, issue of the Federal Register (68 FR 58636); Recommended Decision issued on September 29, 2004 and published in the October 5, 2004 issue of the Federal Register (69 FR 59551); and a Secretary's Decision and Referendum Order issued January 11, 2005 and published in the Federal Register on January 14, 2005 (70 FR 2573).

This administrative action is governed by the provisions of sections 556 and 557 of title 5 of the United States Code and is therefore excluded from the requirements of Executive Order 12866.

This final rule was formulated on the record of a public hearing held November 18, 2003, in Yakima, Washington. Notice of the public hearing was issued on October 6, 2003, and published in the October 10, 2003, issue of the Federal Register (68 FR 58636). The hearing was held to consider the proposed amendment of Marketing Agreement and Order No. 923, regulating the handling of sweet cherries grown in the State of Washington, hereinafter referred to as the “order”. The hearing was held pursuant to the provisions of the Agricultural Marketing Agreement Act of 1937, as amended (7 U.S.C. 601 et seq. ), hereinafter referred to as the “Act,” and the applicable rules of practice and procedure governing the formulation of marketing agreements and marketing orders (7 CFR part 900). The Notice of Hearing contained six proposals: four proposals submitted by the Committee and two proposals by the Agricultural Marketing Committee (AMS).

Upon the basis of evidence introduced at the hearing and the record thereof, the Administrator of AMS on September 29, 2004, filed with the Hearing Clerk, U.S. Department of Agriculture, a Recommended Decision and Opportunity to File Written Exceptions thereto by November 4, 2004. No comments or exceptions were filed.

A Secretary's Decision and Referendum Order was issued on January 11, 2005, directing that a referendum be conducted during the period March 1 through March 25, 2005, among growers of sweet cherries to determine whether they favored the proposed amendments to the order. Voters voting in the referendum favored three out of the six amendments proposed by the Committee and USDA.

The amendments favored by the voters and included in this order will:

1. Add authority for the Committee to accept voluntary contributions for production research, marketing research and promotion. Any voluntary contributions received under this new authority may be used to support marketing research and development projects designed to assist, improve or promote the marketing, distribution, and consumption of sweet cherries. Voluntary contributions may not, however, be used for production research or paid advertising, as the authority to conduct such activities under the order was not approved in the referendum.

2. Impose term limitations on Committee members. Upon implementation, Committee members will be limited to serving no more than three consecutive two-year terms in one position without a break in service.

3. Require that continuance referenda be held every 6 years among Washington sweet cherry producers to determine their support for continuation of their marketing order program.

The proposals to add authority for production research and paid advertising, additional rates of assessments for individual varieties of cherries and a public member to the committee, failed to obtain the requisite number of votes needed, in number or in volume, to pass.

To become effective, the amendments had to be approved by at least two-thirds of those producers voting or by voters representing at least two-thirds of the volume of sweet cherries represented by voters voting in the referendum.

AMS also proposed to allow such changes as may be necessary to the order so that all of the order's provisions conform to the effectuated amendments. None were deemed necessary.

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

The purpose of the RFA is to fit regulatory actions to the scale of business subject to such actions so that small businesses will not be unduly or disproportionately burdened. Small agricultural growers have been defined by the Small Business Administration (SBA) (13 CFR 121.201) as those having annual receipts of less than $750,000. Small agricultural service firms are defined as those with annual receipts of less than $6,000,000.

The record shows that there are approximately 1,500 growers of sweet cherries in the production area and approximately 62 handlers subject to regulation under the order. The average production of sweet cherries in Washington State for the last three years is 64,676 tons with an average grower price of $1,943 per ton. Using this number, the average annual grower revenue is calculated to be approximately $83,777, thus indicating that the average Washington sweet cherry grower would qualify as a small entity according to the SBA definition.

Using Committee data regarding each individual handler's total shipments during the 2002 marketing year, and an estimated average FOB price of $24 per 20-pound container, 79 percent of the Washington sweet cherry handlers shipped under $5 million worth of sweet cherries, and 21 percent shipped over $5 million worth of sweet cherries. Therefore, the majority of Washington sweet cherry handlers may be classified as small entities.

At a May 22, 2003, full Committee meeting, all industry representatives present could present their views concerning the recommended amendments. Both large and small businesses were represented. The Committee believes that small and large entities will benefit equally from the amendments.

This final rule amends § 923.43 of the order to authorize acceptance of voluntary contributions. The proposal to add authority for the Committee to accept voluntary contributions will not result in any increased costs or burdens to the industry. In fact, witnesses stated that this authority will benefit the industry greatly as it could provide for additional funding sources for research activities. Safeguards against donor control over the use of voluntary contributions will ensure that these funds will be used in the best interest of the industry. The Committee will decide how to use those funds, and the decision-making process will be open to industry input and feedback.

This final rule amends § 923.21 of the order to authorize term limits. The amendment to add tenure requirements for Committee members will allow more persons the opportunity to serve as members of the Committee. It will provide for more diverse membership, provide the Committee with new perspectives and ideas, and increase the number of individuals in the industry with Committee experience.

This final rule amends § 923.64 of the order to authorize continuance referenda. The amendment to require continuance referenda on a periodic basis to ascertain grower support for the order will allow growers to vote on whether to continue the operation of the program. The referenda will be conducted by USDA.

Interested persons were invited to present evidence at the hearing on the probable regulatory and informational impacts of the proposed amendments to the order on small entities. The record evidence is that while some minimal costs may occur, those costs are expected to be outweighed by the benefits expected to accrue to the sweet cherry industry in designated counties of Washington.

In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. Chapter 35), any reporting and recordkeeping provision changes that would be generated by these amendments would be submitted to the Office of Management and Budget (OMB). Current information collection requirements for Part 923 are approved by OMB under the generic Fruit Crops package OMB number 0581-0189.

As with all Federal marketing order programs, reports and forms are periodically reviewed to reduce information requirements and duplication by industry and public sector agencies.

USDA has not identified any relevant Federal rules that duplicate, overlap or conflict with this proposed rule. These amendments are designed to enhance the administration and functioning of the marketing order to the benefit of the industry.

Committee meetings regarding these proposals as well as the hearing dates were widely publicized throughout the Washington sweet cherry industry, and all interested persons were invited to attend the meetings and the hearing and participate in Committee deliberations on all issues. All Committee meetings and the hearing were public forums and all entities, both large and small, were able to express views on these issues.

The amendments contained in this rule have been reviewed under Executive Order 12988, Civil Justice Reform. They are not intended to have retroactive effect. These amendments will not preempt any State or local laws, regulations, or policies, unless they present an irreconcilable conflict with this proposal.

The Act provides that administrative proceedings must be exhausted before parties may file suit in court. Under section 608c(15)(A) of the Act, any handler subject to an order may file with the Department a petition stating that the order, any provision of the order, or any obligation imposed in connection with the order is not in accordance with law and request a modification of the order or to be exempted there from. A handler is afforded the opportunity for a hearing on the petition. After the hearing, the USDA would rule on the petition. The Act provides that the district court of the United States in any district in which the handler is an inhabitant, or has his or her principal place of business, has jurisdiction to review the Department's ruling on the petition, provided an action is filed not later than 20 days after the date of the entry of the ruling.

The findings and determinations set forth hereinafter are supplementary and in addition to the findings and determination previously made in connection with the issuance of the order; and all of said previous findings and determinations are hereby ratified and affirmed, except as such findings and determinations may be in conflict with the findings and determinations set forth herein.

(a) Findings and Determinations Upon the Basis of the Hearing Record.

Pursuant to the provisions of the Agricultural Marketing Agreement Act of 1937, as amended (7 U.S.C. 601 et seq. ) and the applicable rules of practice and procedure effective thereunder (7 CFR part 900), a public hearing was held upon the proposed amendments to Marketing Order No. 923 (7 CFR part 923), regulating the handling of sweet cherries grown in Washington.

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

(1) The marketing order, as amended, and as hereby further amended, and all of the terms and conditions thereof, will tend to effectuate the declared policy of the Act;

(2) The marketing order, as amended, and as hereby further amended, regulates the handling of sweet cherries grown in the production area in the same manner as, and is applicable only to persons in the respective classes of commercial and industrial activity specified in the marketing order upon which hearings have been held;

(3) The marketing order, as amended, and as hereby further amended, is limited in application to the smallest regional production area which is practicable, consistent with carrying out the declared policy of the Act, and the issuance of several orders applicable to subdivision of the production area would not effectively carry out the declared policy of the Act;

(4) The marketing order, as amended, and as hereby further amended, prescribes, insofar as practicable, such different terms applicable to different parts of the production area as are necessary to give due recognition to the differences in the production and marketing of sweet cherries grown in the production area; and

(5) All handling of sweet cherries grown in the production area is in the current of interstate or foreign commerce or directly burdens, obstructs, or affects such commerce.

(b) Additional findings. It is necessary and in the public interest to make the amendments to this order effective not later than one day after publication in the Federal Register . A later effective date would unnecessarily delay implementation of the approved changes, which are expected to benefit the Washington sweet cherry industry. Immediate implementation of the amendments is necessary in order to make the amendments effective as specified.

In view of the foregoing, it is hereby found and determined that good cause exists for making these amendments effective one day after publication in the Federal Register , and that it would be contrary to the public interest to delay the effective date for 30 days after publication in the Federal Register (Sec. 553(d), Administrative Procedure Act; 5 U.S.C. 551-559).

(c) Determinations. It is hereby determined that:

(1) Handlers (excluding cooperative associations of producers who are not engaged in processing, distributing, or shipping sweet cherries covered by the order as hereby amended) who, during the period April 1, 2004, through February 28, 2005, handled 50 percent or more of the volume of such sweet cherries covered by said order, as hereby amended, have not signed an amended marketing agreement;

(2) The issuance of this amendatory order, further amending the aforesaid order, is favored or approved by at least two-thirds of the producers who participated in a referendum on the question of approval and who, during the period of April 1, 2004, through February 28, 2005 (which has been deemed to be a representative period), have been engaged within the production area in the production of such sweet cherries, such producers having also produced for market at least two-thirds of the volume of such commodity represented in the referendum; and

(3) In the absence of a signed marketing agreement, the issuance of this amendatory order is the only practical means pursuant to the declared policy of the Act of advancing the interests of producers of sweet cherries in the production area.

It is therefore ordered, that on and after the effective date hereof, all handling of sweet cherries grown in Washington shall be in conformity to, and in compliance with, the terms and conditions of the said order as hereby amended as follows:

The provisions of proposals 3, 5 and 6 of the proposed order amending the order contained in the Recommended Decision issued by the Administrator on September 29, 2004, and published in the Federal Register on October 5, 2004, shall be and are the terms and provisions of this order amending the order and set forth in full herein.

This final rule is issued under Marketing Agreement No. 113 and Marketing Order No. 946, both as amended (7 CFR part 946), regulating the handling of Irish potatoes grown in Washington, hereinafter referred to as the “order.” The order is effective under the Agricultural Marketing Agreement Act of 1937, as amended (7 U.S.C. 601-674), hereinafter referred to as the “Act.”

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

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

The Act provides that administrative proceedings must be exhausted before parties may file suit in court. Under section 608c(15)(A) of the Act, any handler subject to an order may file with USDA a petition stating that the order, any provision of the order, or any obligation imposed in connection with the order is not in accordance with law and request a modification of the order or to be exempted therefrom. A handler is afforded the opportunity for a hearing on the petition. After the hearing USDA would rule on the petition. The Act provides that the district court of the United States in any district in which the handler is an inhabitant, or has his or her principal place of business, has jurisdiction to review USDA's ruling on the petition, provided an action is filed not later than 20 days after the date of the entry of the ruling.

This final rule modifies the special purpose shipment regulations prescribed under the order. This rule modifies the reporting requirements, procedures, and safeguard provisions for making certain special purpose potato shipments. Under the marketing order, such special purpose shipments may be exempt from the quality, assessment, or inspection requirements. The modifications were recommended unanimously by the Committee at a meeting on February 3, 2005.

Section 946.52 of the order authorizes the establishment of grade, size, quality, maturity, and pack regulations for any variety or varieties of potatoes grown in the production area. Section 946.51 further authorizes the modification, suspension, or termination of regulations issued under § 946.52. Section 946.60 provides that whenever potatoes are regulated pursuant to § 946.52 such potatoes must be inspected by the Federal-State Inspection Service, and certified as meeting the applicable requirements of such regulations. Section 946.54 authorizes the modification, suspension, or termination of any or all regulations to facilitate shipments of potatoes for specified purposes. Section 946.55 authorizes safeguard requirements for shipments authorized pursuant to § 946.54.

Section 946.120 of the order's administrative rules specifies the application process required when potatoes are shipped for special purposes pursuant to § 946.54. Section 946.336 of the order's administrative rules prescribes the quality, maturity, cleanness, pack, special purpose shipments, safeguards, minimum quantity exemption, and inspection requirements for all fresh market Washington potatoes, except for blue or purple flesh varieties of potatoes. Section 946.336(d) lists the types of special purpose shipments and the minimum grade, size, cleanness, maturity, pack, assessment, and inspection requirements from which such shipments are exempted. Finally, § 946.336(e) prescribes the safeguard requirements that handlers must meet to make the special purpose shipments specified under § 946.336(d).

At its meeting on June 17, 2004, the Committee appointed a subcommittee to review the order's handling regulations. The subcommittee subsequently met on November 22, 2004, and while reviewing the regulations, identified several potential changes to the special purpose shipment procedures, safeguard requirements, and reporting requirements. These changes were further discussed and ratified at an Executive Committee meeting on January 20, 2005, and subsequently recommended to the full Committee at its February 3, 2005, meeting in Moses Lake, Washington.

At this meeting, the Committee unanimously adopted the subcommittee recommendations which entailed modifications to § 946.120 Application , § 946.336(d) Special Purpose Shipments , and § 946.336(e) Safeguards . To conform to the regulatory modifications, as well as to ensure consistency in the administration of the special purpose procedures, the Committee also recommended that the “Shippers Application for Special Purpose Certificate” (Application) and “Special Purpose Certificate Report” (Report) forms be updated.

Procedures in effect prior to this final rule required that each handler apply annually to the Committee for a Special Purpose Shipment Certificate if planning to make certain specified special purpose shipments. In addition, based on the safeguard provisions under each of the special purpose shipment requirements, each handler and receiver of special purpose potatoes may or may not have been required to submit a report to the Committee for each such shipment depending upon the specific provision. This rule not only clarifies these procedures by making them consistent throughout the rules and regulations, but also changes certain provisions in order to be consistent with the Committee's current operating preferences.

For example, under the procedures in effect prior to this action, any handler desiring to divert potatoes for livestock feed was required to apply for a Special Purpose Shipment Certificate, but was not required to follow up with a report to the Committee indicating the actual quantity diverted. To bring the regulations in line with the Committee's recommendation, this rule changes the procedures so that neither an Application nor a Report are required when diverting potatoes to livestock feed.

Although it varies from one special purpose shipment to another, in most cases handlers of special purpose potatoes are the producers of the potatoes and most receivers are the processors.

Currently, about 85 percent of the Washington potato crop is produced for the processing market. Further, the majority of these processing potatoes are produced specifically for the frozen French fry market, with most of the processing taking place locally within the state. This has been a steadily increasing trend ever since the fast-food restaurant business began requiring an ever increasing portion of the potato crop. Because a majority of the Washington potato crop is diverted to a special purpose category, the Committee believes that the paperwork burden on handlers and receivers can be reduced by obtaining the information needed to ensure compliance with the order from alternative sources.

The Committee contracts with the Washington State Potato Commission (Commission) for its administrative services. Each processor within the State of Washington provides reports to the Commission indicating the quantity of potatoes received and processed, per producer. By entering into an agreement with the Commission, the Committee will be able to obtain all of the information it needs from this processor-generated report and neither Washington processors nor grower/handlers of processed potatoes will have to complete and return the Report to the Committee. This action will significantly reduce the paperwork burden on any person or entity previously required to submit reports on the volume of processing potatoes shipped, received, and processed. Processors outside of Washington, however, will generally continue to complete and submit the Report form to the Committee unless specific alternative reporting procedures can also be implemented as authorized by this action.

To reduce the paperwork burden and more efficiently utilize procedures already in place, the Committee's recommendation changes the safeguard procedures for shipments of canning, freezing, or “other processing” potatoes so that handlers may provide shipment information in a format other than through the conventional Committee Report form. To accomplish this, language in § 946.336(e)(3)(iii) is changed from “Upon request by the Committee, furnish reports of each shipment pursuant to the applicable Special Purpose Certificate”, to “Upon request by the Committee, furnish reports, or cause reports to be furnished, of each shipment pursuant to the applicable Special Purpose Certificate”. The Committee believes that the language change will streamline the reporting procedures while clarifying its ability to obtain information from alternative sources to verify compliance and proper potato disposition.

The Committee also recommended changing § 946.336(d)(vi) and § 946.336(e)(iii), which detail the procedures and reporting requirements for potatoes shipped to locations other than the immediate area of production for grading or temporary storage prior to marketing. The regulations in effect prior to the finalization of this rule required that handlers shipping potatoes for the purposes of grading or storing to Morrow or Umatilla Counties in Oregon, or to District No. 5 or to Spokane County in District No. 1 (part of the regulated production area), submit an annual Application form and to subsequently report each shipment that is diverted to one of the other special purposes (or to cause an inspection certificate to be issued if shipped into the fresh market). Potatoes shipped under this provision are exempt from the quality and inspection requirements until such potatoes are subsequently sold in the fresh market or diverted for any special purpose shipment.

Section 946.7 of the order authorizes, free of regulation, the transportation of ungraded potatoes within the production area for the purpose of having such potatoes prepared for market or stored. Since § 946.7 already provides the necessary authority for transporting potatoes within the production area free from regulation, the Committee recommended that the reference to “District No. 5” and to “Spokane County in District No. 1” be removed from §§ 946.336(d)(1)(vi) and 946.336(e)(2). Reference to these two districts was already absent from the language that refers to this special purpose in § 946.120. The specific authority for shipping potatoes to Umatilla and Morrow Counties in Oregon for special purposes is in § 946.54.

The Committee also reviewed the special purpose procedures for handling potatoes for export. The regulations in effect prior to this rule exempted potatoes for export from the quality and inspection requirements of the order, with the exception that potatoes packed in cartons grade at U.S. No. 1 or better. However, since most importing countries require a quality product, it has been common industry practice to have potatoes for export inspected for quality regardless of this exemption. The Committee believes that all Washington potatoes entering the export market should meet the minimum quality, cleanness, maturity, pack, and inspection requirements of the order, and that the regulations conform with industry practice. Therefore, the Committee recommended that potatoes for export no longer be included as a special purpose shipment exemption.

This change requires removal of §§ 946.120(a)(2), 946.336(d)(1)(vii), and 946.336(e)(5) from the order's rules and regulations. With export removed as a special purpose exemption, paragraphs (a)(3), (a)(4), and (a)(5) in § 946.120 are redesignated as paragraphs (a)(2), (a)(3), and (a)(4), respectively. Similarly, paragraphs (d)(1)(viii) and (e)(6) in § 946.336 are redesignated as §§ 946.336(d)(1)(vii) and 946.336(e)(5), respectively. Finally, § 946.336(d)(2) is revised to reflect these modifications and to correct an existing typographical error.

Sections 946.336(d)(1)(i) and 946.336 (d)(2) of the handling regulations exempt potatoes shipped for livestock feed from the quality, assessment, and inspection requirements of the order. However, there were no corresponding reporting requirements or safeguard provisions specified under §§ 946.120 or 946.336(e) for such shipments, although the Application form contained a check box for livestock feed. Because potatoes that are diverted to livestock feed are generally culls and thus unfit for any other market, the Committee believes such shipments should remain exempt from the quality, inspection, and assessment requirements of the order and that handlers should not be required to submit the Application or Report forms for such shipments.

The Committee thus recommended adding a new paragraph (e)(6) to § 946.336 ( Safeguards ) to clarify that handlers diverting potatoes to livestock feed are not required to submit the Application and Report forms. This change also potentially reduces the reporting burden on handlers and receivers of such potatoes.

The Committee recommendation also included changes to the procedures used for tracking potatoes shipped for charity. Potatoes shipped for charity are exempt from the quality, assessment, and inspection requirements. However, there were no safeguard or reporting requirements delineated in § 946.336. The Committee believes it is important to have reporting requirements to safeguard such shipments, and thus recommended adding a new paragraph (e)(7) to § 946.336 ( Safeguards ) to require that handlers shipping potatoes for charity submit both the Application and Report forms. Because the Committee believes that small gifts to charity should be encouraged, the safeguard and reporting requirements are changed to also specify that charitable contributions of 1,000 pounds or less are exempt from the application and reporting requirements. This will make diverting potatoes a less burdensome process for handlers. A conforming change noting the 1,000 pound provision is also being made to § 946.120(a)(1).

The additions to the special purpose shipment procedures for charitable contributions further specify that any handler of potatoes being diverted to charity also informs the recipient that the gift cannot be resold or otherwise placed into commercial market channels.

The Committee also recommended modifications to the special purpose shipment exemption for seed potato shipments. Section 946.336(d)(1)(iii) provides for an exemption from the quality, assessment, and inspection requirements of the order for potatoes handled for seed. Although there were not any safeguard provisions or reporting requirements outlined in either § 946.120 or § 946.336, the previous version of the Application form contained a check box for handlers to mark when applying for a Special Purpose Shipment Certificate. However, after discussing the seed potato issue, the subcommittee's recommendation to the full Committee was to add authorization to require a Report from handlers, but not to require an Application form. The actual recommendation will add a new paragraph (e)(8) to § 946.336 ( Safeguards ) stating that handlers shipping potatoes for seed must furnish, at the request of the Committee, a report from handlers on the total volume of seed potatoes handled.

Seed potato handlers are almost always the producer of such potatoes, and generally only produce potatoes for seed. As such, the Committee does not want to require seed potato handlers to apply for a Special Purpose Certificate, but for statistical purposes, wanted to have a procedure in place for the submission of periodic reports. Although potatoes produced for seed are traditionally segregated from potatoes produced for other markets by the very nature of the cultural practices used by farmers and by the various state and federal seed regulations in place, the Committee believes this change will add clarity to the special purpose regulations.

The final change recommended by the Committee relates to § 946.336(g) Inspection. Language in this paragraph had referenced a form which is no longer issued by the Federal-State Inspection Service. This form had at one time been issued by the inspection service for accompaniment with any bulk-load potato shipments not relieved by any of the special purpose or minimum quantity exemptions of the order. Since such potato shipments require inspection under the order's provisions and thus should be accompanied by a valid inspection certificate, the Committee recommended removing the sentence from § 946.336(g) that refers to the “Shipping Clearance Report” form.

To ensure conformity with § 946.336, § 946.120 is updated by removing reference to the special purpose use “export”, and adding reference to the special purpose use “canning, freezing, and other processing”. Furthermore, as previously noted, a proviso is added to paragraph (1) of § 946.120 stating that charitable shipments of 1,000 pounds or less are exempt from the application process. Also, as noted earlier, minor conforming changes have been made to the Committee's Application and Report forms.

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

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

There are approximately 51 handlers of Washington potatoes who are subject to regulation under the marketing order and approximately 272 potato producers in the regulated area. Small agricultural service firms are defined by the Small Business Administration (13 CFR 121.201) as those having annual receipts of less than $6,000,000, and small agricultural producers are defined as those having annual receipts of less than $750,000.

During the 2003-2004 marketing year 10,652,495 hundredweight of Washington potatoes were inspected under the order and sold into the fresh market. Based on an estimated average f.o.b. price of $7.45 per hundredweight, the Committee estimates that 48 handlers, or about 94 percent, had annual receipts of less than $6,000,000.

In addition, based on information provided by the National Agricultural Statistics Service, the average producer price for Washington potatoes for the 2003 marketing year (the most recent period that final statistics are available) was $5.25 per hundredweight. The average annual producer revenue for each of the 272 Washington potato producers is therefore calculated to be approximately $205,609. In view of the foregoing, the majority of the Washington potato producers and handlers may be classified as small entities.

This rule modifies the reporting requirements, procedures, and safeguard provisions for making certain special purpose potato shipments as prescribed under §§ 946.120, 946.336(d) and 946.336(e) of the order. The Committee recommended several changes to the order's special purpose regulations, and conforming changes to the Application and Report forms. These changes will help facilitate the marketing of certain types of potato shipments, while also enhancing the Committee's compliance efforts. The authority for the special purpose shipments and safeguard requirements is provided in §§ 946.54 and 946.55, respectively, of the order.

The Committee believes that these changes will minimally impact handlers and producers in terms of cost. While there are some changes that could require a few handlers of exported potatoes to undergo inspections when they may not have previously, most of the changes will actually lessen the regulatory and reporting burden on the industry while clarifying the special purpose shipment reporting and safeguard requirements.

During its review of the handling regulations, the subcommittee discussed alternatives to these changes, and felt that the recommended changes adequately met the Committee's originally stated goals of reviewing and, if necessary, fine tuning the special purpose regulations. The Committee reviewed the subcommittee's recommendation carefully and unanimously concurred that, to facilitate the handling of special purpose shipments and to enhance its compliance program specific to such shipments, the changes would effectively improve its administration of the special purpose shipment exemptions.

This rule modifies the reporting requirements, procedures, and safeguard provisions for making certain special purpose potato shipments. Under the order, such special purpose shipments may be exempt from the quality, assessment, or inspection requirements. The modified regulations clarify and update the procedures handlers must follow to qualify for the special purpose exemptions. As previously noted, minor conforming changes have subsequently been made to two of the Committee's forms, the “Shippers Application for Special Purpose Certificate”, and the “Special Purpose Shipment Report”. Accordingly, this action will not impose any additional reporting or recordkeeping requirements on either small or large potato handlers. This information collection burden has been previously approved by the Office of Management and Budget (OMB) under OMB No. 0581-0178, Vegetable and Specialty Crops Marketing Orders. As with all Federal marketing order programs, reports and forms are periodically reviewed to reduce information requirements and duplication by industry and public sector agencies.

As noted in the initial regulatory flexibility analysis, USDA has not identified any relevant Federal rules that duplicate, overlap or conflict with this final rule.

In addition, the Committee's meeting was widely publicized throughout the Washington potato industry and all interested persons were invited to attend the meeting and participate in Committee deliberations on all issues. Like all Committee meetings, the February 3, 2005, meeting was a public meeting and all entities, both large and small, were able to express views on this issue.

A proposed rule concerning this action was published in the Federal Register on May 16, 2005 (70 FR 25790). Copies of the rule were mailed or sent via facsimile transmission to all Committee members and handlers. Finally, the rule was made available through the Internet by USDA and the Office of the Federal Register. A 30-day comment period ending June 15, 2005, was provided to allow interested persons to respond to the proposal. One response was received during that period. However, that response did not address the substance of this rule.

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

After consideration of all relevant matter presented, including the information and recommendation submitted by the Committee and other available information, it is hereby found that this rule, as hereinafter set forth, will tend to effectuate the declared policy of the Act.

It is further found that good cause exists for not postponing the effective date of this rule until 30 days after publication in the Federal Register (5 U.S.C. 553) because: (1) The Committee and Washington potato industry handlers want to take advantage of these regulatory improvements as soon as possible; (2) the Committee unanimously recommended these changes at a public meeting and all interested parties had an opportunity to provide input; and (3) handlers are aware of this action and are ready to operate under the changed procedures. Also, a 30-day comment period was provided for in the proposed rule and a response not relevant to the proposed rule was received.

The CRA requires the federal banking and thrift agencies to assess the record of each insured depository institution of meeting the credit needs of its entire community, including low- and moderate-income neighborhoods, consistent with the safe and sound operation of the institution, and to take that record into account when the agency evaluates an application by the institution for a deposit facility. 1

In 1995, when the OCC, the Board, the FDIC, and the Office of Thrift Supervision (OTS) (collectively, “federal banking and thrift agencies” or “the four agencies”) adopted major amendments to regulations implementing the Community Reinvestment Act, they committed to reviewing the amended regulations in 2002 for their effectiveness in placing performance over process, promoting consistency in evaluations, and eliminating unnecessary burden. (60 FR 22156, 22177 (May 4, 1995)). The federal banking and thrift agencies indicated that they would determine whether and, if so, how the regulations should be amended to better evaluate financial institutions' performance under the CRA, consistent with the Act's authority, mandate, and intent.

The four agencies' review was initiated in July 2001 with publication in the Federal Register of an advance notice of proposed rulemaking requesting comment on whether the regulations were effective in meeting the stated goals of the 1995 rulemaking and whether any changes should be made to the rules (66 FR 37602 (July 19, 2001)). The approximately 400 comments reflected a consensus that certain fundamental elements of the regulations are sound, but demonstrated a disagreement over the need and reasons for change.

In February 2004, the four agencies published a notice of proposed rulemaking (69 FR 5729 (Feb. 6, 2004)). Among other things, the proposal would have increased the small bank asset size threshold to $500 million, without regard to holding company affiliation. Commenters were deeply split on this proposal, with financial institutions and their trade associations urging additional burden relief for more institutions and community organizations opposed to allowing any additional financial institutions to be evaluated as “small” institutions. On July 16, 2004, the OCC and the Board announced that they would not proceed with their respective February 2004 proposals. The OCC did not formally withdraw the proposal, but did not adopt it. The Board formally withdrew its proposal.

On August 18, 2004, the OTS published a final rule that expanded the category of “small savings associations” under the OTS” CRA regulations to those with under $1 billion in assets, regardless of holding company affiliation (69 FR 51155 (Aug. 18, 2004)). Following its publication of a notice of proposed rulemaking in November 2004, the OTS also adopted a final rule that allows a thrift that is evaluated as a large retail institution to determine the weight that will be assigned to lending, investments, and services in its CRA evaluation. (70 FR 10023 (Mar. 2, 2005)).

On August 20, 2004, the FDIC issued a proposal on the CRA evaluation of banks defined as “small” (69 FR 51611 (Aug. 20, 2004)). The FDIC proposal would have expanded the category of “small banks” to those under $1 billion, regardless of any holding-company size or affiliation. For small banks with assets between $250 million and $1 billion, the FDIC proposal would have added to the five performance criteria of the current streamlined small bank test a new sixth criterion taking into account a bank's record of community development lending, investments, or services, but also asked for comment on whether those community development activities should be evaluated in a separate test. The FDIC received over 11,000 comments in response to its proposal. Banks and their trade associations supported a change in the small bank dollar threshold, primarily as a way to reduce administrative burden, but expressed mixed views on whether community development activities should be evaluated as a sixth criterion in the small bank evaluation or as a separate test. Community organizations almost universally opposed any increase in the small bank threshold. However, these commenters generally supported the proposal to require such banks to be evaluated under a separately rated community development test in addition to the small bank lending test, if the small bank threshold were to be increased. 2

The OCC, the Board, and the FDIC jointly issued the proposed amendments to their CRA regulations, which were published in the Federal Register on March 11, 2005. The proposal was developed after thorough consideration of all the comments that the agencies had received in response to their previous proposals. The March proposal responded to community banks concerned about regulatory burden by extending eligibility for streamlined lending evaluations and the exemption from data reporting to banks under $1 billion, without regard to holding company assets. The new proposal also provided an adjustment of this threshold for inflation, based on changes to the Consumer Price Index.

The proposal addressed the concerns of community organizations that had urged the federal banking and thrift agencies to continue to evaluate community development participation by providing that the community development records of banks between $250 million and $1 billion, termed “intermediate small banks,” would be separately evaluated and rated, but provided a new, more streamlined basis than the current rule for doing so. Under the proposal, an intermediate small bank would not be eligible for an overall rating of “satisfactory” unless it received ratings of “satisfactory” on both the lending and community development tests.

The proposal also responded to suggestions from both community banks and community organizations that the current definition of “community development” was too narrow by proposing to expand the definition of community development activities to include certain activities in underserved rural areas and designated disaster areas. Finally, the proposal provided that evidence of discrimination, or evidence of credit practices that violate an applicable law, rule, or regulation, could adversely affect an agency's evaluation of a bank's CRA performance and included an illustrative list of such practices.

Together, the agencies received over 10,000 public comments, including identical comments sent to each agency, from consumer and community organizations, banks and bank trade associations, academics, Federal and State Government representatives, and individuals. In general, commenters recognized that the proposal had the potential to strike an appropriate balance between the need to provide meaningful regulatory relief to small banks and the need to preserve and encourage meaningful community development activities by those banks.

The agencies proposed to reduce undue regulatory burden by extending eligibility for streamlined lending evaluations and the exemption from data reporting to banks under $1 billion without regard to holding company affiliation. In addition, the agencies proposed to define small banks with assets between $250 million and $1 billion as “intermediate small banks.” The proposal also would annually adjust the asset size for small and intermediate small banks based on changes to the Consumer Price Index.

Most community organizations opposed the proposal to raise the small bank threshold to $1 billion while most banks supported the increase. Community organizations expressed a concern that an increase in the threshold would cause banks to reduce their investments and services in low- and moderate-income areas. Although they preferred that the agencies not increase the threshold, a number of community organization commenters noted that the proposed evaluation of intermediate small banks under a community development test and the streamlined lending test was a notable improvement over the previous proposals to raise the small bank threshold.

Community organizations also expressed concern that an increase in the small bank threshold would reduce public data on small business, small farm, and community development loans. Community organizations objected to this result on the basis that communities would lack the means to evaluate the small business and small farm lending of intermediate small banks. A few community organizations offered specific examples of how they or others have used information about such lending, including, for example, a series of studies examining impediments to capital formation by business owners in low- and moderate-income areas. Some community organizations asserted that intermediate small banks make more small business, small farm and community development loans, as a percentage of bank assets, than larger banks. Thus, they believe that the loss of the intermediate small bank lending data will significantly affect the relevance of the remaining data, particularly in markets that include numbers of intermediate small banks. Some commenters also noted that the proposal would affect the Home Mortgage Disclosure Act (HMDA) requirements to report certain loans outside of a Metropolitan Statistical Area (MSA) for intermediate small banks.

The vast majority of bank and bank trade association commenters noted that increasing the small bank threshold would provide substantial and needed regulatory burden reduction because intermediate small banks would be relieved of the obligation to collect and report information about small business, small farm, and community development loans. They also noted that, given the inclusion of the community development test for intermediate small banks, elimination of the data collection and reporting requirements was the principal regulatory relief component of the proposed amendments. However, a few banks stated that this relief would not be realized fully if banks continue to collect information about community development loans, investments, and services, and provide it to examiners for use in evaluating the bank's performance under the proposed community development test.

A number of banks and their trade associations commented that the small bank size threshold should be raised to $1 billion without creating a tier of intermediate small banks that would be subject to the proposed community development test. A few bank commenters suggested defining an intermediate small bank subject to the new community development test as a bank with assets between $500 million and $1 billion, and to permit institutions with less than $500 million in assets to be evaluated solely under the streamlined small bank lending test.

Some community organization commenters criticized the proposal to adjust the asset threshold annually for small and intermediate small banks based on changes to the Consumer Price Index (CPI) because it could increase the number of banks that are exempt from the large bank evaluation standards and further decrease the availability of small business, small farm, and community development loan data. Most banks that commented on the issue supported tying the small and intermediate small bank thresholds to changes in the CPI.

The joint final rule retains the proposed asset size threshold for small banks of less than $1 billion and the annual adjustment to the threshold based on changes to the Consumer Price Index. The text of the “small bank” definition describing the “intermediate small bank” category has been revised for clarity. The federal banking agencies believe that raising the asset size threshold provides important regulatory relief for community banks. As discussed below, the final rule also will preserve and encourage meaningful CRA activities by intermediate small banks by means of a new community development test.

As a result of the rule change, data on the distribution of small business loans and small farm loans extended by intermediate small banks will no longer be publicly available. In revising the rule, the agencies have considered the adequacy of substitute sources of information. Call Report data, although lacking the loan-location and business-size information in the CRA data, provide the public with annual outstanding amounts of small business and small farm loans. Moreover, an intermediate small bank's CRA performance evaluation includes, as appropriate, a description of its small business and small farm lending performance, as well as a description of any community development loans the bank has made. These sources will give the public information on intermediate small banks' records of extending small business, small farm, and community development loans. On balance, the agencies believe the costs of the mandatory data collection and reporting by intermediate small banks, including the fixed costs that weigh more heavily on smaller banks, outweigh the benefits.

Further, under the CRA and HMDA regulations, large banks generally must collect and report information about the location of property securing home loans located outside of MSAs and metropolitan divisions in which the institution has a home or branch office, or outside any MSA (12 CFR 203.4(e)). But for small banks, collecting and reporting this location information is optional. Thus, under this joint final rule, intermediate small banks will no longer be required to collect and report information on the location of mortgage loans outside MSAs and metropolitan divisions in which the banks have home or branch offices.

Summary information about where such mortgage loans were made, and detailed information about the applicants or borrowers, will nevertheless continue to be available. Mortgage loan location information is summarized in the CRA performance evaluation as part of the evaluation of the geographic distribution of a bank's loans, as appropriate. Moreover, some newly designated intermediate small banks may opt to report loan location information as some small banks have done in the past. Furthermore, intermediate small banks covered by HMDA will continue to report borrower or applicant race, ethnicity, gender, and income even when property location need not be reported. The agencies believe that the additional value of requiring intermediate small banks to report loan location information on all of their mortgage loans does not justify the cost of reporting such information. 3 Although an intermediate small bank will no longer be required to collect and report data on small business or small farm loans or on the location of certain nonmetropolitan mortgage loans, the agencies will continue to evaluate such lending under the streamlined lending test if it constitutes a major product line of the bank.

The March proposal would have added a new community development test that would be separately rated in CRA examinations for intermediate small banks. The new community development test would evaluate an intermediate small bank's community development loans, qualified investments, and community development services, resulting in a single rating for community development performance. Overall CRA ratings for intermediate small banks would be based on ratings for this community development test and the streamlined small bank lending test.

Most community organization commenters generally favored the retention of the large bank lending, investment, and service tests for evaluation of all banks with assets of $250 million or more. On the other hand, many of these commenters noted that the proposed intermediate small bank examination standards—the streamlined small bank lending test plus the proposed community development test—were significantly preferable to permitting additional banks to be evaluated under only the streamlined small bank lending test. In this regard, community organizations strongly supported the provision in the proposed rule to require an intermediate small bank to receive a “satisfactory” rating on both the community development and the small bank lending tests in order to receive an overall “satisfactory” rating.

Many bank commenters opposed the creation of separate new standards for intermediate small banks. For example, many community bankers commented that all banks under $1 billion should be examined solely under the streamlined lending test. Some bank and bank trade associations urged the agencies to adopt final rules that assign greater weight to retail lending than to community development in the overall evaluation of an intermediate small bank's CRA performance. A few commenters stated that, under the proposal, community development would receive greater weight in an intermediate small bank's overall rating than it does under the large bank lending, investment, and service tests that currently apply to such banks. They urged the agencies to clarify that intermediate small banks, at their option, could continue to choose to be evaluated under the large bank lending, investment, and service tests.

Regarding the activities evaluated under the proposed community development test, most community organizations stated that an institution should be required to engage in all three activities—community development loans, qualified investments, and community development services—in order to earn a “satisfactory” rating on the community development test. Although community organizations believed that an institution's rating on the community development test should take account of bank capacity and community opportunities for community development, they asserted that the primary consideration should be the institution's responsiveness to community needs. Moreover, many community organizations requested that the community development test also evaluate an intermediate small bank's provision of community development services through branches located in low- and moderate-income areas.

Many banks and bank trade associations commented favorably on the flexibility that the community development test offered. Some large banks requested that the proposed community development test be made available to banks with assets of $1 billion or more as a substitute for the existing investment and service tests.

The final rule adopts the proposed community development test for intermediate small banks without change. The number and amount of community development loans, the number and amount of qualified investments, and the provision of community development services, by an intermediate small bank, and the bank's responsiveness through such activities to community development lending, investment, and services needs, will be evaluated in the context of the bank's capacities, business strategy, the needs of the relevant community, and the number and types of opportunities for community development activities. The agencies believe that, given these performance context factors, the community development test will provide a better framework for assessing community development performance by intermediate small banks than the separate lending, investment, and service tests. As noted in the preamble to the proposed rule, the community development test will be applied flexibly to permit a bank to apply its resources strategically to the types of community development activities (loans, investments, and services) that are most responsive to helping to meet community needs, even when those activities are not necessarily innovative, complex, or new. (“Innovativeness” and “complexity,” factors examiners consider when evaluating a large bank under the lending, investment, and service tests, are not factors in the intermediate small banks' community development test.) The agencies will incorporate these considerations as appropriate into examination guidance and procedures to ensure flexible application of the standards.

In providing this flexibility for intermediate small banks, the federal banking agencies do not intend to suggest that a bank may simply ignore one or more categories of community development or arbitrarily decrease the level of such activities. Nor does the joint final rule prescribe any required threshold level or allocation of community development loans, qualified investments, and community development services for these banks. Instead, the OCC, the FDIC, and the Board expect that a bank will appropriately assess the needs in its community, engage in different types of community development activities based on those needs and the bank's capacities, and that it will take reasonable steps to apply its community development resources strategically to meet those needs. 4 As the agencies indicated on adoption of the 1995 regulation, the agencies will expect a bank to make an assessment using information normally used to develop a business plan or identify potential markets and customers. 5 Examiners will consider the bank's assessment of community needs along with information from community, government, civic, and other sources to gain a working knowledge of community needs. 6 The flexibility inherent in the community development test will allow intermediate small banks to focus on meeting the substance of community needs through these means, without undue regulatory consequences from the form of the response.

Under the joint final rule, retail banking services provided by intermediate small banks will no longer be evaluated in a separate service test. Instead, the extent to which such banks provide community development services to low- and moderate-income people will be taken into account in the community development test. Thus, the federal banking agencies will consider not only the types of services provided to benefit low- and moderate-income people, such as low-cost bank checking accounts and low-cost remittance services, but also the provision and availability of services to low- and moderate-income people, including through branches and other facilities located in low- and moderate-income areas.

The federal banking agencies believe that providing flexibility to intermediate small banks in how they apply their community development resources to respond to community needs through the strategic use of loans, investments, and services will reduce burden on these banks while making the evaluation of their community development records more effective. 7

The agencies are making a non-substantive change to the proposed criteria for a “satisfactory” rating on the community development test (in Appendix A, Ratings, paragraph (d)(2)(i)) to conform those criteria to the other ratings criteria. Under the proposal, a “satisfactory” rating would have required an intermediate small bank to demonstrate “adequate responsiveness to the community development needs of its assessment area(s) or a broader statewide or regional area that includes the bank's assessment area(s) through community development loans, qualified investments, and community development services.” In the final rule, the agencies deleted the phrase “or a broader statewide or regional area that includes the bank's assessment area(s)” from the criteria for a “satisfactory” rating on the community development test in order to conform the manner in which the term “assessment area” is used in other parts of Appendix A. Examiners will, however, continue to evaluate a bank's community development activities in the broader statewide or regional area that includes its assessment area(s) according to existing interagency guidance. 8

The agencies are not revising the provision in the existing regulations that permits any small bank, including an intermediate small bank, to choose to be evaluated under the large bank lending, investment, and service tests at its option. Any small bank that opts to be evaluated under the lending, investment, and service tests will be required to collect and report small business, small farm, and community development loan data. 9

The regulations' present definition of “community development” covers four categories of activity. Three categories (affordable housing, community services, and economic development) are defined in terms of the activity's targeting of specific persons (low- or moderate-income people in the first two categories, small farms or businesses in the third). A fourth category (revitalization or stabilization activities) is defined in terms of the activity's targeting of specific areas, namely, low-or moderate-income census tracts.

The OCC, the FDIC, and the Board proposed to amend two of the categories—activities that revitalize or stabilize an area, and affordable housing. Under one proposed amendment, a bank's support for activities that revitalize or stabilize an area would receive consideration not only in low- or moderate-income census tracts (referred to as “geographies” in the regulations), but also in “underserved rural areas.”  10 The proposal would thus expand the number and kinds of rural areas in which bank activities that revitalize or stabilize communities are eligible for community development consideration (referred to herein as “eligible rural tracts”). The proposal responded to the scarcity of eligible rural tracts, which appeared to limit the effectiveness of the regulations in encouraging rural community development. 11 The proposed amendment would also give consideration to bank activities that revitalize or stabilize designated disaster areas.

The agencies sought comment on three general alternatives for increasing the number and kinds of rural tracts in which bank activities are eligible for community development consideration. The first alternative was to expand the definition of “low- or moderate-income” tracts in rural areas. Two specific options were raised: increasing the threshold for a low- or moderate-income tract from a median income of 80 percent of the state nonmetropolitan median income to 90 percent, or changing the baseline against which a nonmetropolitan tract's median income is compared to the median income of the entire state (not just its nonmetropolitan parts). The second alternative was to retain the present definition of a tract's income status, but identify a set of rural tracts that, while not low- or moderate-income, were nonetheless shown by other relevant indicators to be “underserved” or otherwise in need of bank support to revitalize or stabilize. Specific indicators on which the agencies sought comment were rates of poverty, unemployment, and population loss used as “distress” indicators by the Community Development Financial Institutions (CDFI) Fund, United States Department of the Treasury. The third alternative was to consider as eligible any rural area that had been designated by a Federal, State, tribal, or local government as in need of revitalization or stabilization.

Under another proposed amendment, bank support for affordable housing would receive consideration in “underserved rural areas” or designated disaster areas even if the housing benefited individuals not defined as “low- or moderate-income.”  12 The agencies indicated that the proposal's premise was that affordable housing—in addition to other activities that revitalize and stabilize underserved rural areas—may meet a critical need of individuals in certain underserved rural areas, even if those individuals may not meet the technical requirements of the definition of “low- or moderate-income” in the regulation.

Banks and community organizations alike generally supported expanding the definition of “community development” to make bank activities eligible for community development consideration in a larger number of rural areas. Banks argued that having few or no eligible tracts in their assessment areas meant they felt pressure to make community development investments outside of their assessment areas merely for the sake of their CRA evaluations.

Bank commenters suggested that “rural” be defined using existing government definitions. Some commenters suggested using the Office of Management and Budget's concept of nonmetropolitan areas (areas outside Metropolitan Statistical Areas, or MSAs), though a few requested flexibility to treat certain parts of MSAs as rural, too. Others suggested the Census Bureau's definition of “rural.” Some suggested using several criteria, including population density.

Banks asked that any rule distinguishing “underserved” rural areas be simple. Some expressed concern that using the CDFI Fund distress criteria would be complicated and cause uncertainty, but some indicated the criteria were appropriate. Many banks suggested that an area be eligible regardless of its income if targeted by a government agency for redevelopment. Community banks expressed a strong preference that a bank's support for meeting community needs such as education, infrastructure, and healthcare be considered as “community development” in rural communities of all kinds, not just “underserved” or low- or moderate-income communities.

Community organizations disagreed that all rural areas should be eligible, but agreed that more rural areas should be eligible than are now. Many requested that the agencies consider both expanding the standard for classifying rural tracts as “low- or moderate-income” and adopting criteria such as the distress criteria of the CDFI Fund to identify additional eligible tracts. 13 At the same time, community organizations generally sought to keep the proportion of eligible rural tracts in rough parity with the proportion of eligible urban tracts.

Like bank commenters, community organizations offered a variety of suggestions for defining “rural.” For example, some suggested including any area with a population of less than 10,000, while others suggested using several criteria, including population, household income, the area's economic base, and distance from a metropolitan area. Some cautioned against treating exurbs of large MSAs as “rural.”

As noted above, banks and community organizations alike generally supported expanding the “community development” definition to include activities that benefit underserved rural areas. Few comments distinguished between the proposal to amend the “revitalize or stabilize” category and the proposal to amend the “affordable housing” category but, among those that did comment specifically on a category, more commented specifically in favor of expanding the “revitalize or stabilize” category.

Banks favored revising the definition of “community development” to include activities in a designated disaster area. They noted that such areas are easily identified and have special redevelopment needs. Some, but not all, community organizations opposed the revision. Organizations that opposed, and those that did not oppose, the revision shared the view that the regulation should not give consideration to bank responses to disasters that do not meet the needs of affected low- or moderate-income people.

The agencies are revising the definition of “community development” to increase the number and kinds of rural tracts in which bank activities are eligible for community development consideration. In doing so, the agencies are revising the “revitalize or stabilize” category of the definition of “community development” to provide that activities that revitalize or stabilize areas designated by the agencies as “distressed or underserved nonmetropolitan middle-income geographies” will qualify as community development activities.

The final rule uses the term “nonmetropolitan,” which means an area outside of an MSA, to refer to rural areas. The final rule also describes qualifying rural geographies as “distressed or underserved,” while the proposal used only the term “underserved.” The agencies believe that the phrase “distressed or underserved” better describes the eligible geographies that will be designated using the factors discussed more fully below.

Eligible rural tracts will continue to include tracts currently defined as “low-income” or as “moderate-income,” and the agencies have not revised the definitions of those terms. Eligible rural tracts will also include middle-income, nonmetropolitan tracts designated by the agencies as distressed or underserved based on either or both of two sets of criteria: criteria indicating a community is in distress (rates of poverty, unemployment, and population loss), and criteria indicating a community may have difficulty meeting essential community needs (population size, density, and dispersion).

The agencies believe that using these criteria to identify eligible areas has advantages over simply expanding the definition of “low- or moderate-income” tracts for rural areas. The distress criteria permit a more careful targeting of the middle-income tracts that are most in need of revitalization or stabilization. Simply changing the definition of “moderate-income” to include some presently middle-income tracts would (a) fail to cover many rural middle-income tracts in distress and (b) cover many tracts not necessarily in distress, or in less distress than other rural tracts that would not be covered. In addition, some rural communities, albeit middle-income and not necessarily in distress, have such small and thinly distributed populations that they have difficulty financing the fixed costs of essential community needs such as essential infrastructure and community facilities; moreover, residents may have to travel long distances to reach certain facilities, such as hospitals. The challenges facing such communities are reflected in several comments suggesting the agencies use factors such as population size, density, and distance from a population center to identify eligible areas. Simply changing the definition of “moderate-income” to include some presently middle-income tracts would not effectively identify those communities either. Finally, changing the definition of “low- or moderate-income tract” for one purpose (evaluating community development activities) but not for other purposes (evaluating retail lending and service activities) could create confusion and the appearance of inconsistency.

To facilitate planning, the agencies will publish a list of eligible rural tracts that are distressed or underserved on the Web site of the Federal Financial Institutions Examination Council. 14 Year-to-year changes in the tracts designated based on the distress criteria are expected to be minimal; to account for such changes the agencies will specify a uniform lag period—of at least one year—for removal from the list of any tract designated based on those criteria. The lag will help promote investments that take an extended period to arrange. A qualifying loan, investment, or service in the area will count so long as the bank made, or entered into a binding commitment to make, the loan or investment or provided, or entered into a binding commitment to provide, the service while the area was designated or during the lag period.

The “distressed or underserved” designations will be based on objective criteria. A middle-income, nonmetropolitan tract will be designated if it is in a county that meets one or more of the following triggers that the CDFI Fund employs as “distress criteria”: (1) An unemployment rate of at least 1.5 times the national average, (2) a poverty rate of 20 percent or more, or (3) a population loss of 10 percent or more between the previous and most recent decennial census or a net migration loss of 5 percent or more over the five-year period preceding the most recent census. 15 Activities qualify for “revitalize or stabilize” community development consideration in these tracts, like in low- or moderate-income tracts, based on the regulation and applicable interagency guidance.

A middle-income, nonmetropolitan tract will also be designated if it meets criteria for population size, density, and dispersion that indicate the area's population is sufficiently small, thin, and distant from a population center that the tract is likely to have difficulty financing the fixed costs of meeting essential community needs. The agencies will use as the basis for the designations the “urban influence codes” maintained by the Economic Research Service of the United States Department of Agriculture. 16 In areas so designated, bank financing for construction, expansion, improvement, maintenance, or operation of essential infrastructure or facilities for health services, education, public safety, public services, industrial parks, or affordable housing generally will be considered to meet essential community needs, so long as the infrastructure or facility serves low- and moderate-income individuals. Other bank activities in such areas generally will not qualify for revitalization or stabilization consideration, unless the area meets the distress criteria. In these cases, the agencies will continue to decide on a case-by-case basis whether a particular activity qualifies for such consideration based on the regulation and applicable interagency guidance.

The agencies are also revising the definition of “community development” to make bank activities to revitalize or stabilize designated disaster areas eligible for CRA consideration. Disaster areas may be designated by Federal or State Governments. Such designations include, for example, Major Disaster Declarations administered by the Federal Emergency Management Agency. A designation will expire for purposes of CRA when it expires according to the applicable law under which it was declared. As the agencies indicated with the proposal, examiners will give significant weight to the extent to which a bank's revitalization activities in a disaster area benefit low- or moderate-income individuals.

The final rule does not incorporate the specific proposal to amend the “affordable housing” category of the community development definition. The proposal would have included affordable housing that benefits individuals who reside in underserved rural areas or designated disaster areas, even if the individuals are not technically “low- or moderate-income.” The agencies believe it is appropriate to maintain the focus of the separate “affordable housing” category on characteristics of the residents of the housing, and not to expand this category to consider characteristics of the residents' communities without regard to the residents' income-level characteristics. 17 Thus, under the regulation, a bank activity that has a primary purpose of providing housing affordable to low- or moderate-income individuals continues to qualify as “community development” regardless of the location of the housing. 18 In addition, such an activity may receive additional weight in the evaluation if the examiner determines that the activity helps to revitalize or stabilize a low- or moderate-income census tract, a distressed or underserved rural area, or a designated disaster area. However, as described previously, a bank activity that provides affordable housing, but not necessarily for low- or moderate-income individuals, may qualify as an activity that revitalizes or stabilizes an eligible nonmetropolitan area. For example, a bank activity that provides housing for middle- or upper-income individuals in an eligible rural area qualifies as “community development” when part of a bona fide plan to revitalize or stabilize the community by attracting a major new employer that will offer significant long-term employment opportunities to low- and moderate-income members of the community.

The OCC, the FDIC, and the Board proposed to revise the regulations to address the impact on a bank's CRA rating of evidence of discrimination or other illegal credit practices. The agencies proposed that evidence of discrimination, or evidence of credit practices that violate an applicable law, rule, or regulation, would adversely affect an agency's evaluation of a bank's CRA performance. The agencies also proposed to revise the regulations to include an illustrative list of such practices. This list includes evidence of discrimination against applicants on a prohibited basis in violation of, for example, the Equal Credit Opportunity (15 U.S.C. 1691 et seq. ) or Fair Housing Acts (42 U.S.C. 3601 et seq. ); evidence of illegal referral practices in violation of section 8 of the Real Estate Settlement Procedures Act (12 U.S.C. 2607); evidence of violations of the Truth in Lending Act (15 U.S.C. 1601 et seq. ) concerning a consumer's right to rescind a credit transaction secured by a principal residence; evidence of violations of the Home Ownership and Equity Protection Act (15 U.S.C. 1639); and evidence of unfair or deceptive credit practices in violation of section 5 of the Federal Trade Commission Act (15 U.S.C. 45(a)(1)). 19

Further, the March proposal clarified that a bank's evaluation could be adversely affected by such practices regardless of whether the practices involve loans in the bank's assessment area(s) or in any other location or geography. In addition, as proposed, a bank's CRA evaluation also could be adversely affected by evidence of such practices by any affiliate in connection with loans in the bank's assessment area(s), if any loans of that affiliate have been considered in the bank's CRA evaluation.

Most community organizations strongly supported the proposal. Many of these commenters recommended that the provision should be expanded to include evidence of discriminatory or other illegal credit practices by any affiliate of a bank, whether or not such affiliate's loans were included in the bank's CRA evaluation. Some bank and bank trade association commenters opposed the standard as unnecessary because other legal remedies are available to address discriminatory or other illegal credit practices. Many of these commenters also opposed extending the “illegal credit practices” standard to loans by an affiliate that are considered in a bank's lending performance. Furthermore, a few large banks were concerned that their CRA performance will be adversely affected by “technical” violations of law.

The joint final rule adopts without change the proposed amendments to the agencies' regulations that address the impact on a bank's CRA rating of evidence of discrimination or other illegal credit practices. The final rule states that evidence of discrimination, or evidence of credit practices that violate an applicable law, rule, or regulation, adversely affects an agency's evaluation of a bank's CRA performance. The rule includes an illustrative, but not comprehensive, list of such practices. It also provides that a bank's evaluation is adversely affected by such practices by the bank regardless of whether the practices involve loans in the bank's assessment area(s) or in any other location or geography. The rule also provides that a bank's CRA evaluation is also adversely affected by evidence of discrimination or other illegal credit practices by any affiliate in connection with loans inside the bank's assessment area(s), if any loans of that affiliate have been considered in the bank's CRA evaluation. The adverse effect on the bank's CRA rating of illegal credit practices by an affiliate is limited to affiliate loans within the bank's assessment area(s) because, under the regulations, a bank may not elect to include as part of its CRA evaluation affiliate loans outside the bank's assessment area(s).

The agencies believe that providing in the CRA regulations examples of violations that give rise to adverse CRA consequences, rather than having such examples solely in interagency guidance on the regulations, 20 will improve the usefulness of the regulations and provide critical information in primary compliance source material. Further, because affiliate loans may be included by a bank in it's lending evaluation for favorable consideration, evidence of discrimination or other illegal credit practices in an affiliate's loans in an assessment area of the bank can adversely affect the bank's CRA rating, if loans by that affiliate have been considered in the bank's CRA evaluation. The agencies believe that the same CRA standards generally should apply to loans included in the bank's CRA lending record that are made by an affiliate in the bank's assessment area and those that are made by the bank in any geography.

The agencies intend to issue interagency CRA guidance for comment in the near future. The guidance will address new provisions adopted in this joint final rule and related issues (for example, the appropriate lag period for removal of a census tract from the list of designated distressed or underserved nonmetropolitan middle-income geographies). The guidance will also conform existing interagency questions and answers to the regulatory revisions, where needed.

The joint final rule becomes effective September 1, 2005. The agencies will issue interim interagency examination procedures for the community development test applicable to intermediate small banks in advance of the effective date of the regulation.

Section 302 of the Riegle Community Development and Regulatory Improvement Act of 1994 (CDRI), Pub. L. 103-325, authorizes a banking agency to issue a rule that contains additional reporting, disclosure, or other requirements to be effective before the first day of the calendar quarter that begins on or after the date on which the regulations are published in final form if the agency finds good cause for an earlier effective date. 12 U.S.C. 4802(b)(1). This joint final rule takes effect September 1, 2005. As discussed earlier in this “Supplementary Information,” the changes adopted by this joint final rule reduce regulatory burden by extending eligibility for streamlined lending evaluations and the exemption from data reporting to banks under $1 billion without regard to holding company affiliation. Because this joint final rule eliminates data collection and reporting burden for banks with assets between $250 million and $1 billion, and banks with assets below $250 million that are affiliated with a holding company with bank and thrift assets of $1 billion or above, and will provide greater flexibility in the CRA evaluations of such institutions, the agencies find good cause for the September 1, 2005, effective date.

OCC and FDIC: Under section 605(b) of the Regulatory Flexibility Act (RFA), 5 U.S.C. 605(b), the regulatory flexibility analysis otherwise required under section 604 of the RFA is not required if an agency certifies, along with a statement providing the factual basis for such certification, that the rule will not have a significant economic impact on a substantial number of small entities. The OCC and the FDIC have reviewed the impact of this joint final rule on small banks and certify that the joint final rule will not have a significant economic impact on a substantial number of small entities.

The Small Business Administration (SBA) has defined “small entities” for banking purposes as a bank or savings institution with less than $150 million in assets. See 13 CFR 121.201. This joint final rule primarily affects banks with assets of at least $250 million and under $1 billion. The amendments decrease the regulatory burden for banks within that asset range by relieving them of certain reporting and recordkeeping requirements applicable to larger institutions.

The elimination of the $1 billion holding company threshold as a factor in determining whether banks will be subject to the streamlined CRA examination or the more in-depth CRA examination applicable to larger institutions will affect a limited number of small banks, which are affiliated with holding companies with assets over $1 billion. The FDIC estimates that only 110 of approximately 5,300 FDIC-regulated banks had assets of under $150 million and were affiliated with a holding company with over $1 billion in assets. The OCC estimates that only 36 of approximately 2,000 OCC-regulated banks met these criteria. Because so few small banks will be affected by the revisions to Parts 25 and 345, a regulatory flexibility analysis is not required. Furthermore, the OCC and the FDIC did not receive any comments regarding the March proposal's economic impact on small banks with assets of under $150 million.

Board: The Board has prepared a final regulatory flexibility analysis as required by the Regulatory Flexibility Act (5 U.S.C. 601 et seq. ).

1. Statement of the need for and objectives of the final rule. As described in the SUPPLEMENTARY INFORMATION section, the Board, together with the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation, seeks to improve the effectiveness of the CRA regulations in placing performance over process, promoting consistency in evaluations, and eliminating unnecessary burden. The final rule is intended to reduce unnecessary burden while maintaining or improving CRA's effectiveness in evaluating performance.

2. Summary of issues raised by comments in response to the initial regulatory flexibility analysis. The Board received several comments on matters raised in its initial regulatory flexibility analysis. As described more fully in the SUPPLEMENTARY INFORMATION section, a number of commenters supported expansion of the number and kinds of rural census tracts eligible for community development consideration. Several banks expressed concern that definitions of eligible rural census tracts would impose burden on them to document an activity's qualification, and urged the use of simple, objective definitions, including if possible the use of definitions from existing federal programs. In response, the final rule defines “distressed or underserved” rural areas with reference to objective criteria set forth by the Department of the Treasury (CDFI Fund) and the Department of Agriculture, and it defines “rural” with reference to objective criteria set forth by the Office of Management and Budget. The agencies also have agreed that the Federal Financial Institutions Examination Council will publish and update an annual list of eligible rural census tracts, and will allow for a lag time before a tract loses its designation.

As is also described in the SUPPLEMENTARY INFORMATION section, the agencies received a number of comments on provisions regarding the effect of evidence of illegal credit practices on CRA evaluations. Several commenters asserted that the proposal amounted to superimposing consumer credit laws onto CRA examinations and ratings. The Board notes that these provisions of the final rule would not subject any banks of any size to consumer credit laws to which they are not already subject; and hence, would not place new compliance, reporting, or recordkeeping requirements on small institutions.

3. Description of small entities affected by the final rule. The final rule applies to all state-chartered banks that are members of the Federal Reserve System; there are approximately 922 such banks. The RFA requires the Board to consider the effect of the final rule on small entities, which are defined for RFA purposes as all banks with assets of less than $150 million. There are 419 state member banks with assets of less than $150 million. All but about 12 state member banks with assets of less than $150 million are already subject to a streamlined CRA evaluation that is not affected by this final rule. The rule eliminates data reporting requirements for these 12 state member banks by eliminating holding-company affiliation as a disqualification for treatment as a “small bank” under the CRA regulations.

4. Reporting, recordkeeping, and other compliance requirements. The final rule does not impose any new reporting or recordkeeping requirements, as defined in section 603 of the RFA. As noted, the rule eliminates holding-company affiliation as a disqualification for treatment as a “small bank” under the CRA regulations. Accordingly, the rule eliminates data reporting requirements for about 12 state member banks with assets of less than $150 million. As noted above, all other state member banks with assets of less than $150 million are already exempt from this reporting requirement.

As is described in section 2 of this regulatory flexibility analysis, the Board believes that the revisions to the definition of “community development” do not place additional compliance costs or burdens on small institutions. The Board believes the same of the provisions regarding the effect of evidence of illegal credit practices on CRA evaluations.

5. Steps taken to minimize the economic impact on small entities. The final rule maintains the approach of the existing CRA regulations in exempting small entities from reporting requirements and providing for streamlined lending evaluations for small entities. A complete exemption of small entities from all of the CRA's requirements would be impermissible under the CRA statute. As noted, of 419 state member banks with assets of less than $150 million, all but 12 already were subject to a streamlined CRA process. The final rule minimizes the economic impact on small entities by making these 12 state member banks eligible for the streamlined CRA process.

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

Section 202 of the Unfunded Mandates Reform Act of 1995, Pub. L. 104-4 (2 U.S.C. 1532) (Unfunded Mandates Act), requires that an agency prepare a budgetary impact statement before promulgating any rule likely to result in a Federal mandate that may result in the expenditure by State, local, and tribal governments, in the aggregate, or by the private sector of $100 million or more in any one year. If a budgetary impact statement is required, section 205 of the Unfunded Mandates Act also requires an agency to identify and consider a reasonable number of regulatory alternatives before promulgating a rule. The OCC has determined that the joint final rule will not result in expenditures by State, local, and tribal governments, or by the private sector, of $100 million or more in any one year. Accordingly, the joint final rule is not subject to section 202 of the Unfunded Mandates Act.

In accordance with the requirements of the Paperwork Reduction Act of 1995, the agencies may not conduct or sponsor, and the respondent is not required to respond to, an information collection unless it displays a currently valid Office of Management and Budget (OMB) control number (OCC, 1557-0160; Board, 7100-0197; and FDIC, 3064-0092).

The OCC and the FDIC submitted their documentation to OMB for review and approval and the information collections have been approved. The Board has approved this revised information collection under its delegated authority from OMB.

Title of Information Collection:

OCC: Community Reinvestment Act Regulation—12 CFR 25.

Board: Recordkeeping, Reporting, and Disclosure Requirements in Connection with Regulation BB (Community Reinvestment Act).

FDIC: Community Reinvestment—12 CFR 345.

Frequency of Response: Annual.

Affected Public:

OCC: National banks.

Board: State member banks.

FDIC: State nonmember banks.

Abstract: This Paperwork Reduction Act section estimates the burden that will be associated with the regulations due to the changes to the definition of “small bank” to increase the asset threshold from $250 million to $1 billion and eliminate any consideration of holding-company size. Under the two changes, approximately 1,200 additional banks would be evaluated as small or intermediate small banks. That estimate is based on data for all FDIC-insured institutions that filed Call Reports for year-end 2004. The change to adopt a separate community development test in the performance standards for intermediate small banks will have no impact on paperwork burden because the evaluation is based on information prepared by examiners.

Estimated Paperwork Burden under the Proposal:

OCC:

Number of Respondents: 1,853.

Estimated Time per Response: Small business and small farm loan register, 219 hours; consumer loan data, 326 hours; other loan data, 25 hours; assessment area delineation, 2 hours; small business and small farm loan data, 8 hours; community development loan data, 13 hours; HMDA out-of-MSA loan data, 253 hours; data on lending by a consortium or third party, 17 hours; affiliated lending data, 38 hours; request for designation as a wholesale or limited purpose bank, 4 hours; strategic plan, 275 hours; and public file, 10 hours.

Total Estimated Annual Burden: 160,542 hours.

Board:

Number of Respondents: 914.

Estimated Time per Response: Small business and small farm loan register, 219 hours; consumer loan data, 326 hours; other loan data, 25 hours; assessment area delineation, 2 hours; small business and small farm loan data, 8 hours; community development loan data, 13 hours; HMDA out-of-MSA loan data, 253 hours; data on lending by a consortium or third party, 17 hours; affiliated lending data, 38 hours; request for designation as a wholesale or limited purpose bank, 4 hours; and public file, 10 hours.

Total Estimated Annual Burden: 97,017 hours.

FDIC:

Number of Respondents: 5,264.

Estimated Time per Response: Small business and small farm loan register, 219 hours; consumer loan data, 326 hours; other loan data, 25 hours; assessment area delineation, 2 hours; small business and small farm loan data, 8 hours; community development loan data, 13 hours; HMDA out-of-MSA loan data, 253 hours; data on lending by a consortium or third party, 17 hours; affiliated lending data, 38 hours; request for designation as a wholesale or limited purpose bank, 4 hours; and public file, 10 hours.

Total Estimated Annual Burden: 203,589 hours.

Comment Request:

Comments continue to be invited on:

(a) Whether the collection of information is necessary for the proper performance of the agencies' functions, including whether the information has practical utility;

(b) The accuracy of the estimates of the burden of the information collection, including the validity of the methodology and assumptions used;

(c) Ways to enhance the quality, utility, and clarity of the information to be collected;

(d) Ways to minimize the burden of the information collection on respondents, including through the use of automated collection techniques or other forms of information technology; and

(e) Estimates of capital or start up costs and costs of operation, maintenance, and purchase of services to provide information.

Comments should be addressed to:

OCC: Mary H. Gottlieb or Camille Dixon, Office of the Comptroller of the Currency, Legislative and Regulatory Activities Division, Attention: Docket No. 05-11, 250 E Street, SW., Mailstop 8-4, Washington, DC 20219. Due to delays in paper mail in the Washington area, commenters are encouraged to submit their comments by fax to (202) 874-4889 or by e-mail to camille.dixon@occ.treas.gov.

Board: Comments should refer to Docket No. R-1225 and may be mailed to Jennifer J. Johnson, Secretary, Board of Governors of the Federal Reserve System, 20th Street and Constitution Avenue, NW., Washington, DC 20551. Please consider submitting your comments through the Board's Web site at http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm, by e-mail to regs.comments@federalreserve.gov, or by fax to the Office of the Secretary at (202) 452-3819 or (202) 452-3102. Rules proposed by the Board and other Federal agencies may also be viewed and commented on at http://www.regulations.gov. All public comments are available from the Board's Web site at http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm as submitted, except as necessary for technical reasons. Accordingly, your comments will not be edited to remove any identifying or contact information. Public comments may also be viewed electronically or in paper in Room MP-500 of the Board's Martin Building (C and 20th Streets, NW.) between 9 a.m. and 5 p.m. on weekdays.

FDIC: Leneta G. Gregorie, Legal Division, Room MB-3082, Federal Deposit Insurance Corporation, 550 17th Street, NW., Washington, DC 20429. All comments should refer to the title of the proposed collection. In the alternative, comments may be hand-delivered to the guard station at the rear of the 17th Street Building (located on F Street), on business days between 7 a.m. and 5 p.m.; submitted via the Agency Web site: http://www.FDIC.gov/regulations/laws/federal/propose.html; or submitted by e-mail: comments@FDIC.gov. Comments received will be posted without change to http://www.FDIC.gov/regulations/laws/federal/propose.html, including any personal information provided. Comments may also be inspected and photocopied in the FDIC Public Information Center, Room 100, 801 17th Street, NW., Washington, DC, between 9 a.m. and 4:30 p.m. on business days.

Comments should also be sent to Mark D. Menchik, Desk Officer, Office of Information and Regulatory Affairs, Office of Management and Budget, Room 10235, 725 17th Street, NW., Washington, DC 20503. Comments may also be sent by e-mail to Mark_D._Menchik@omb.eop.gov.

The OCC has determined that this joint final rule does not have any Federalism implications as required by Executive Order 13132.

Section 12(i) of the Exchange Act, as amended (15 U.S.C. 78l(i)), authorizes the FDIC to issue regulations applicable to the securities of state nonmember banks that are substantially similar to those of the SEC with respect to its powers, functions, and duties to administer and enforce sections 10A(m) (standards relating to audit committees), 12 (securities registration), 13 (periodic reporting), 14(a) (proxies and proxy solicitation), 14(c) (information statements), 14(d) (tender offers), 14(f) (arrangements for changes in directors), and 16 (beneficial ownership and reporting) of the Exchange Act, and sections 302 (corporate responsibility for financial reports), 303 (improper influence on conduct of audits), 304 (forfeiture of certain bonuses and profits), 306 (insider trades during blackout periods), 401(b) (disclosure of pro forma financial information), 404 (management assessment of internal controls), 406 (code of ethics for senior financial officers), and 407 (disclosure of audit committee financial expert) of the Sarbanes-Oxley Act (codified at 15 U.S.C. 7241, 7242, 7243, 7244, 7261, 7262, 7264, and 7265), in regard to the depository institutions for which it is the primary Federal regulator. These regulations must be substantially similar to the regulations of the SEC under the listed sections of the Exchange Act and the Sarbanes-Oxley Act, unless the FDIC publishes its reasons for deviating from the SEC's rules. The amendments to this part incorporate amendments to the Exchange Act, and changes to the SEC regulations that the FDIC is required to administer and enforce with respect to registered state nonmember banks, including the adoption of Regulation FD (Fair Disclosure).

In addition, certain changes to delegations of authority in part 335 result from FDIC's internal merger of the former Division of Supervision and the former Division of Compliance and Consumer Affairs into the Division of Supervision and Consumer Protection. The reorganization also created area offices in Memphis, Tennessee, and Boston, Massachusetts, in place of regional offices in those cities, and title changes for officials in the FDIC headquarters and other offices.

On March 31, 2005, the FDIC published in the Federal Register (70 FR 16398) an interim final rule which reflected amendments to the Exchange Act made by the Sarbanes-Oxley Act, and incorporated by cross reference changes in regulations adopted by the SEC into the provisions of the FDIC's securities regulations. The interim final rule also made certain technical amendments to part 335. The FDIC requested comments on all aspects of the rule changes, with comments due by May 31, 2005, the date the interim final rule took effect. Commenters were asked to support any suggestions that the FDIC modify the requirements of the SEC rules, regulations and forms for state nonmember banks by demonstrating how such modification would satisfy the requirements of section 12(i) of the Exchange Act. The FDIC also welcomed comments on the general organization of part 335.

One comment letter was filed on the interim final rule. The commenter, a banker, raised two separate comments regarding provisions of the interim final rule. The FDIC considered each point.

The first comment is that the FDIC's cross reference in section 335.121 (Listing standards related to audit committees) incorporating the SEC's regulation under section 10(A)(m) of the Exchange Act, codified at 17 CFR 240.10A-3, is duplicative. Section 12(i) of the Exchange Act specifically gives the appropriate bank regulatory agencies the powers, functions, and duties to administer and enforce section 10A(m) of the Exchange Act with respect to the institutions under their supervision. While the FDIC has the ability under section 12(i) of the Exchange Act to issue additional or different regulations compared to those of the SEC, the FDIC generally believes that cross referencing the regulations of the SEC simplifies the administration and enforcement of the Exchange Act. It also helps promote uniformity and consistency of administration. Therefore, the FDIC is retaining the direct cross reference to 17 CFR 240.10A-3 in 12 CFR 335.121.

The second comment is that the FDIC's incorporation of SEC Regulation FD (Fair Disclosure) in section 335.221(d) under the heading “Forms for registration of securities and similar matters” may not be the most appropriate placement for this cross reference. The commenter suggested that the FDIC give the item its own section within part 335 to make it more prominent and easily recognizable to bankers and their counsel. The FDIC recognizes the concern for making the cross reference to Regulation FD more prominent, and is changing the heading of section 335.221 from its current title to “Forms for registration of securities; optional forms for small business issuers; and incorporation of Regulation FD (Fair Disclosure).” The FDIC considers this change in section heading to be a nonsubstantive technical change.

Part 335 is being amended throughout to reflect the addition of section 10A(m) of the Exchange Act and sections 302, 303, 304, 306, 401(b), 404, 406, and 407 of the Sarbanes-Oxley Act to those sections that the FDIC is currently required to administer and enforce under section 12(i) of the Exchange Act.

Section 335.101(b) is amended to clarify that part 335 generally incorporates through cross reference the regulations of the SEC as these regulations are routinely issued, revised, or updated from time to time by the SEC under sections 10A(m), 12, 13, 14, and 16 of the Exchange Act and sections 302, 303, 304, 306, 401(b), 404, 406, and 407 of the Sarbanes-Oxley Act, except as provided at section 335.801 of this part.

New section 335.121 (Listing standards relating to audit committees) specifically incorporates by reference the SEC rule 10A-3 (17 CFR 240.10A-3), adopted pursuant to section 10(A)(m) of the Exchange Act and section 301 of the Sarbanes-Oxley Act, which prohibits any national securities exchange and national securities association from listing the securities of an issuer that fails to comply with specific audit committee requirements including member independence, oversight, complaint procedures, engagement of counsel and other advisors, and funding.

Section 335.201 (Securities exempted from registration) and section 335.261 (Exemptions; terminations and definitions) add SEC Rule 12h-5 (Exemption for subsidiary issuers of guaranteed securities and subsidiary guarantors) (17 CFR 240.12h-5)

Section 335.211 (Registration and reporting) adds SEC Rule 17 CFR 240.12b-37 (Satisfaction of filing requirements).

Section 335.221 (Forms for registration of securities; optional forms for small business issuers; and incorporation of Regulation FD (Fair Disclosure)) adds new paragraph (d) to adopt the requirements of SEC Regulation FD (Fair Disclosure) (17 CFR 243.100 through 243.103), which is designed to address problems of selective disclosure of material information by reporting entities. The section heading is also being revised to explicitly reference Regulation FD.

Section 335.331 (Acquisition statements, acquisition of securities by issuers, and other matters) is amended to add SEC Rule 13k-1 (Foreign bank exemption from the insider lending prohibition under section 13(k) of the Exchange Act) (17 CFR 240.13k-1) and to change the title.

Section 335.801 (Inapplicable SEC regulations; FDIC substituted regulations; additional information) is amended to add section 10A(m) of the Exchange Act and sections 302, 303, 304, 306, 401(b), 404, 406, and 407 of the Sarbanes-Oxley Act.

Section 335.901 (Delegation of authority to act on matters with respect to disclosure laws and regulations) is amended to reflect certain changes in the organizational structure of the FDIC and to shorten the section heading.

Public Comment Waiver and Effective Date: Pursuant to the Administrative Procedure Act, 5 U.S.C. 553(b) (APA), the FDIC found good cause to issue the interim final rule without first seeking public comment. Section 553(b) of the APA does not apply to rules of agency organization, procedure, or practice, or when the agency for good cause finds that notice and public comment on the rules being promulgated are impractical or unnecessary. The Exchange Act requires that the FDIC issue regulations substantially similar to those of the SEC or publish its reasons for not doing so. Certain portions of 12 CFR 335 that are being amended are organizational; other portions result from amendments to section 12(i) of the Exchange Act or the adoption of regulations by the SEC that were published in proposed form by the SEC. For these reasons, the FDIC confirms its finding that providing notice and an opportunity for public comment on these rules is unnecessary. Nonetheless, the FDIC solicited public comment on the interim final rule and has fully considered the comments that were filed.

As authorized by section 553(d) of the APA, the FDIC finds that there is good cause for this final rule to take effect immediately upon publication in the Federal Register . With the exception of the change in the section heading of section 335.221, the final rule is identical to the interim final rule which became effective on May 31, 2005. No purpose would be served by delaying the rule's effective date.

This rule contains no new collections of information as defined by the Paperwork Reduction Act.

A regulatory flexibility analysis is required only when the agency must publish a notice of proposed rulemaking (5 U.S.C. 603, 604). Because the revisions to part 335 were published as an interim final rule without a notice of proposed rulemaking, no regulatory flexibility analysis is required.

The Small Business Regulatory Enforcement Fairness Act (5 U.S.C. 801 et seq. ) (SBREFA) provides generally for agencies to report rules to Congress and for Congress to review these rules. The reporting requirement is triggered in instances where the FDIC issues a final rule as defined by the Administrative Procedure Act (APA). Because the FDIC is issuing a final rule as defined by the APA, the FDIC will file the reports required by SBREFA.

You may examine the AD docket on the Internet at http://dms.dot.gov or in person at the Docket Management Facility office between 9 a.m. and 5 p.m., Monday through Friday, except Federal holidays. The Docket Management Facility office (telephone (800) 647-5227) is located on the plaza level of the Nassif Building at the street address stated in the ADDRESSES section.

The FAA issued a supplemental notice of proposed rulemaking (NPRM) to amend 14 CFR part 39 to include an AD that would apply to certain Raytheon Model HS.125 series 700A airplanes, Model BAe.125 series 800A airplanes, and Model Hawker 800 and Hawker 800XP airplanes. That supplemental NPRM was published in the Federal Register on May 9, 2005 (70 FR 24341). That supplemental NPRM proposed to require inspecting to determine the current rating of the circuit breakers of certain cockpit ventilation and avionics cooling system blowers; and replacing the circuit breakers and modifying the blower wiring, as applicable.

We provided the public the opportunity to participate in the development of this AD. We received no comments on the NPRM or on the determination of the cost to the public.

We have carefully reviewed the available data and determined that air safety and the public interest require adopting the AD as proposed.

There are about 350 airplanes of the affected design in the worldwide fleet. This AD will affect about 250 airplanes of U.S. registry. The required inspection will take about 1 work hour per airplane, at an average labor rate of $65 per work hour. Based on these figures, the estimated cost of this AD on U.S. operators is $16,250, or $65 per airplane.

Title 49 of the United States Code specifies the FAA's authority to issue rules on aviation safety. Subtitle I, Section 106, describes the authority of the FAA Administrator. Subtitle VII, Aviation Programs, describes in more detail the scope of the Agency's authority.

We are issuing this rulemaking under the authority described in Subtitle VII, Part A, Subpart III, Section 44701, “General requirements.” Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this rulemaking action.

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

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

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

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

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

We prepared a regulatory evaluation of the estimated costs to comply with this AD and placed it in the AD docket. See the ADDRESSES section for a location to examine the regulatory evaluation.

You may examine the AD docket on the Internet at http://dms.dot.gov or in person at the Docket Management Facility office between 9 a.m. and 5 p.m., Monday through Friday, except Federal holidays. The Docket Management Facility office (telephone (800) 647-5227) is located on the plaza level of the Nassif Building at the street address stated in the ADDRESSES section.

The FAA issued a notice of proposed rulemaking (NPRM) to amend 14 CFR part 39 to include an AD that would apply to certain Bombardier Model DHC-7-100, DHC-7-101, DHC-7-102, and DHC-7-103 airplanes. That NPRM was published in the Federal Register on March 15, 2005 (70 FR 12614). That NPRM proposed to require revising the Airworthiness Limitations section of the Instructions of Continued Airworthiness to include a new lower life limit for lower wing skins.

We provided the public the opportunity to participate in the development of this AD. We received no comments on the NPRM or on the determination of the cost to the public.

We have revised the applicability of the NPRM to identify model designations as published in the most recent type certificate data sheet for the affected models.

We have revised paragraph (h) of this AD to include reference to paragraph (g). Reference to that paragraph was inadvertently omitted from the NPRM.

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

This AD will affect about 3 airplanes of U.S. registry. The revision of the Airworthiness Limitations section will take about 1 work hour per airplane, at an average labor rate of $65 per work hour. Based on these figures, the estimated cost of the AD for U.S. operators is $195, or $65 per airplane.

Title 49 of the United States Code specifies the FAA's authority to issue rules on aviation safety. Subtitle I, section 106, describes the authority of the FAA Administrator. Subtitle VII, Aviation Programs, describes in more detail the scope of the Agency's authority.

We are issuing this rulemaking under the authority described in subtitle VII, part A, subpart III, section 44701, “General requirements.” Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this rulemaking action.

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

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

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

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

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

We prepared a regulatory evaluation of the estimated costs to comply with this AD and placed it in the AD docket. See the ADDRESSES section for a location to examine the regulatory evaluation.

You may examine the AD docket in person at the Docket Management Facility office between 9 a.m. and 5 p.m., Monday through Friday, except Federal holidays. The Docket Management Facility office (telephone (800) 647-5227) is located on the plaza level of the Nassif Building at the street address stated in the ADDRESSES section. This docket number is FAA-2005-20661; the directorate identifier for this docket is 2004-NM-261-AD.

The FAA issued a notice of proposed rulemaking (NPRM) to amend 14 CFR part 39 to include an AD that would apply to certain Boeing Model 747-200B, 747-300, 747-400, and 747-400D series airplanes. That NPRM was published in the Federal Register on March 22, 2005 (70 FR 14428). That NPRM proposed to require modifying the lateral shear beam for the Door 5 crew rest and, for certain airplanes, replacing the Zone E tie rods and modifying the Zone E stowbin ladder.

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

One commenter, the manufacturer, supports the proposed AD.

One commenter requests that the compliance time of 5 years to accomplish the actions specified in the proposed AD be shortened substantially. The commenter states that a 5-year compliance time is too long given that the affected lateral shear beam does not meet the 9G forward loading requirement.

We do not agree. The lateral shear beam has been substantiated to be structurally capable of carrying all flight, gust, and ground loads that may be encountered during normal operations by the subject Model 747-200B, 747-300, 747-400, and 747-400D series airplanes. The 9G forward loading requirement of section 25.561 (“General”) of the Federal Aviation Regulations (14 CFR 25.561) is an emergency landing load condition only and there is a very low probability that such loads will be encountered.

In developing the compliance time to adequately address the subject unsafe condition, we considered the degree of urgency associated with unsafe condition, the average utilization of the affected fleet, and the time necessary to perform the modification. In light of all of these factors, we found a compliance time of 60 months for completing the proposed modification to be warranted, in that it allows operators to schedule the modification during a routine heavy check and represents an appropriate interval of time for affected airplanes to continue to operate without compromising safety. This compliance time was coordinated with the manufacturer. We have not revised the final rule in this regard.

One commenter requests that the applicability be clarified. The commenter suggests adding wording to exclude freighters and special freighters. The commenter notes that the Door 5 crew rest is only applicable to passenger airplanes.

We agree that the proposed AD is applicable only to passenger models equipped with a Door 5 crew rest.

The applicability of the proposed AD includes Model 747-200B, 747-300, 747-400, and 747-400D series airplanes as identified in specific Boeing service bulletins. All of the airplanes identified in these service bulletins are passenger models equipped with a Door 5 crew rest; none of the airplanes identified in the service bulletins are freighters or special freighters. Therefore, it is not necessary to clarify the applicability to exclude freighters and special freighters. We have not revised the final rule in this regard.

We have carefully reviewed the available data, including the comments that have been received, and determined that air safety and the public interest require adopting the AD as proposed.

There are about 424 airplanes of the affected design in the worldwide fleet. This AD will affect about 65 airplanes of U.S. registry. The following table provides the estimated costs for U.S. operators to comply with this AD.

Title 49 of the United States Code specifies the FAA's authority to issue rules on aviation safety. Subtitle I, Section 106, describes the authority of the FAA Administrator. Subtitle VII, Aviation Programs, describes in more detail the scope of the Agency's authority.

We are issuing this rulemaking under the authority described in Subtitle VII, Part A, Subpart III, Section 44701, “General requirements.” Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this rulemaking action.

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

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

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

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

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

We prepared a regulatory evaluation of the estimated costs to comply with this AD and placed it in the AD docket. See the ADDRESSES section for a location to examine the regulatory evaluation.

This amendment to part 95 of the Federal Aviation Regulations (14 CFR part 95) amends, suspends, or revokes IFR altitudes governing the operation of all aircraft in flight over a specified route or any portion of that route, as well as the changeover points (COPs) for Federal airways, jet routes, or direct routes as prescribed in part 95.

The specified IFR altitudes, when used in conjunction with the prescribed changeover points for those routes, ensure navigation aid coverage that is adequate for safe flight operations and free of frequency interference. The reasons and circumstances that create the need for this amendment involve matters of flight safety and operational efficiency in the National Airspace System, are related to published aeronautical charts that are essential to the user, and provide for the safe and efficient use of the navigable airspace. In addition, those various reasons or circumstances require making this amendment effective before the next scheduled charting and publication date of the flight information to assure its timely availability to the user. The effective date of this amendment reflects those considerations. In view of the close and immediate relationship between these regulatory changes and safety in air commerce, I find that notice and public procedure before adopting this amendment are impracticable and contrary to the public interest and that good cause exists for making the amendment effective in less than 30 days.

The FAA has determined that this regulation only involves an established body of technical regulations for which frequent and routine amendments are necessary to keep them operationally current. It, therefore—(1) is not a “significant regulatory action” under Executive Order 12866; (2) is not a “significant rule” under DOT Regulatory Policies and Procedures (44 FR 11034; February 26, 1979); and (3) does not warrant preparation of a regulatory evaluation as the anticipated impact is so minimal. For the same reason, the FAA certifies that this amendment will not have a significant economic impact on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

Regulated Entities. Categories and entities potentially regulated by this action include:

This table is not intended to be exhaustive, but rather provides a guide for readers regarding entities likely to be regulated by this action. To determine whether your facility is regulated by this action, you should examine the applicability criteria in 40 CFR 63.7281 of the national emission standards for hazardous air pollutants (NESHAP) for coke ovens: pushing, quenching, and battery stacks. If you have any questions regarding the applicability of this action to a particular entity, consult the person listed in the preceding FOR FURTHER INFORMATION CONTACT section. Worldwide Web. In addition to being available in the docket, an electronic copy of today's final rule amendments will also be available on the Worldwide Web (WWW) through the Technology Transfer Network (TTN). Following the Administrator's signature, a copy of the final rule amendments will be placed on the TTN's policy and guidance page for newly proposed or promulgated rules at http://www.epa.gov/ttn/oarpg . The TTN provides information and technology exchange in various areas of air pollution control.

Judicial Review. Under section 307(b)(1) of the Clean Air Act (CAA), judicial review of the final rule amendments is available only by filing a petition for review in the U.S. Court of Appeals for the District of Columbia Circuit by October 3, 2005. Under section 307(d)(7)(B) of the CAA, only an objection to the final rule amendments that was raised with reasonable specificity during the period for public comment can be raised during judicial review. Under CAA section 307(b)(2), the requirements established by the final rule amendments may not be challenged later in civil or criminal proceedings brought by EPA to enforce these requirements.

Outline. The information presented in this preamble is organized as follows:

On April 14, 2003 (68 FR 18008), EPA issued the NESHAP for pushing, quenching, and battery stacks at new and existing coke oven batteries (40 CFR part 63, subpart CCCCC). The NESHAP implement section 112(d) of the CAA by requiring all major sources to meet emission standards for hazardous air pollutants reflecting application of the maximum achievable control technology.

After publication of the NESHAP, the American Iron and Steel Institute (AISI)/American Coke and Coal Chemicals Institute (ACCCI) Coke Oven Environmental Task Force (COETF) filed a petition for review challenging the final rule ( AISI/ACCCI Coke Oven Environmental Task Force v. U.S. Environmental Protection Agency , No. 03-1167, D.C. Cir.). The petitioners raised issues concerning:

• The provisions requiring owners or operators of coke plants having a pushing emission control device to install, operate and maintain devices to monitor daily average fan motor amperes (or volumetric flow rate at the inlet of the control device and maintain daily average volumetric flow rate) at or above minimum levels established during initial performance tests. These provisions are included in 40 CFR 63.7290, 63.7323(c), 63.7326(a)(4), 63.7330(d), 63.7331(g) and (h), and 63.7333(d).

• The provisions requiring monthly inspections of pressure sensors, dampers, damper switches and other equipment important to the performance of the total emissions capture system which also require that a facility's operation and maintenance plan include requirements to repair any defect or deficiency in the capture system before the next scheduled inspection. These provisions are included in 40 CFR 63.7300(c)(1).

Amendments developed to resolve these concerns were set out in attachment A to a proposed settlement agreement between EPA and COETF. In accordance with CAA section 113(g), we published a notice of the proposed settlement agreement (69 FR 31372, June 3, 2004) and provided a 30-day comment period which ended July 6, 2004. We received no comments on the proposed settlement agreement.

On October 13, 2004, we issued a direct final rule (69 FR 60813) and a parallel proposal (69 FR 60837) to amend the NESHAP. We stated in the preamble to the direct final rule and parallel proposal that if we received significant adverse comments by November 12, 2004 (or by November 29, 2004 if a public hearing was requested), we would publish a timely withdrawal in the Federal Register indicating which provisions would become effective and which provisions would be withdrawn due to adverse comment. We subsequently received an adverse comment from one commenter on the provisions related to the operation and maintenance requirements and withdrew the amendments to 40 CFR 63.7300(c)(1) on January 10, 2005 (70 FR 1670). The remaining provisions, for which we did not receive any adverse comments, became effective on January 11, 2005. After full and careful consideration of the comment, we are promulgating the amendments previously withdrawn based on the parallel proposal published on October 13, 2004.

The final rule amendments affect the requirement in 40 CFR 63.7300(c)(1) for the repair of any defect or deficiency in the capture system before the next scheduled inspection. In the event a defect or deficiency is found in the capture system (during a monthly inspection or between inspections), the final rule amendments require the plant owner or operator to complete repairs within 30 days after the date that the defect or deficiency is discovered. If the repairs cannot be completed within 30 days, the plant owner or operator must submit a written request to the permitting authority for an extension of time to complete the repairs. The permitting authority must receive the request no more than 20 days after the date that the defect or deficiency is discovered. The request must contain a description of the defect or deficiency, the steps needed and taken to correct the problem, the interim steps being taken to mitigate the emissions impact of the defect or deficiency, and a proposed schedule for completing the repairs. The request is deemed approved unless and until such time as the permitting authority notifies the plant owner or operator that it objects to the request. The permitting authority may consider all relevant factors in deciding whether to approve or deny the request (including feasibility and safety). Each approved schedule must provide for completion of repairs as expeditiously as practicable, and the permitting authority may request modifications to the proposed schedule as part of the approval process.

We are also making a minor technical clarification to the sampling procedures in 40 CFR 63.7322(b)(2). This clarification is simply that the minimum sample volume is measured as “dry standard” cubic feet.

We received one significant adverse comment on the amendments contained in the parallel proposal published on October 13, 2004. The commenter objected to the proposed requirement that would have allowed the owner or operator an additional 30 days (a total of 60 days) to repair a defect in the capture system applied to pushing emissions. The commenter stated that EPA had many years of experience in reviewing malfunction reports and suggested that any such extension be restricted to specific defects and historical repair times.

We reviewed the proposal and discussed in detail with coke plant operators the types of defects that might require 60 days to repair and their frequency of occurrence. Such defects occur very infrequently and are usually related to structural problems that require an engineering evaluation, scheduling a contractor to make the repairs, and coordinating with the plant's production schedule to allow the repair to be made safely. It is not possible to identify in advance what defects may require more than 30 days, and the events are so infrequent, there is not much historical information on repair times. However, we agree with the commenter in that EPA or the permitting authority should decide when additional time is needed, and that this decision should not be left solely to the discretion of the owner or operator. Consequently, we have revised the operation and maintenance requirement to require the owner or operator to submit a request for approval by the permitting authority for an extension of time to complete a repair that cannot be completed within 30 days. The request must be received by the permitting authority within 20 days after the defect is first discovered. The owner or operator must provide enough information for the permitting authority to evaluate the request, including a description of the defect, the steps needed and taken to correct the problem, the interim steps being taken to mitigate the emissions impact of the defect, and a proposed schedule for completing the repairs. The permitting authority may approve or disapprove the request or request additional information to aid in the decision.

The commenter also suggested that the owner or operator notify EPA by fax within 24 hours of finding a deficiency with confirmation in writing by mail within 7 days. We do not agree that this notification is necessary because the notification and recordkeeping requirements for startups, shutdowns, and malfunctions (SSM) in 40 CFR 63.6(e) of the General Provisions (40 CFR part 63, subpart A) are in full effect in this case. The specific requirements in these amendments for capture systems as applied to pushing emissions are in addition to the SSM requirements and do not replace them. The SSM notification requirements have been designed to provide the permitting authority with timely and relevant information in the event that all steps in the SSM plan are not implemented. These requirements attempt to strike a balance between providing relevant information and avoiding unnecessary reporting of minor events ( e.g., when a malfunction is promptly corrected) that would increase the burden to both the permitting authority and the owner or operator.

The final rule amendments will have no effect on environmental, energy, or non-air health impacts because none of the changes affect the stringency of the existing emission limits. No costs or economic impacts are associated with the amendments.

Under Executive Order 12866 (58 FR 51735, October 4, 1993), the EPA must determine whether the regulatory action is “significant” and, therefore, subject to review by the Office of Management and Budget (OMB) and the requirements of the Executive Order. The Executive Order defines a “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 entitlement, 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.

It has been determined that this action is not a “significant regulatory action” under the terms of Executive Order 12886 and is, therefore, not subject to OMB review.

This action does not impose any new information collection burden. The costs of the information collection requirements associated with the amendments to the operation and maintenance requirements do not increase the existing burden estimates for the final rule. The OMB has previously approved the information collection requirements in the existing rule (40 CFR part 63, subpart CCCCC) under the provisions of the Paperwork Reduction Act, 44 U.S.C. 3501 et seq. and has assigned OMB control number 2060-0521, EPA ICR number 1995.02. A copy of the OMB approved Information Collection Request (ICR) may be obtained from Susan Auby, Collection Strategies Division, U.S. Environmental Protection Agency (2822T), 1200 Pennsylvania Ave., NW., Washington, DC 20460 or by calling (202) 566-1672.

Burden means the total time, effort, or financial resources expended by persons to generate, maintain, retain, or disclose or provide information to or for a Federal agency. This includes the time needed to review instructions; develop, acquire, install, and utilize technology and systems for the purpose of collecting, validating, and verifying information; adjust the existing ways to comply with any previously applicable instructions and requirements; train personnel to respond to a collection of information; search existing data sources; complete and review the collection of information; and transmit or otherwise disclose the information.

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. The OMB control number for EPA's regulations are listed in 40 CFR part 9.

The EPA has determined that it is not necessary to prepare a regulatory flexibility analysis in connection with the final rule amendments. For purposes of assessing the impact of today's final rule amendments on small entities, small entity is defined as: (1) A small business, as defined by the Small Business Administration's regulations at 13 CFR 121.201; (2) a small governmental jurisdiction that is a government of a city, county, town, school district or special district with a population of less than 50,000; and (3) a small organization that is any not-for-profit enterprise which is independently owned and operated and is not dominant in its field.

After considering the economic impacts of today's final rule amendments on small entities, EPA has concluded that this action will not have a significant economic impact on a substantial number of small entities. In determining whether a rule has a significant economic impact on a substantial number of small entities, the impact of concern is any significant adverse economic impact on small entities, since the primary purpose of the regulatory flexibility analyses is to identify and address regulatory alternatives “which minimize any significant economic impact of the proposed rule on small entities” (5 U.S.C. 603 and 604). Thus, an agency may conclude that a rule will not have a significant economic impact on a substantial number of small entities if the rule relieves regulatory burden, or otherwise has a positive economic effect on all of the small entities subject to the rule.

We believe there will be a positive impact on small entities because the final rule amendments increase flexibility by providing more time for plants to make repairs that can not be completed within 30 days. These changes are voluntary and do not impose new costs. We have, therefore, concluded that today's final rule amendments will relieve regulatory burden for all small entities.

Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), Public Law 104-4, establishes requirements for Federal agencies to assess the effects of their regulatory actions on State, local, and tribal governments and the private sector. Under section 202 of the UMRA, the EPA generally must prepare a written statement, including a cost-benefit analysis, for proposed and final rules with “Federal mandates” that may result in expenditures by State, local, and tribal governments, in the aggregate, or by the private sector, of $100 million or more in any 1 year. Before promulgating an EPA rule for which a written statement is needed, section 205 of the UMRA generally requires the EPA to identify and consider a reasonable number of regulatory alternatives and adopt the least costly, most cost-effective, or least-burdensome alternative that achieves the objectives of the rule. The provisions of section 205 do not apply when they are inconsistent with applicable law. Moreover, section 205 allows the EPA to adopt an alternative other than the least-costly, most cost-effective, or least-burdensome alternative if the Administrator publishes with the final rule an explanation why that alternative was not adopted. Before the EPA establishes any regulatory requirements that may significantly or uniquely affect small governments, including tribal governments, it must have developed under section 203 of the UMRA a small government agency plan. The plan must provide for notifying potentially affected small governments, enabling officials of affected small governments to have meaningful and timely input in the development of EPA regulatory proposals with significant Federal intergovernmental mandates, and informing, educating, and advising small governments on compliance with the regulatory requirements.

EPA has determined that the final rule amendments do not contain a Federal mandate that may result in expenditures of $100 million or more for State, local, and tribal governments, in the aggregate, or to the private sector in any 1 year. No new costs are attributable to the final rule amendments. Thus, the final rule amendments are not subject to the requirements of sections 202 and 205 of the UMRA. In addition, the final rule amendments do not significantly or uniquely affect small governments because they contain no requirements that apply to such governments or impose obligations upon them. Therefore, the final rule amendments are not subject to section 203 of the UMRA.

Executive Order 13132 (64 FR 43255, August 10, 1999) requires EPA to develop an accountable process to ensure “meaningful and timely input by State and local officials in the development of regulatory policies that have federalism implications.” “Policies that have federalism implications” is defined in the Executive Order to include regulations that have “substantial direct effects on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government.”

The final rule amendments do not have federalism implications. 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, as specified in Executive Order 13132. None of the affected plants are owned or operated by State governments. Thus, Executive Order 13132 does not apply to the final rule amendments.

Executive Order 13175 (65 FR 67249, November 6, 2000) requires EPA to develop an accountable process to ensure “meaningful and timely input by tribal officials in the development of regulatory policies that have tribal implications.” The final rule amendments do not have tribal implications, as specified in Executive Order 13175. No tribal governments own or operate any plants subject to the NESHAP for coke oven pushing, quenching, and battery stacks. Thus, Executive Order 13175 does not apply to the final rule amendments.

Executive Order 13045 (62 FR 19885, April 23, 1997) applies to any rule that: (1) Is determined to be “economically significant,” as defined under Executive Order 12866, and (2) concerns an environmental health or safety risk that EPA has reason to believe may have a disproportionate effect on children. If the regulatory action meets both criteria, the EPA must evaluate the environmental health or safety effects of the planned rule on children and explain why the planned regulation is preferable to other potentially effective and reasonably feasible alternatives considered by the Agency.

We interpret Executive Order 13045 as applying only to those regulatory actions that are based on health or safety risks, such that the analysis required under section 5-501 of the Executive Order has the potential to influence the regulation. The final rule amendments are not subject to Executive Order 13045 because the final rule (and these amendments) are based on technology performance and not on health or safety risks.

These final amendments are not subject to Executive Order 13211 (66 FR 28355, May 22, 2001) because they are not a significant regulatory action under Executive Order 12866.

Section 112(d) of the National Technology Transfer and Advancement Act (NTTAA) of 1995 (Pub. L. 104-113; 15 U.S.C. 272 note) directs the EPA to use voluntary consensus standards (VCS) in their regulatory and procurement activities unless to do so would be inconsistent with applicable law or otherwise impracticable. VCS are technical standards (e.g., material specifications, test methods, sampling procedures, business practices) developed or adopted by one or more voluntary consensus bodies. The NTTAA requires EPA to provide Congress, through the OMB, explanations when the Agency decides not to use available and applicable VCS.

This action does not involve technical standards. Therefore, EPA is not considering the use of any VCS.

The Congressional Review Act, 5 U.S.C. 801 et seq., as added by the Small Business Regulatory Enforcement Fairness Act of 1996, generally provides that before a rule may take effect, the agency promulgating the rule must submit a rule report, which includes a copy of the rule, to each House of the Congress and to the Comptroller General of the United States. The EPA will submit a report containing the final rule amendments and other required information to the U.S. Senate, the U.S. House of Representatives, and the Comptroller General of the United States prior to publication of the final rule amendments in the Federal Register . A major rule cannot take effect until 60 days after its publication in the Federal Register . This action is not a “major rule” as defined by 5 U.S.C. 804(2). The final rule amendments will be effective on August 2, 2005.

Several of the background documents for the ALWTRP and the take reduction planning process can be downloaded from the ALWTRP web site at http://www.nero.noaa.gov/whaletrp/ .

The ALWTRP was developed pursuant to section 118 of the Marine Mammal Protection Act (MMPA) to reduce the incidental mortality and serious injury of three endangered species of whales (right, fin, and humpback) due to incidental interaction with commercial fishing activities. In addition, the measures identified in the ALWTRP would provide conservation benefits to a fourth species (minke), which are neither listed as endangered nor threatened under the Endangered Species Act (ESA). The ALWTRP, implemented through regulations codified at 50 CFR 229.32, relies on a combination of fishing gear modifications and time/area closures to reduce the risk of whales becoming entangled in commercial fishing gear (and potentially suffering serious injury or mortality as a result).

On January 9, 2002, NMFS published the final rule to implement the ALWTRP's DAM program (67 FR 1133). On August 26, 2003, NMFS amended the regulations by publishing a final rule, which specifically identified gear modifications that may be allowed in a DAM zone (68 FR 51195). The DAM program provides specific authority for NMFS to restrict temporarily on an expedited basis the use of lobster trap/pot and anchored gillnet fishing gear in areas north of 40° N. lat. to protect right whales. Under the DAM program, NMFS may: (1) require the removal of all lobster trap/pot and anchored gillnet fishing gear for a 15-day period; (2) allow lobster trap/pot and anchored gillnet fishing within a DAM zone with gear modifications determined by NMFS to sufficiently reduce the risk of entanglement; and/or (3) issue an alert to fishermen requesting the voluntary removal of all lobster trap/pot and anchored gillnet gear for a 15-day period and asking fishermen not to set any additional gear in the DAM zone during the 15-day period.

NMFS published a final rule in the Federal Register on November 3, 2003 (68 FR 62250), implementing a process, for years in which the full Winter I commercial scup quota is not harvested, to allow unused quota from the Winter I period to be added to the quota for the Winter II period, and to allow adjustment of the commercial possession limits for the Winter II period commensurate with the amount of quota rolled over from the Winter I period. Table 5 of the final 2005 quota specifications for summer flounder, scup, and black sea bass (70 FR 303, January 4, 2005) presented detailed information regarding Winter II possession limits, based on the amount of scup to be rolled over from Winter I to Winter II.

For 2005, the Winter II quota is 1,949,962 lb (884,487 kg), and the best available landings information indicates that 2,223,502 lb (1,008,564 kg) remain of the Winter I quota of 5,518,367 lb (2,503,089 kg). Consistent with the intent of Framework 3, the full amount of unused 2005 Winter I quota is transferred to Winter II, resulting in a revised 2005 Winter II quota of 4,173,464 lb (1,893,051 kg). In addition to the quota transfer, the 2005 Winter II possession limit is increased, consistent with the rollover specifications established in the 2005 final rule (70 FR 303), to 3,500 lb (1,588 kg) per trip to provide an appropriate opportunity for fishing vessels to obtain the increased Winter II quota.

This action is required by 50 CFR part 648 and is exempt from review under Executive Order 12866.